A Challenge to Flat Earth Thinking in Microfinance

Examining the relevance of good microfinance practice rules
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This note challenges the relevance in today's world of some of the rules of good microfinance practice propagated until now. These principles included (but were not limited to):

  • MFIs must adopt the principle of "zero tolerance of delinquency" in order to minimize default;
  • There must be a continuous effort to limit operating costs in order to deliver microfinance at the lowest possible price to low income clients;
  • Microfinance services must be offered by specialist MFIs in order to ensure that there are no conflicts of interest that confuse MFI managements, staff, or borrowers;
  • MFIs should focus on growth in order to maximize outreach to the vast numbers of financially excluded families across the globe.

This note argues that, while these principles may have been appropriate at the time when they were formulated, their time passed a few years ago. The entrenchment of these principles as microfinance orthodoxy is now damaging the development objectives of financial inclusion to serve the needs of poor and facilitating income enhancement.

About this Publication

By Sinha, S.