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CIAO DATE: 4/5/2007
Microfinance as Business
David Roodman, Uzma Qureshi
November 2006
Abstract
In this paper, we analyze microfinance institutions (MFIs) as businesses, asking how some MFIs succeed in reducing and covering costs, earning returns, attracting capital, and scaling up. We are interested in MFIs that are financially self-sufficient (covering the cost of daily operations as well as the cost of capital at a commercial rate) or merely operationally selfsufficient (not covering capital costs) or only, say, 90% operationally self-sufficient. All such MFIs strive for efficiency and are in many respects businesslike.
Our interest in commercial success does not mean that we believe that it is the raison d'être of microfinance. The ultimate impact on borrowers and communities is what matters for MFI leaders and staffers, as well as for nearly all their investors, by which we mean those who put money in, public or private, through grants, loans, or equity. We focus here on commercial success because viewing MFIs as practical solutions to challenging business problems is a good place to start in understanding why most microfinance operates in the ways it does, what impact it is having, and how it can realistically be expected to enhance its impact.
