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Microfinance, the long tail and mission drift

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  • Carlos Serrano-Cinca
  • Begoña Gutiérrez-Nieto

Abstract

Poor people were excluded from financial services until microfinance institutions (MFIs) emerged. The mission of MFIs is to alleviate poverty, contributing to women empowerment especially in rural communities. Microcredits can be analyzed under Pareto’s 80/20 Principle. Their clients are situated in the long tail of the wealth distribution function. This niche market is not very attractive, because of its high administrative costs, lack of deposits and the need for compensating low revenues with fluctuating subsidies. Some MFIs have drifted from their mission. This paper presents a model to explain microfinance and mission drift, tested with hypotheses. The results from the empirical study show a pattern of mission centered MFI: a small NGO, with labor productivity, receiving donations and obtaining a high margin. The need for reducing interest rates is concluded. According to the long tail theory, this can be done through the use of efficient technology, as the e-commerce sector has achieved.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 12-001.

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Length: 23 p.
Date of creation: Jan 2012
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Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/107018

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Keywords: Microfinance; financial ratios; outreach; social performance; mission drift; long tail; bankruptcy;

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Cited by:
  1. Dan Brockington & Nicola Banks, 2014. "Exploring the Success of BRAC Tanzania’s Microcredit Programme," Brooks World Poverty Institute Working Paper Series 20214, BWPI, The University of Manchester.

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