Content area
Abstract
In its early days, microfinance was heralded as a panacea for the poor. The microloans associated with microfinance were seen as a way to empower the poor sustainably: more loans could be made as loans were repaid, resulting in growth for organizations as they pursued a strong social mission. However, in recent years microfinance has come under attack, and nowhere has the battle been more heated than in India. The heart of this conflict lies in various attempts to answer the question: how can microfinance organizations balance financial sustainability with social impact goals? There are two broad approaches to answering this question. The emerging approach gaining traction in India advocates a for-profit approach: with a for-profit organization comes better access to funding, allowing organizations to grow more rapidly and achieve social objectives more efficiently. The other is a sustainable non-profit approach based on the origins of microfinance: non-profit organizations can become self-sustaining and are best suited to pursue social goals helping women and the poor since for-profit organizations may allow profit motives to supersede the social mission of microfinance. In this mixed method research, I find that when it comes to the three primary ways microfinance organizations have defined social impact—outreach to the poorest, outreach to women, outreach to large numbers of clients—for-profit organizations in India are, on balance, more effective at achieving both financial sustainability and strong social impact. However, the case study shows that this view of social impact is limited and does not address the political challenges created by for-profit microfinance organizations, nor does it address less quantifiable social impacts such as providing for the practical needs of the poor through the innovation of financial products and services specific to their circumstances. Organizations looking to balance financial sustainability with social impact need to pay more attention to how they define their social impact goals before they look to transform from a non-profit to a for-profit organizational structure.
