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Microfinance Mission Drift?

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Microfinance Mission Drift?

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By Roy Mersland and R. Øystein Strøm, published by Elsevier Ltd, July 2009

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This paper studies the tendency of microfinance institutions (MFIs), as they grow, to cater to groups that are different from those normally considered to fall under the “mission” of microfinance. Generally, this mission includes serving low-income people who have less access to credit – often poor, rural women. To investigate this possible mission drift, loan size, lending methodology and gender bias were studied in 379 MFIs in 74 countries using data taken over 4 to 6 years. Average loan size did not increase from 1999 to 2007.

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There has not been a move from group-liability to individual-liability loans. Nor has there been an increased proportion of urban loans compared to rural loans. However, there is less gender bias now, meaning that the tendency to lend to females more than to males has decreased. Overall, the authors feel that there has not been a mission drift in microfinance.

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The average loan size from 1999 to 2007 was USD 747, adjusted for purchasing power parity (PPP). The authors consider this to be a relatively small loan size. Furthermore, the average loan size has decreased by 2.2 percent from 1999 to 2007. This is seen by the authors as evidence that low-income borrowers are still being targeted by MFIs. Lending methodology was measured to compare group and individual lending. The authors found that most loans are made to individuals.

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However, group lending increased by 3.3 percent during this period compared to individual lending. The authors view this as a sign that microfinance continues to meet its mission. It has also been tradition that MFIs would target rural regions more than cities as the former are generally thought to have less access to mainstream credit. The authors found that rural lending grew by 9.5 percent from 1999 to 2007 compared to urban lending.

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Lastly, the authors find that there has been a decrease of 35 percent from 1999 to 2007 in terms of preference for female clients. Though this may seem inconsistent with the microfinance “mission,” it does indicate less gender bias. Therefore, the authors do not see this result as particularly harmful and claim that it does not necessarily indicate mission drift.

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