This paper discusses the so-called commercial approach to microfinance under economic and ethical aspects. It first shows how microfinance has developed from a purely welfare-oriented activity to a commercially relevant line of banking business. The background of this stunning success is the almost universal adoption of the commercial approach to microfinance in the course of the last decade. The author argues that this commercial approach is the only sound approach to adopt if microfinance is to have any social and developmental impact. Therefore, the widespread “moralistic” criticism of the commercial approach, which was again and again expressed in the 1990s, is ill-placed from an economic and an ethical perspective. However, some recent events in microfinance raise doubts as to whether the commercial approach has not, in a number of cases, gone too far. The evident example for such a development is Compartamos, the Mexican microfinance institution which recently undertook a financially extremely successful IPO. As it seems, some microfinance institutions have become so radically commercial that the social and development considerations, which traditionally motivated microfinance, seem to have lost their importance. Thus there is clearly a conflict between commercial and developmental aspirations. However, this conflict is not inevitable. The paper concludes by showing how a microfinance institution can try to use the strengths of the capital market while maintaining its developmental focus and importance.
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Find related papers by JEL classification: A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement F35 - International Economics - - International Finance - - - Foreign Aid O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
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