Profits and Poverty: The Impact of Profit Status on the Microfinance Industry

Abstract

Microfinance is the practice of providing small, collateral free loans to the poor. While the microfinance industry was initially comprised of predominantly non-profit institutions, a shift towards for-profits has emerged. This paper examines the effects of changes in for-profit concentration on the microfinance industry. First, an economic model for the activity of non-profit firms is established. Empirical data from microfinance institutions (MFIs) is then analyzed in the context of this model. Findings indicate that for-profit MFIs serve more borrowers, serve wealthier borrowers, and do not provide lower quality loans than non-profit MFIs. There is also evidence that economic models developed to understand non-profit decision-making might not apply to the microfinance industry.