Microfinance started as a simple idea: to provide loans to poor entrepreneurs. Today it is a much more diverse and dynamic sector, and includes institutions that provide savings and remittance services, sell insurance, and offer loans for a wide range of purposes. The idea now is to focus on bringing a range of financial services to the underserved. The institutions that focus on this mission vary in the income levels of the customers they serve, their use of subsidies, and the breadth and quality of services offered. This diversity also presents microfinance providers new opportunities as well as trade-offs.
When Muhammad Yunus and Grameen Bank won the Nobel Peace Prize in 2006, the world community celebrated the ways that expanding financial access can improve the lives of the poor. Many microfinance “insiders” have been working toward a second goal as well: to find ways to provide microfinance on a commercial basis, without long-term subsidies. The argument that microfinance institutions should seek profits has an appealing “win-win” resonance, admitting little trade-off between social and commercial objectives. Should institutions move up-market to provide larger loans and improve financial performance? Is deposit-taking feasible at such scales? Can socially-minded institutions survive commercial competition and regulation without re-defining their mission?