Banking on Social Entrepreneurship: The Commercialization of Microfinance

Two separate but equally virulent debates are now raging in the halls of private businesses, non-profit organizations, donor agencies, and academic institutions. One debate is over social entrepreneurship, and revolves around private gain versus social value added:

• Is it appropriate, or even possible, for a profit-seeking business to have a positive social impact without at the same time compromising its responsibilityto generate a reasonable return for its owners?
• Can a not-for-profit organization be run with the efficiency of a for-profit business without at the same time incurring significant mission drift?

The other debate is over sustainable microfinance, and also revolves around private gain versus social value added :

• Can regulated financial institutions, such as banks and finance companies, earn a profit from microfinance operations?
• Are the microfinance operations of non-governmental organizations (NGOs) sustainable without becoming regulated financial institutions?

These two seemingly separate disciplines, social entrepreneurship and sustainable microfinance, not only have matured dramatically over the past two decades, but they have also converged, so that the latter is actually a dramatic example of the successful application of the former.

This paper first describes each discipline as a self-contained concept, and then focus on their convergence. Next, the paper explores in greater detail the application of social entrepreneurship to the field of community banking by examining commercialized microfinance through regulated financial institutions. The paper concludes with a discussion of the importance of matching institutional models with their missions, and thus, the continued needfor non-commercialized microfinance to complement microfinance via regulated financial institutions.