Microfinance: Making Profit for the Poor
This paper discusses commercialization of microfinance. It identifies strengths and weaknesses of commercialization and suggests policy implications.
The paper states that the main benefits of commercialization for MFIs are better access to sources of funds, opportunity to mobilize savings and improvement in quality and price of services. The possible disadvantages include risk of exclusion of the poorest, standardization of procedures around a set of best practices, excessive interest rates in cases of MFIs with local monopoly, and mission drift. The paper discusses the following key aspects of commercialization:
- Legal statutes, down-scaling and up-scaling approaches to commercialization;
- Competition and market differentiation;
- Cost coverage and profit-making strategies.
The paper suggests that while commercialization can be favored for standard services, subsidized non-profits are better suited for working with the poorest sections and handling new methodologies or products. Policy implications include the need for analyzing existing regulations, adopting specific regulations when necessary, training staff, supporting rating agencies and establishing credit bureaus.
