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Questioning the future of NGOs in microfinance

Author

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  • Thomas W. Dichter

    (Conway, MA, USA)

Abstract

A large number of NGOs are now involved in microfinance and more are making the move towards it; some even converting their finance operations to banks. This paper examines some of the motivations for this change and raises questions about the trade offs involved. The paper suggests that when credit systems air to be financially sustainable there is a strong bias to engage in credit only. The trade-offs involved have consequences not only for the soul of many NGOs (the tension between the imagery of compassion and that of capitalism) but in terms of outreach to the very poor, and in terms of impact and effect on the recipients. Credit-only approaches which adhere to sustainability criteria often miss the very poor. And as for those who are reached by micro loans, without other inputs than credit, many of these borrowers have difficulty making productive use of the loans; the result of lack of absorptive capacity, lack of confidence, lack of knowledge. NGOs who shift into sustainable credit programs may be losing their real competitive advantage in the world of development-their capacity to reach the very poorest and engage in a variety of activities that help people change, but which cannot necessarily be financially supported by the recipient of the assistance.

Suggested Citation

  • Thomas W. Dichter, 1996. "Questioning the future of NGOs in microfinance," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(2), pages 259-269.
    • Handle: RePEc:wly:jintdv:v:8:y:1996:i:2:p:259-269
    DOI: 10.1002/(SICI)1099-1328(199603)8:2<259::AID-JID377>3.0.CO;2-7
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    Cited by:

    1. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    2. B Gutiérrez-Nieto & C Serrano-Cinca & C Mar Molinero, 2009. "Social efficiency in microfinance institutions," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(1), pages 104-119, January.
    3. Isabelle Guérin, 2000. "Microfinance dans les pays du Sud : quelle compatibilité entre solidarité et pérennité," Revue d'Économie Financière, Programme National Persée, vol. 56(1), pages 145-164.
    4. Ashfaq Ahmad Khan & Wiqar Ahmad, 2013. "Matching resources with demand: a flawed strategy?," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 20(1), pages 63-89, June.
    5. Dilruba Khanam & Syeda Sonia Parvin & Muhammad Mohiuddin & Asadul Hoque & Zhan Su, 2018. "Financial Sustainability of Non-Governmental Microfinance Institutions (MFIs): A Cost-Efficiency Analysis of BRAC, ASA, and PROSHIKA from Bangladesh," Review of Economics & Finance, Better Advances Press, Canada, vol. 12, pages 43-56, May.
    6. Bashir, Rabia & Bajwa, Sami & Mamoon, Dawood, 2017. "Channeling Local Culture into Sustainable Microfinance Solutions by Akhuwat: From Borrowers to Donors," MPRA Paper 81591, University Library of Munich, Germany.
    7. Mitlin, Diana & Hickey, Sam & Bebbington, Anthony, 2007. "Reclaiming Development? NGOs and the Challenge of Alternatives," World Development, Elsevier, vol. 35(10), pages 1699-1720, October.
    8. Syeda Sonia Parvin & Belayet Hossain & Muhammad Mohiuddin & Qingfeng Cao, 2020. "Capital Structure, Financial Performance, and Sustainability of Micro-Finance Institutions (MFIs) in Bangladesh," Sustainability, MDPI, vol. 12(15), pages 1-18, August.

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