Commercialization: The New Reality of Microfinance?

Publication Date: 2002
Published by: ACCION International
Document Type: Paper

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What are the consequences of microfinance commercialization?

Microfinance is becoming more commercial due to a greater effort to achieve financial self-sustainability and higher degree of competition among providers of financial services for the poor

This article:

• Explores many of the issues derived from the increased commercialisation of microfinance;
• Identifies transformed microfinance NGOs, large retail banks, credit unions and small commercial banks as protagonists of this process of commercialisation;
• Suggests that more competition can lead to higher quality of client services, diversification in lending products, decreases in the interest rates and broadened definition of the target group;
• Illustrates the main disadvantages of commercialisation, including systematic risk for microfinance institutions, over-indebtedness on the part of clients and smaller window of opportunities in which MFIs can exploit innovation before they are copied by competitors

• Commercialisation is a process to be sought after in microfinance in order to achieve exponential growth;
• However, it does not necessarily permit MFIs to reach the poorest households.