All organizations create value in terms of economic, social and environmental components. The aim is value creation in terms of improved social surroundings. Microfinance institutions started their work on a social platform and needed to grow in order to deliver on its potential to reduce poverty. All microfinance programs target one thing in common: human development which is geared towards both the economic and social uplift of the people they cater for. It needs to scale up rapidly to reach out to poor in large numbers, it must realize its potential as a broad platform and social environment and it must tap the commercial financing to achieve the first two goals.
No doubt the grass is growing rapidly. Microfinance has been establishing new norms of behavior and cultivating a new level of trust. Like any other emerging industry, microfinance has grown by leap and bound in last few years and consolidations or tie-ups are inevitable among the top 200-300 microfinance institutions. Commercial banks have begun partnering microfinance institutions in an innovative way where they outsource a majority of lending activities with new and improved technology. In today’s environment, commercial financing represent the largest source of financing. If microfinance has to scale up significantly, it must look beyond its basic social building. In recent developments, microfinance institutions have also extended its lessons to other business opportunities for providing goods and services sought by poor.
So, the question arises: does it confine to just social impact or value creation? May be true or false; true in the sense that the basic concept of microfinance is to bridge the societal gap among poor human beings while false in the sense that it must look out of box to provide continuous cash-flows to needy persons for which it needs capital. Nevertheless, rapid technology growth has made the flow easier enabling maximum people to come in its vicinity.
Today, many microfinance institutions have started tapping commercial financing in order to spread their reach to billions instead of millions. Stakeholders who eye a pie of the microfinance institutions pre-capitalization require an assessment of social impacts, impacts on lifestyle and empowerment issues etc. They also analyze the society as a system and societal impacts, hoow deeply it is connected to the poor people where it has worked and how deeply it has gone in improving their livelihoods.
But the greedy game has followed its own course. There is no denying the fact that the high recovery rates (as high as 96 per cent) have forced commercial lenders to move towards microfinance institutions in order to tap the burgeoning growth in micro-lending. The MFI growth has been diluting the interests of microfinance. For the success of an MFI, rapid growth is not necessary rather how deeply it goes in assessing the societal impacts. The signal is clear: Reach to big numbers without making big bucks. But commercial greedy lenders will surely imbalance the strong pillars of pyramid i.e. microfinance. It may lose its relevance in the years to come. White claims that microfinance is a proven anti-poverty intervention thus seems ambiguous.
