Mission drift and ethical crisis in microfinance institutions: What matters?

Abstract

In recent years, financial interests have increasingly influenced microfinance institutions (MFIs), with financial gain overshadowing service to the poor. This phenomenon, which we can term mission drift, has caused apprehension among academicians as well as policy makers, for its negation of the fundamental social ethos of MFIs and the mandate of sustainable financial inclusion. Hence, this study aims to identify the factors of mission drift, with special emphasis on the role of funding sources. We collect data from a sample of 169 MFIs in Bangladesh from the period of 2009–2014, and deploy static and dynamic panel data estimation techniques. The results suggest that commercial fund is susceptible to mission drift, as average loan size over GNI per capita increases when MFIs use more commercial fund in their operation. The finding also revealed that when MFIs focus more on commercial interest (return on assets and operational sustainability), they tend to depart further from the original aim of serving the poorest of the poor. The findings further suggest that mission drift is influenced by other factors, such as, macroeconomic conditions and regulatory environment. This study underscores the importance for policy to ensure that poor people have viable access to financial services from MFIs, toward promoting long-term sustainable development.