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Financial Institutions with a “Double Bottom Line”: Implications for the Future of Microfinance

This paper begins with an important clarification of data citing over 750 million savings and loan accounts in financial institutions that focus on clients that are generally below the level served by commercial banks.

The authors notes read “A correct statement of this paper’s main conclusion is that there are over 750 million accounts in various classes of financial institutions that are generally aimed at markets below the level of commercial banks, and that some substantial fraction of these institutions’ clients are probably poor or near-poor, This message is not that the task is nearly done (anyone with field experience knows this to be untrue), but rather that these institutions represent an important potential opportunity”.

The paper refers to institutions that have a “double bottom line” as those that focus to some extent on providing financial services downward from the economic level of the traditional clients of commercial banks. As well as a financial objective, they also have a developmental or social objective. The paper suggests that the managers of these institutions would class the latter objective as primary and that sound financial performance was there to merely enable the institutions to achieve this. This paper refers to these institutions as “alternative financial institutions” (AFIs). Specialised MFIs are distinguished from other AFIs by the reasoning that they tend to be more specifically focused on the poor and near-poor, not just the unbanked.

The research reported in this paper suggests that specialised MFIs account for a relatively small proportion of the total savings and loan services delivered by AFIs. It argues that while governments, donors, and other interested in the outreach of microfinance should continue to foster the growth of high-performing MFIs, these stakeholders also need to think about the opportunities and challenges presented by the other AFIs. Yet despite their vast outreach, the paper notes that AFIs probably serve only a minority of the unbanked clientele they were created for, and many suffer significant limitations.

This paper reports the results of the CGAP survey of the global outreach of AFIs, then discusses in more details the characteristics of the types of institutions that were surveyed, and finally suggests some strategic implications for those who want to help develop financial systems that work for poor people. The annex discusses methodology, as well as some key limitations of the data used.