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The microfinance business model: Enduring subsidy and modest profit

Bob Cull's picture

Microfinance institutions aim to serve customers ill-served by traditional commercial banks and thus the associated business model is challenging by definition. And yet the industry has achieved impressive scale reaching 211  million customers globally in 2013. Paradoxically, recent evidence suggests that the benefits of microcredit to borrowers may be modest. For example, six prominent randomized controlled trials found small impacts of access to microcredit on the incomes and consumption levels of marginal borrowers, though the studies found some “potentially important” (though modest) impacts on “occupational choice, business scale, consumption choice, female decision power, and improved risk management.” (Banerjee et al., 2015, p. 14).

The New Advocates

Maya Brahmam's picture

Today, or so the conventional wisdom goes, if you have a compelling issue and a laptop, you can influence people and win hearts and minds in the process. Hence the rise of online advocates, such as Change.org, who run campaigns for groups like Amnesty International for a fee. See the related article in the Washington Post. In Change.org’s case, the general public can create online petitions for free and get help and visibility for their campaigns.

Change.org was originally conceived as a nonprofit, but now it and other companies with a social purpose, e.g., Patagonia Inc., are part of a new and emerging group of “benefit corporations.” What are these corporations and how will they affect us in the future?