Managing Growth: The Organizational Architecture of Microfinance Institutions

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This document was written to provide microfinance practitioners with ideas and suggestions to assist them with the challenging task of managing growth. It notes that the traditional approach to managing growth relies on standardization and replication. Although this approach is valid, particularly for MFIs that do not operate in competitive markets, this study draws on lessons from upheavals in the corporate world where many businesses have realized that bigger is not always better. In the face of heavy competition, many corporations are reorganizing and “right sizing” in line with new thinking on growth management. As the microfinance industry matures and MFIs experience increased competition, this study argues that they are likely to conclude that lessons from the business world are increasingly applicable.

Managing growth incorporates all aspects of MFIs. This document uses the metaphor of “organizational architecture” as a framework for analyzing and designing three inter-related components that are essential to managing growth: (1) institutional culture, (2) human resource development, and (3) organizational structure.

The document begins by defining the term “organizational architecture”. It notes that it requires an inclusive view of the elements of design and of the social and work systems that make up a large and growing corporation. Organizational architecture includes the formal structure, such as the design of work practices; the nature of the informal organization or operating style; and the process for selection, socialization, and development of people. As companies gain equal access to capital and as many technologies mature and become widespread, organizations will gain a competitive advantage primarily from their ability to deploy and leverage the efforts of the people in the organization.

Following this, the study starts with a discussion on “understanding growth”. This includes sections covering the pressure to grow, approaches to managing growth and microfinance growth strategies. The bulk of the paper then provides a detailed analysis of each of the three areas noted as essential for managing growth.

The conclusion notes that managing growth, as defined by the three elements of organizational architecture, is the process of building solid and lasting institutions. The conclusion then considers some of the lessons from the business literature on these three subtopics as they pertain to three levels of institutional development: (1) subsidy dependent; (2) operationally efficient; and (3) financially self-sufficient.

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