English, Article, Journal or magazine article edition: On Mission Drift In Microfinance Institutions Beatriz Armendariz; Ariane Szafarz

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Bookmark: http://trove.nla.gov.au/version/111124
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • On Mission Drift In Microfinance Institutions
Author
  • Beatriz Armendariz
  • Ariane Szafarz
Physical Description
  • preprint
Notes
  • This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as a “mission drift”: A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling–up. We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty–oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of “progressive lending” nor because of “cross–subsidization” but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific characteristics pertaining the heterogeneity of their clientele. In a simple one-period framework we pin-down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their mission. Because existing empirical studies cannot tear apart between mission drift and cross-subsidization, these studies should not guide donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in tearing apart cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia.
  • microfinance, mission drift, poverty reduction, cross-subsidization
  • RePEc:sol:wpaper:09-015
Language
  • English
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