Microfinance has entered a new phase in which competition and other market forces are compelling microfinance institutions to adopt 'commercial' approaches. Commercialization holds out several promises; chief among them are the benefits for microfinance consumers that typically accompany competition and, for transformed MFIs, the ability to mobilize small-scale savings. But it also poses several perils of which mission drift is the most prominent. This article reviews the promises and perils of commercialization and the evidence for mission drift. It concludes that the promises of commercialization more than justify its risks, but it cautions restraint and recommends a continued role for poverty-focused microfinance NGOs so as to ensure that the poor, and especially the very poor, remain legitimate markets for financial services.
The microfinance institution, Prizma, targets poor women in Bosnia-Herzegovina. To monitor whether it was fulfilling its mandate Prizma developed three tools: a poverty scorecard, an exit monitoring system and market research focus group discussions. This article describes how the tools were developed and how much this process cost. It then goes on to discuss how possible improvements in client retention would affect the profitability of Prizma's joint enterprise loan, based on figures for average loan cycle profits. Reductions in the client drop-out rate of 50, 25 and 10 per cent are modelled, demonstrating that even modest improvements in client retention have substantial effects on profits, and easily cover the cost of the client assessment tools.