Stemming the Tide of Mission Drift: Microfinance Transformations and the Double Bottom Line

Author: Christina Frank, 2008

This paper provides an overview of the process by which microfinance institutions (MFIs) convert from NGOs into regulated financial institutions—known as transformation—and examines the impact of transformation on a control group of MFIs tracked by Women’s World Banking over the past five years, giving particular attention to the effect of transformation on MFIs’ outreach to low-income women. Historically, the demand for microfinance services has been attributed to the inability and unwillingness of the formal financial sector to serve the needs of low-income clients. In recent years, however, the microfinance industry has evolved to include MFIs operating under a wide range of legal structures, including a growing number of RFIs (regulated financial institutions) in addition to traditional NGOs.

Women’s World Banking, like many in the industry, is concerned with the question of whether the influx of private capital causes “mission drift,” whereby the poverty-alleviation focus of transformed MFIs is diluted in the face of increased pressure to generate profits. In response to the dearth of available information about the impact of formalization on individual MFIs, Women’s World Banking tracked and analyzed indicators for a control group of approximately 25 institutions in an effort to put a quantitative framework around the question of whether mission drift occurs in formalizing MFIs. The paper analyzes both the financial and non-financial trends—including client and portfolio growth, average loan size, profitability, savings mobilization and shareholding structure—that emerged when a select set of transformed MFIs were compared against non-transformed institutions.

The findings confirm the prevailing notion that transformation catalyzes growth in MFI outreach and product offerings. Alarmingly, however, the data also revealed a decline in the percentage of women clients served after transformation. “Stemming the Tide of Mission Drift: Microfinance Transformations and the Double Bottom Line” presents primary findings on these indicators, interviews with MFI practitioners on the topic of transformation, and strategies for ensuring that women clients receive high-quality financial services from transformed as well as NGO microfinance providers.