The promise and peril of microfinance commercialization

Microfinance has entered a new phase in which competition and other market forces are compelling microfinance institutions to adopt 'commercial' approaches. Commercialization holds out several promises; chief among them are the benefits for microfinance consumers that typically accompany competition and, for transformed MFIs, the ability to mobilize small-scale savings. But it also poses several perils of which mission drift is the most prominent. This article reviews the promises and perils of commercialization and the evidence for mission drift. It concludes that the promises of commercialization more than justify its risks, but it cautions restraint and recommends a continued role for poverty-focused microfinance NGOs so as to ensure that the poor, and especially the very poor, remain legitimate markets for financial services.