Microfinance, Commercialisation and Ethics

This paper discusses the conflict between moral standards and economic imperatives in setting up and operating MFIs. It states that it is best to adopt the commercial approach if microfinance is to have both, social and developmental impact. The paper disagrees with the criticism that the commercial approach is economically and ethically unsound.However, some recent events raise doubts as to whether the commercial approach has, in several cases, gone too far. An example is the Mexican MFI Compartamos, which brought out a financially successful IPO. Some MFIs have become so radically commercial that social and development considerations, which traditionally motivated interest in microfinance, seem to have lost their importance.Finally, the paper states that the conflict between commercial and developmental aspirations is not inevitable. In conclusion, it demonstrates how an MFI can use capital market strengths, while at the same time maintaining its developmental focus.