The Commercial Model for Microfinance and its Effects on Social Inclusion

This article highlights the concern about the growing commercialisation of microfinance, and whether this approach, based on a competitive market, runs the risk of hiding the reasons why microfinance was created and developed in the first place. This issue of “Zoom Microfinance” attempts to further develop the debate on the commercialisation of microfinance and social inclusion.

The minimalist approach to “social conclusion” considers that the fact of creating a microfinance organisation increases access to sustainable financial services through the granting of new or existent services at a lower price for the borrower/saver – hence there is an immediate social impact. The “maximalist” approach suggests the improvement of the social situation can be measured in obvious improvements in the fields of health, education and culture or through the participation in the process of democratic representation.

The paper summarises the possible shortcomings of a commercial approach to microfinance with the following four points:”

  1. The exclusion of certain beneficiaries (generally the poorest)
  2. A tendency to use a unique type of “best practices” to the detriment of local adaptations and innovation
  3. The risk of overly high fees imposed by commercially orientated organisations acting as monopoly/oligopoly at the local level (a perfectly likely case despite the little research up to date)
  4. The risk of losing sight of the original mission, targets and processes in the framework of ill-willed competition

The paper then argues that a link between “commercialisation” and “social inclusion” will depend on the interpretation of the two approaches to social inclusion described above. It suggests that according to the minimalist theory, the commercial approach of microfinance is an essential aspect to improve the situation of clients/beneficiaries. However, in the “maximalist” approach, the impact studies are more widely accepted and upon certain circumstances the commercial approach of microfinance could jeopardise the beneficiaries’ social inclusion.

In sum, the paper states given the current state of microfinance, we believe that many different approaches can coexist based on a great variety of organisations. It would be a mistake to underestimate the “moral” objections offered by the commercial approach (they are even understandable). Likewise, it would be equally wrong to overestimate such a model and consider it as the only possible reference. For example the paper notes that more delicate situations (isolated rural areas, conflict or post-conflict areas) clearly require «corrective» measures to a purely commercial approach to prevent the creation of a new generation of people excluded from financial services.

A number of case study examples are also referred to.

  • Resource type
  • Author M. Labie y M. Mees
  • Organisation
  • Year of Publication2005
  • Region
  • LanguageEnglish
  • Number of pages8 pp.
  • EditionZOOM Microfinanzas

Related Resources