In group-based microfinance, success in attaining the goals of inancial sustainability and poverty reduction is crucially dependent on the sustainability of groups as organizations. This article argues that as mounting tensions arise between financial sustainability and organizational sustainability, this produces fundamental instability within groups and a tendency for the system to collapse. What is more, tensions tend to lead to the fracturing of groups and greater exclusion of the poor, creating negative impacts on well-being. The article discusses how tensions between financial and organizational sustainability can be minimized, and suggests that incentives should be put in place to strengthen groups.
The paper studies the ‘wholesale’ market through which microfinance institutions (MFIs) operating in Peru, Tanzania, and the state of Tamil Nadu in India obtain credit. The focus is on the network of relationships between MFIs and their lenders in each setting in order to explore the extent to which they mirror country-specific regulatory, economic, and social factors; to identify the regulatory frameworks that are most conducive to channelling sufficient funding to microfinance; and elucidate the conditions under which MFIs’ ties with wholesale lenders enhance their ability to achieve their dual goals of poverty reduction and financial sustainability. The study brings to light considerable cross-country variation in the structure and features of wholesale lending relationships, and relates it primarily to differences in regulation. On this basis, this paper makes the case that building a more enabling regulatory environment for lending partnerships may improve the capacity of microfinance to pursue its mission.
Does transformation enhance or hinder financial relationships in microfinance? The struggle between financial and social goals in Peru
Dynamic microfinance institutions are evolving from non-governmental organizations into regulated financial institutions at rapid speed. In Peru, recent economic growth and a facilitating regulatory environment have set the conditions for this kind of institutional transformation in an increasingly competitive microfinance market. Following a life-cycle approach, this paper scrutinizes key developmental stages with regard to the case-study microfinance institution's financial relationships, and then situates it within the overall Peruvian microfinance wholesale lending market of nearly 200 organizations. A major finding is that, in the transformational process from NGO to regulated financial status, new and highly diverse lending relationships are forged while others peter out. While there is evidence to suggest that the Peruvian wholesale market creates opportunities for all to benefit from all types of lender, there exists a tendency for specialization whereby commercial lenders tend to partner with regulated microfinance institutions while NGOs struggle to find lenders even among the socially motivated type.