Commercialization and Social Mission Drift – the transformation of microfinance in Latin America
This paper addresses the impact of commercialization on the strategy and performance of microfinance institutions (mfis) in Latin America. It explores the key elements of a commercial approach to microfinance and examines the microfinance landscape in Latin America and the different players in the field. It evaluates the profitability of Latin American microfinance and the impact of, as well as the responses to, competition. Finally, an important objective of this paper is to evaluate the major achievements of microfinance in Latin America not only against the initial mission of many microfinance institutions in the region—to generate employment and develop entrepreneurship—but also against the mission of providing financial services to a target group composed of the poorest of the working poor.
This paper will deal with following issues:
- Does the substantially larger average loan balance of regulated microfinance institutions represent a natural evolution toward a maturing target group, or does it represent mission drift? or
- Are today’s unregulated NGOs aiming at a target group poorer than the target group of the pioneering institutions that have transformed themselves into regulated entities?
These and other important issues are addressed on the basis of recent information from Latin America, attempting to provide a sense of the state of the industry in the region and the challenges it faces.