Microfinance,the long tail and mission drift |
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| Institution: | 1. Indira Gandhi Institute of Development Research, Gen AK Vaidya Marg, Goregaon East, Mumbai, Maharashtra 400065, India;2. School of Business Administration, The College of Management Academic Studies, Rishon Lezion, Israel;3. Department of Management, Information and Production Engineering, University of Bergamo, via Pasubio 7b, 24044, Dalmine, BG, Italy;1. INRA, UMR 1110 MOISA, 2 place Pierre Viala, Bât 26, 34060 Montpellier cedex 2, France;2. Faculty of Economics and Management, University of Dschang, Cameroon;1. 7380 Sherman Road, Chesterland, OH 44026, United States;2. College of Business Administration University of Akron, Akron, OH 44325, United States;3. International Finance The University of Akron, Akron, OH 44325, United States |
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| Abstract: | Poor people were excluded from financial services until microfinance institutions (MFIs) emerged. The mission of MFIs is to alleviate poverty, contributing to women empowerment, especially in rural communities. Microcredits can be analyzed under Pareto's 80/20 Principle. Their clients are situated in the long tail of the wealth distribution function. This niche market is not very attractive, because of its high administrative costs, lack of deposits and the need for compensating low revenues with fluctuating subsidies. Some MFIs have drifted from their mission. This paper presents a model to explain microfinance mission drift, tested with hypotheses. The results from the empirical study show a pattern of mission centered MFI: a small NGO, with labor productivity, receiving donations and obtaining a high yield. It can be concluded that there is a need for reducing interest rates. According to the long tail theory, this could be done by using efficient technology, as it has been achieved in the e-commerce sector. |
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| Keywords: | Bankruptcy Financial ratios Long tail Microfinance Mission drift Outreach Social performance |
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