MICROCAPITAL.ORG PAPER WRAP-UP: Microfinance Mission Drift?, by Roy Mersland and R. Øystein Strøm

Written by Roy Mersland and R. Øystein Strøm, published in July 2009 by Elsevier Ltd., 9 pages, available at: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VC6-4WRD6C7-1&_user=142623&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1032771517&_rerunOrigin=scholar.google&_acct=C000000333&_version=1&_urlVersion=0&_userid=142623&md5=93709e08c2d88cfca1ce951dff7c457d

This paper studies the tendency of microfinance institutions (MFIs), as they grow, to cater to groups that are different from those in the “mission” of microfinance. Basically, this mission includes serving low-income people who have less access to credit, namely poor, rural women. To do this, loan size, the main market, lending methodology, and gender bias were studied in 379 MFIs in 74 counties. The MFIs reported 4-6 years of data each.

The main results are as follows: The average loan size in microfinance has not increased from 1999-2007. There has not been a move from group liability to individual liability loans. There has also not been an increased proportion of urban loans compared to the originally intended rural loans. Lastly, there is less gender bias more recently, meaning that the tendency to lend to females over males has decreased. Overall, the authors feel that there has not been a mission drift in microfinance.

The average loan size from 1999-2007 is USD 747.4, adjusted for purchasing power parody (PPP). The authors consider this to be a relatively small loan size. Furthermore, the average loan size has decreased by 2.2 percent from 1999 to 2007. This is seen by the authors as evidence that low-income borrowers are still being targeted by microfinance institutions.

Lending methodology was measured to compare group and individual lending. The authors found that most loans are individual. However, group lending increased by 3.3 percent during this period compared to individual lending. The authors view this as, traditionally, a goal of microfinance.

It has also been tradition that, ideally, MFIs would target rural regions instead of urban as they are generally thought to have less access to mainstream credit. The authors found that rural lending grew by 9.5 percent from 1999 to 2007 compared to urban lending.

Lastly, the authors find that there has been a decrease of 35 percent from 1999 to 2007 in terms of preference for female clients. Though this is different from the microfinance “mission,” it does indicate less gender bias. Therefore, the authors do not see this result as particularly harmful and claim that it does not necessarily indicate mission drift.

By Christopher Maggio, Research Assistant

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