Microfinance, the long tail and mission drift
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.
|Date of creation:||Jan 2012|
|Publication status:||Published by:|
|Contact details of provider:|| Postal: CP114/03, 42 avenue F.D. Roosevelt, 1050 Bruxelles|
Phone: +32 (0)2 650.48.64
Fax: +32 (0)2 650.41.88
Web page: http://difusion.ulb.ac.be
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roy Mersland & Reidar Øystein Strøm, 2008. "Performance and trade-offs in Microfinance Organisations-does ownership matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(5), pages 598-612.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2005.
"Do interest rates matter? credit demand in the Dhaka Slums,"
33146, University Library of Munich, Germany.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
- Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, World Bank Group, vol. 4(3), pages 329-349, September.
- Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2008.
"Outreach and Efficiency of Microfinance Institutions,"
08002, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2011. "Outreach and Efficiency of Microfinance Institutions," World Development, Elsevier, vol. 39(6), pages 938-948, June.
- Berger, Allen N. & Black, Lamont K., 2011. "Bank size, lending technologies, and small business finance," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 724-735, March.
- Valentina Hartarska & Christopher F. Parmeter & Denis Nadolnyak, 2010. "Economies of Scope of Lending and Mobilizing Deposits in Microfinance Institutions: A Semiparametric Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 389-398.
- Jimenez, Gabriel & Saurina, Jesus, 2004.
"Collateral, type of lender and relationship banking as determinants of credit risk,"
Journal of Banking & Finance,
Elsevier, vol. 28(9), pages 2191-2212, September.
- Gabriel Jiménez & Jesús Saurina, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Working Papers 0414, Banco de España;Working Papers Homepage.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
- Stiglitz, Joseph E, 1969.
"Distribution of Income and Wealth among Individuals,"
Econometric Society, vol. 37(3), pages 382-397, July.
- Joseph E. Stiglitz, 1967. "Distribution of Income and Wealth Among Individuals," Cowles Foundation Discussion Papers 238, Cowles Foundation for Research in Economics, Yale University.
- Hermes, Niels & Lensink, Robert, 2011. "Microfinance: Its Impact, Outreach, and Sustainability," World Development, Elsevier, vol. 39(6), pages 875-881, June.
- Roberts, Peter W., 2013. "The Profit Orientation of Microfinance Institutions and Effective Interest Rates," World Development, Elsevier, vol. 41(C), pages 120-131.
- Ronald U. Mendoza, 2011. "Why do the poor pay more? Exploring the poverty penalty concept," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(1), pages 1-28, January.
- Armendáriz, Beatriz & Szafarz, Ariane, 2011.
"On mission drift in microfinance institutions,"
31041, University Library of Munich, Germany, revised 2010.
- Beatriz Armendariz & Ariane Szafarz, 2009. "On Mission Drift In Microfinance Institutions," Working Papers CEB 09-015.RS, ULB -- Universite Libre de Bruxelles.
- Beatriz Armendariz & Ariane Szafarz, 2011. "On Mission Drift in Microfinance Institutions," ULB Institutional Repository 2013/97387, ULB -- Universite Libre de Bruxelles.
- Leonard Laudadio, 1963. "Size Of Bank, Size Of Borrower, And The Rate Of Interest," Journal of Finance, American Finance Association, vol. 18(1), pages 20-28, 03.
- Marek Hudon, 2007. "Fair interest rates when lending to the poor," ULB Institutional Repository 2013/14204, ULB -- Universite Libre de Bruxelles.
- Morduch, J., 1998.
"The Microfinance Schism,"
626, Harvard - Institute for International Development.
- Peppard, Joe, 2000. "Customer Relationship Management (CRM) in financial services," European Management Journal, Elsevier, vol. 18(3), pages 312-327, June.
- Nicolas Krauss & Ingo Walter, 2009. "Can Microfinance Reduce Portfolio Volatility?," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 85-110, October.
- Copestake, James, 2007. "Mainstreaming Microfinance: Social Performance Management or Mission Drift?," World Development, Elsevier, vol. 35(10), pages 1721-1738, October.
- Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2008.
"Microfinance meets the market,"
Policy Research Working Paper Series
4630, The World Bank.
- Hudon, Marek & Traca, Daniel, 2011.
"On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry,"
Elsevier, vol. 39(6), pages 966-973, June.
- Marek Hudon & Daniel Traca, 2006. "On the efficiency effects of subsidies in microfinance: an empirical inquiry," Working Papers CEB 06-020.RS, ULB -- Universite Libre de Bruxelles.
- Daniel Traca, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," ULB Institutional Repository 2013/89989, ULB -- Universite Libre de Bruxelles.
- Tchakoute-Tchuigoua, Hubert, 2010. "Is there a difference in performance by the legal status of microfinance institutions?," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 436-442, November.
- Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2006.
"Financial performance and outreach : a global analysis of leading microbanks,"
Policy Research Working Paper Series
3827, The World Bank.
- Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, 02.
- Suman Ghosh & Eric Van Tassel, 2008. "A Model of Mission Drift in Microfinance Institutions," Working Papers 08003, Department of Economics, College of Business, Florida Atlantic University.
- repec:idb:brikps:79506 is not listed on IDEAS
- Philip E. Strahan & James Weston, 1996. "Small business lending and bank consolidation: is there cause for concern?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Mar).
- Erik Brynjolfsson & Yu (Jeffrey) Hu & Duncan Simester, 2011. "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales," Management Science, INFORMS, vol. 57(8), pages 1373-1386, August.
- Andreas Dietrich, 2012. "Explaining loan rate differentials between small and large companies: evidence from Switzerland," Small Business Economics, Springer, vol. 38(4), pages 481-494, May.
- Mersland, Roy & Strøm, R. Øystein, 2010. "Microfinance Mission Drift?," World Development, Elsevier, vol. 38(1), pages 28-36, January.
- Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
When requesting a correction, please mention this item's handle: RePEc:sol:wpaper:2013/107018. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels)
If references are entirely missing, you can add them using this form.