All Myth and Ceremony? Examining the Causes and Logic of the Mission Shift in Microfinance from Microenterprise Credit to Financial Inclusion

Abstract

This contribution assesses the shift in the mission of microfinance from providing small loans for entrepreneurship to the broader agenda of financial inclusion. Three leading organisations' publications inform a discourse analysis, which allows the strategic shift to be analysed using two theoretical frames from organisational sociology: instrumental rationalism and sociological institutionalism. The proclaimed shift in strategy is found to consist less of rational innovation towards the aim of poverty alleviation than of “myth and ceremony” for the sake of organisational self-preservation.

Keywords::

• microfinance
• financial inclusion
• discourse analysis
• self-preservation

Disclosure statement

No potential conflict of interest was reported by the authors.

The underlying research materials for this article can be accessed at http://dx.doi.org/10.1080/07360932.2015.1056204.

Notes

¹ David Roodman, who elsewhere claims success for microfinance in terms of building up a financial industry (Roodman, 2012, pp. 221–267), sums up the findings regarding poverty: On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero. (Walt, 2012). A more fundamental assertion is Bateman's (2011) argument that microfinance actually undermines economic development by intermediating scarce financial resources into the very lowest “no-growth” productivity applications.

² Who include, but are not limited to: Bateman (2010), Karim (2011), Klas (2011), and Sinclair (2012).

³ Apart from Sabrow and Mader (2014), the findings of whom provide the basis for this article.

⁴ Akteursbezogene Diskursanalyse (Keller, 2001, p. 138).

⁵ With this, they represent the dominant self-sustaining microfinance model and not the classical NGO microfinance model, whose principles and practices are considered outdated, and whose representatives are gradually dwindling (cf. Roodman, 2012, pp. 106–109).

⁶ Grameen Bank, due to its international fame, is often treated as a pathbreaking MFI. However, Grameen's lending model is considered outdated or at least lagging behind the sector's trend (CGAP, 2000b, p. 1; Roy, 2010, pp. 45–47). Furthermore, Grameen has repeatedly been accused of lacking transparency (Morduch, 1999; Schmidt, 2006). For these reasons, we consider the Grameen Bank comparatively less suited for an analysis.

⁷ Sustainability in microfinance refers to the ability of an MFI to operate without subsidies.

⁸ From 2003 to 2006, half of its $12 million annual budget came from the World Bank, and in the following years roughly one quarter of its (growing) budget (CGAP, 2004a, p. 44, 2007, p. 42, 2010a, p. 70). In 2013, the Bill and Melinda Gates Foundation replaced the World Bank as the largest donor; CGAP (2013, p. 37) speaks of a “planned scale-down of the World Bank's contribution”.

⁹ Despite extensive inquiries, telephone calls and even a personal visit to ASA, no prior publications were made available. However, since ASA only fully specialised in microfinance in 1992, we have covered most of the relevant period.

¹⁰ We only cite the quoted parts of the dataset in the reference list here.

¹¹ The dataset and codebook (in German) have been made available online, see http://link.springer.com/article/10.1007/s12399-014-0403-2, supplementary materials.

¹² As found by Storey (1992) in United Kingdom attempts to promote an “Enterprise Culture”, as repeatedly pointed out by microfinance critics (Bateman, 2010, pp. 64–77; Dichter, 2007; Klas, 2011, pp. 275–276), and recently also noted by Banerjee et al. (2014).

¹³ See Mader (2011) on the specific topic of water and sanitation.

¹⁴ On CGAP's blog, Peru's former Minister of Development and Social Inclusion for instance argues: “Social inclusion cannot be achieved without financial inclusion” (Trivelli, 2013).

¹⁵ The Center describes its aim as “to help bring about the conditions to achieve full financial inclusion around the world” (Center for Financial Inclusion, 2013b).

¹⁶ Guérin et al. take a critical approach, and highlight the precarious and risky nature of “juggling”.

¹⁷ As Glaser and Strauss (1967) propose that, in discourse analysis, the development of concepts should follow from the coding.

¹⁸ We disregard as implausible a further explanation commonly given by the actors: the success of microfinance. Far from motivating the organisations to abandon previously successful narratives and develop a new mission, we believe that operational success at poverty reduction would rather motivate them to entrench and defend their existing mission.

¹⁹ Three of these five are also listed as CGAP “member donors” in its 2013 annual report.

²⁰ Bateman (2010, pp. 196–198) for instance points out that from the late 1990s onwards, CGAP rejected the Vietnamese government's decision to promote a heterodox local financial system, including the use of subsidies. Funding was curtailed, all cooperation frozen and the programme's successes were downplayed by CGAP.

²¹ Voluntary renunciation of free or subsidised capital (for instance in the interest of creating a distortion-free market) would be equally implausible, since Accion and other MFIs still heavily advertise for donations.

²² The finances of ASA and Accion reflect this: ASA's loan portfolio in 2011 was over four times the size of its savings deposits, and Accion counted three times as many borrowers as savers (Accion International, 2010, p. 14; Mixmarket, 2012). Microinsurance meanwhile has remained very marginal (Kiviat, 2009).

²³ In 2012, $21 billion came from public funders, a figure that grew faster than private funds for microfinance (CGAP and Mixmarket, 2013).