Faculty of Economics and Business Administration Publications Database

Microfinance, Commercialisation and Ethics

Volume: 2
Number: 1
Pages: 99 - 137
Link External Source: Online Version
Year: 2010
Keywords: Development finance; Microfinance; Commercialization; IPO; Business ethics
Abstract: This paper discusses the so-called commercial approach to microfinance under economic and ethical aspects. It first shows how microfinance has developed from a purely welfare-oriented activity to a commercially relevant line of banking business. The background of this stunning success is the almost universal adoption of the commercial approach to microfinance in the course of the last decade. The author argues that this commercial approach is the only sound approach to adopt if microfinance is to have any social and developmental impact. Therefore, the widespread "moralistic" criticism of the commercial approach, which was expressed again and again in the 1990s, is ill-placed from an economic and an ethical perspective. However, some recent events in microfinance raise questions as to whether the commercial approach, in a number of cases, has gone too far. The evident example for such a development is Compartamos, the Mexican microfinance institution which recently undertook a financially extremely successful IPO. Therefore it seems that some microfinance institutions have become so radically commercial that the social and developmental considerations, which have traditionally motivated microfinance, may have lost their importance. Thus there is clearly a conflict between commercial and developmental aspirations. However, this conflict is not inevitable. The paper concludes by showing how a microfinance institution can try to use the strengths of the capital market while maintaining its developmental focus and importance.