Some Micro Credit Organizations Forgetting Mission

As micro credit organizations move to ensure their longevity through profitability, many tend to forget their original mission: to provide loan access to the very poor. That is, with the focus tending to veer more onto company profits, the hunt inevitably leads to a more “profitable” way of lending money, which often means that the poor ultimately lose out as organizations become more insular.

Extending Micro Credit to the Poor Costs More

The original micro finance concept was to fund business concerns for the very poor. If recipients are given access to these limited funds at reasonable loan rates, they can go on to create sustainable differences for themselves and their communities. Once the business concern is up and running, then repayment of the loan can take place and the next micro loan can be granted. New businesses and jobs are subsequently created by those who need help the most.

In 2007, Dutch economist Pim Engels determined to look at the profits of micro credit financing organizations as compared to the number of very poor customers receiving loans from those same financiers. Engels discovered that as the micro financing organizations grew in profits and looked more to their private operations, the number of poor individuals served subsequently declined – quite significantly. This is because, “It’s more expensive to finance poor business people: they borrow smaller amounts…and they pay the money back quickly.”  This ultimately equates to less profit for the credit organization. One way in which micro creditors have chosen to deal with the higher costs is to implement higher interest rates.

With these trends, Engels is calling for a return to responsible banking for micro credit lenders. That is, re-establish the basic mission: make loans available to the very poor at reasonable interest rates, and expect repayment quickly.

Despite the downward trend explained above, many such organizations are still providing funds to the very poor. According to Engel’s study, Mission Drift in MicroFinance, funding has not stopped but it has considerably slowed down. Unlike many of these organizations, Microgiving remains dedicated to helping the very poor. If you believe you can work through us as a donor, please visit us online today and see how our very own micro credit services are helping the poor.

Tags: charitable giving, charitable resources, Micro Credit, MicroGiving, recipients