Paper

Has Microfinance Lost its Moral Compass?

Discussing the moral compass of South Asian MFIs
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This paper examines whether MFIs increasingly focus on financial performance and neglect their declared social mission of poverty reduction and empowerment. It states that the employees of many MFIs have personal financial performance targets, and this has made the impact of loans on client welfare a secondary issue. The research is based on examination of empirical evidence from Bangladesh and review of other detailed studies discussing the grassroots practices of microfinance. The paper finds that most commercially driven MFIs in South Asia have experienced a moral drift and they take little responsibility for the social consequences of their engagement with clients. It also suggests that a purely commercial approach to microfinance has fostered the neglect of the declared social mission of MFIs and has misaligned mission and practice. The paper covers the following sections in detail:
  • How mainstream finance and microfinance lost its moral compass;
  • Neo-liberal microfinance in practice at a community level and at an MFI level in Bangladesh;
  • Discussion of the role of a loan officer in present context and an evaluation of whether microfinance is working in South Asia;
  • Relationship between mainstream finance and microfinance;
  • Recommendations for improving the social performance of MFIs.

About this Publication

By Hulme, D. , Maitrot, M.
Published