The Importance of the Link Between Socially Responsible Investors and Microfinance Institutions

Banks are essential intermediaries for the sound development of an economy, functioning as the Link between those who provide capital and those who need to borrow. This is a core task and the current crisis has provided a wake-up call about the role and importance of this Link. This core function is also at the heart of microfinance; thus, between capital providers, here referred to as socially responsible investors (SRIs) and Microfinance Institutions (MFIs) which in turn reach out to microentrepreneurs; thus, the underserved people who want to invest in potentially profitable projects of their choice.In this paper, we first discuss the relevance of the Link between socially responsible investors and MFIs. Second, we address the extent to which the Link fosters social impact investment illustrated by the examples of women's empowerment, better health and education. Third, the critical role of achieving sustainability is highlighted. Fourth, the need for increased efficiency throughout the microfinance value chain, hence from SRIs to lending to microentrepreneurs, is discussed. Fifth, as particularly critical for the Link, we consider the commitment to the microfinance mission, especially in the light of the socially responsible investors. Last but not least, we discuss two current challenges, both having the potential to destabilize the Link at the macroeconomic level: Does microfinance lead to a boost of the informal economy rather than sustainable development? What if the international capital flow is significantly reduced in the coming years due to the 2008 financial crisis?