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Has Microfinance Lost its Moral Compass?

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  • David Hulme
  • Mathilde Maitrot

Abstract

This paper argues that microfinance in South Asia, like mainstream finance in North America and Europe, "has lost its moral compass". Our particular concern is with microloans to vulnerable clients. Microfinance institutions (MFIs) have increasingly focussed on financial performance and have neglected their declared social mission of poverty reduction and empowerment. Loans officers in the field are under enormous pressure to achieve individual financial targets and now routinely mistreat clients – especially poor women. The values of neo-liberal mainstream finance in the rich world have spread to microcredit in the villages of Bangladesh and India. This situation is hidden from western publics who are fed the lie of "the magic of microfinance" by their media, guided by the needs and interests of mainstream finance seeking to provide some "good news" about the financial sector as scandal after scandal unfold. Urgent action is needed, particularly from the leaders of the microfinance industry, to refocus their organizations and workforce on achieving both financial and social performance targets.

Suggested Citation

  • David Hulme & Mathilde Maitrot, 2014. "Has Microfinance Lost its Moral Compass?," Global Development Institute Working Paper Series 20514, GDI, The University of Manchester.
    • Handle: RePEc:bwp:bwppap:20514
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    References listed on IDEAS

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    1. Marek Hudon, 2009. "Should Access to Credit be a Right?," Journal of Business Ethics, Springer, vol. 84(1), pages 17-28, January.
    2. Estelle Lahaye & Ralitsa Rizvanolli & Edlira Dashi, 2012. "Current Trends in Cross-Border Funding for Microfinance," World Bank Publications - Reports 17063, The World Bank Group.
    3. Sujata Balasubramanian, 2013. "Why Micro-Credit May Leave Women Worse Off: Non-Cooperative Bargaining and the Marriage Game in South Asia," Journal of Development Studies, Taylor & Francis Journals, vol. 49(5), pages 609-623, May.
    4. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    5. Khandker, Shahidur R. & Faruqee, Rashid & Samad, Hussain A., 2013. "Are microcredit borrowers in Bangladesh over-indebted ?," Policy Research Working Paper Series 6574, The World Bank.
    6. Copestake, James, 2007. "Mainstreaming Microfinance: Social Performance Management or Mission Drift?," World Development, Elsevier, vol. 35(10), pages 1721-1738, October.
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    Cited by:

    1. Lalitagauri Kulkarni, 2017. "Financial efficiency versus social outreach of Indian microfinance institutions: mission drift or character shift?," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 19(2), pages 323-340, October.
    2. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series 190, World Institute for Development Economic Research (UNU-WIDER).
    3. Mathilde Maîtrot, 2022. "The Moral Economy of Microfinance in Rural Bangladesh: Dharma, Gender and Social Change," Development and Change, International Institute of Social Studies, vol. 53(2), pages 335-355, March.
    4. Enrico Bellazzecca & Olga Biosca, 2022. "Intended and unintended effects of specialized regulation on microfinance institutions’ double‐bottom line management," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 977-999, December.
    5. Roseline Nyakerario Misati & Anne Kamau & Hared Nassir, 2019. "Do migrant remittances matter for financial development in Kenya?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-25, December.
    6. Shika Saravanabhavan & Meenakshi Rajeev, 2024. "Financial inclusion in India: How far do grassroots institutions matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(5), pages 2318-2341, July.
    7. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series wp-2017-190, World Institute for Development Economic Research (UNU-WIDER).

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