Why Scale is lmportant and How to Achieve it

Paper
Date Published: 
Jan 2010
Author: 
Hodgso, S.
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Achieving scale in microfinance

This article discusses the importance of scale in microfinance. It identifies barriers to achieving scale in non-profit financial institutions and suggests ways in which institutions can scale up at various stages of their life cycle.

One of the most effective ways for MFIs to provide the best product at the lowest cost to underserved markets is to establish an efficient and scalable operating platform. Factors that prevent MFIs from operating at scale include market distortions that reduce the need for operational efficiency, need for variety in value propositions, conflict of scalability with stakeholder interests, lack of infrastructure, cultural characteristics of non-profits, and inability to understand where the institution creates unique value.

The article suggests measures for achieving incremental improvement in operational efficiency. They include:

  • Identifying where unique value is created;
  • Starting with small steps;
  • Focussing on core operations;
  • Considering shared-ownership model for peripheral products and services;
  • Outsourcing of operations to scale providers.
Type: 
Paper