Jared Mabey and Dr. Warner Woodworth, Organizational Behavior
Overview
This thesis shows that the microcredit movement=s fixation on reaching financial self-sustainability is causing microfinance institutions to cease to achieve important objectives, namely: 1) reaching the poorest of the poor, and 2) providing bank members with social benefits.
As a response to these problems, this thesis offers possible solutions that support the attainment of financial self-sufficiency, but only within the foundational framework of reaching the poorest of the poor and providing them with social benefits. The thesis references the microfinance institution, Accion Contra La Pobreza, which shows how the implementation of these some of these solutions can be achieved.
Executive Summary
Drift From the Poorest
Microcredit is a revolutionary form of humanitarian aid that has the potential to become financially selfsustaining. Because of this unique potential many microfinance institutions have ceased lending to the poorest of the poor because of the higher costs associated with reaching that group. Thus, many microfinance institutions have experienced mission drift and are reaching financial self-sustainability while neglecting to reach that sector of the population, which needs the most assistance.
Drift From Social Benefits and Opportunities for Empowerment
The quest for financial self-sustainability has also led microfinance institutions away from providing social benefits, including education and opportunities for empowerment. The lack of these opportunities and benefits may greatly decrease the effects that microcredit will have on the long-term reduction of poverty.
However, microfinance institution, FINCA Honduras (which provides very little education but does provide opportunities for empowerment), has made a strong, positive impact on the lives of its borrowers.
Possible Solutions
In order to attain financial self-sustainability while still effectively reaching and impacting the microfinance institution=s target population, microfinance institutions must first decide which population they intend to reach. The microfinance institution must then plan how that population will be reached and how the desirable impact will be attained. Within that framework, the MFI should then plan how they will attempt to attain financial self-sustainability, without sacrificing their goals to reach their target population and achieve the desired impact.
ACP
ACP is an example of a microcredit program (started by students from Brigham Young University) that is attempting to financial self-sustainability without abandoning its goals of reaching the poorest of the poor (its target population) and having a positive long-term impact on reducing that population=s level of poverty. ACP’s methodology includes screening tests to ensure that only the poorest of the poor are reached. Its methodology also includes various opportunities for empowerment and numerous social benefits.
References
- Anthon, Rebekah, E. and Davis, Aaron H. (2000). Accion Contra la Pobreza. Tegucigalpa, Honduras: H.E.L.P. International.
- Dunford, Christopher. (1998). MICROFINANCE: A MEANS TO WHAT END? Speech prepared for delivery in La Paz, Bolivia: Freedom From Hunger.
- MicrocreditSummit.org. (1999). Web link, Meeting the Challenge of Reaching the Poorest: Microcredit Summit Campaign Report.
- Richardson, David C. (2000). “Unorthodox Microfinance: The Seven Doctrines of Success”. MicroBanking Bulletin.
- Rosenberg, Richard. (1996). “Occasional Paper No. 1, Microcredit Interest Rates”. CGAP.org.
- Yunus, Muhammad. (1995). The Grameen Reader. Chittagong, Bangladesh: Packages Corporation Limited.