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Microfinance institutions (MFIs) represent one of the most tested examples of bottom-up development strategies in economic development courses. When you encounter questions about poverty alleviation, financial inclusion, or gender empowerment, MFIs are your go-to case studies. These organizations demonstrate key concepts like social collateral, group lending, the formal vs. informal economy debate, and the tension between nonprofit missions and for-profit sustainability.
You're being tested on more than just names and founding dates—examiners want to see that you understand how microfinance works as a development tool and why different models emerge in different contexts. Can you explain the trade-offs between reaching the poorest populations and achieving financial sustainability? Do you know which innovations made lending to the "unbankable" possible? Don't just memorize institutions—know what development principle each one illustrates.
Traditional banks require physical collateral—property, assets, guarantees. These institutions revolutionized lending by replacing physical collateral with social accountability, where borrowers guarantee each other's loans through community pressure and mutual support.
Compare: Grameen Bank vs. ASA—both Bangladesh-based pioneers using group lending, but Grameen emphasizes holistic social programs while ASA focuses on operational efficiency and cost reduction. If an FRQ asks about scaling microfinance sustainably, ASA's model is your example.
These institutions recognize that credit alone doesn't solve poverty. They combine financial services with education, health programs, and capacity building—addressing multiple barriers to development simultaneously.
Compare: BRAC vs. Opportunity International—both use holistic approaches, but BRAC operates its own massive infrastructure while Opportunity International partners with local institutions. This illustrates the debate between direct service delivery and capacity building in development.
These institutions leverage technology to connect capital with borrowers, bypassing traditional banking infrastructure and enabling new forms of peer-to-peer development finance.
Compare: Kiva vs. Accion—Kiva connects individual lenders directly to borrowers (retail crowdfunding), while Accion builds institutional capacity and infrastructure (wholesale support). Both expand financial inclusion but operate at different levels of the development ecosystem.
Some MFIs have converted from nonprofit to for-profit status to attract investment capital and scale operations. This raises fundamental questions about mission drift and whether commercial microfinance truly serves the poorest populations.
Compare: Compartamos vs. SKS—both converted to for-profit models and faced criticism for prioritizing growth over client welfare. These cases are essential for FRQs asking you to evaluate whether commercialization helps or harms microfinance's development mission.
These institutions demonstrate how microfinance models must adapt to different economic, cultural, and regulatory contexts as they scale across regions.
Compare: FINCA vs. ProCredit—FINCA targets the traditional microfinance population (very poor entrepreneurs), while ProCredit focuses on the "missing middle" of SMEs too large for microloans but too small for commercial banks. Both address financial inclusion but at different market segments.
| Concept | Best Examples |
|---|---|
| Group lending / Social collateral | Grameen Bank, ASA |
| Holistic development approach | BRAC, Opportunity International |
| Technology / Crowdfunding | Kiva, Accion International |
| Nonprofit-to-profit debate | Compartamos, SKS Microfinance |
| Women's empowerment focus | Grameen Bank, BRAC, Compartamos |
| Low-cost / Efficiency models | ASA, FINCA |
| SME and graduation focus | ProCredit Holding |
| Regional adaptation | FINCA International, ProCredit |
Which two institutions best illustrate the group lending model, and how do their approaches to operational efficiency differ?
If an FRQ asks you to evaluate the commercialization of microfinance, which institutions would you use as case studies, and what are the main arguments for and against their transitions?
Compare BRAC and Grameen Bank—both originated in Bangladesh, but how do their development philosophies differ in terms of service integration?
How does Kiva's crowdfunding model differ from traditional MFI funding structures, and what development advantages does this create?
An exam question asks about the "missing middle" problem in development finance. Which institution specifically addresses this gap, and how does its target population differ from typical microfinance clients?