Microcredit: Sound Business or Development Instrument?

Can outreach be sacrificed for profitability?
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This document deals with the lessons Okiocredit has learned in the course of almost 30 years of financing microfinance institutions (MFIs), with special focus on the debate concerning the issue of sustainability versus outreach. Note: Okiocredit is an ecumenical development cooperative society founded as an alternative investment instrument for churche.

The author discusses:

  • Banking the unbankables - the role of micro-credit in bringing essential financial services to millions of people who are too poor to be served by regular banks;
  • The "Grameen Approach".

The paper recommends that:

  • Existing MFIs should gradually increase outreach;
  • A number of bodies at the international level should inventories the funding demands of MFIs and work as an interface with potential funders;
  • MFIs should be invited to give a justification of the interest rates they charge;
  • Funders should refrain from enabling non-sustainable MFIs to offer subsidized interest rates.

The author concludes that:

  • Micro-credit has proved itself as an effective instrument of poverty alleviation;
  • Outreach and the mission of poverty alleviation are more important than immediate profits for an MFI.

About this Publication

By Van Maanen, G.