Microfinance in Evolution: An Industry Between Crisis and Advancement

This paper examines past trends and structural developments in the microfinance market in order to understand how problems in microfinance evolved. It relates the widespread decrease in MFI performance to market growth, change in client base, and lending methodology. It concludes by discussing how focus on client needs can help reconcile financial and social objectives. The paper states that microfinance experienced its first serious setback in 2008 following the international financial crisis and global recession. Excessive market growth combined with insufficient institutional capabilities caused problems in many countries. Excessive profit-orientation in some parts of the market affected social objectives and raised moral hazard among MFI staff and clients. The paper advocates a socio-commercial approach for microfinance to serve the poor. It highlights the need for microfinance to:

• Balance social and commercial objectives, in order to sustain growth;
• Put client focus back at the core of operations;
• Constantly evaluate the social impact of microlending;
• Inculcate a culture of social responsibility among MFI owners, managers, and staff;
• Strengthen market infrastructure by establishing credit bureaus and information networks;
• Improve microfinance regulation.