Mission Drift in Microfinance

Studying the trade-off between the financial and social performance of MFIs
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This paper attempts to find empirical evidence on the phenomenon of mission drift. It takes into consideration investment decision-making indicators for foreign institutional investors in microfinance.

The research concentrates on the role of institutional and country risk indicators in predicting the financial and social performance of MFIs. The dataset contains data of 600 MFIs operating in 84 countries around the world in 2007. Findings include:

  • Rapidly commercializing MFIs show signs of mission drift, as the average loan size of an institution increases in response to a shift in the composition of clients;
  • Reaching out to wealthier clients, while crowding out poorer clients, enhances profitability;
  • Institutional and country risk indicators have strong influence over mission drift;
  • Young MFIs are more susceptible to mission drift, while more mature MFIs are more susceptible to reverse mission drift.

The paper suggests that MFIs can prevent the occurrence of mission drift by balancing profitability, cost efficiency and productivity of the institution.