Enamored with Scale: Scaling with Limited Impact in the Microfinance Industry

Abstract

In many ways, the microcredit industry is a scaling success story. With fewer than 10 million clients a decade ago, the industry now serves approximately 150 million clients and continues to grow, even through the economic downturn. In part, this growth is made possible by the very nature of microcredit—it is a service that clients both need and are able to purchase, enabling donated funds to be recycled many times. In addition, the industry as a whole has served a critical role in catalyzing growth. Cooperative efforts among industry stakeholder groups have led to the development of information exchanges, rating systems, and research efforts that have rapidly improved efficiency and professionalization of microfinance. Nonetheless, mission drift has become a real concern, and the industry has reached a point where additional scale does not guarantee increased social impact. Some markets are saturated and hyper-competitive, while enormous demand remains unfulfilled in difficult-to-serve markets and among clients whose credit needs fall beyond the narrow range of products currently offered. Continued questions about microcredit’s poverty-reducing potential continue to plague the industry, and high rates of client defection and over-indebtedness provide cause for alarm. Without significant changes in microfinance institution (MFI) management and business models required to serve client needs, further growth may harm the very clients the industry seeks to serve.