Microfinance, Mission Drift, and the Impact on the Base of the Pyramid: A Resource‐Based Approach

• Published date: 01 December 2013
• Author: Linda M. Sama,R. Mitch Casselman
• Date: 01 December 2013
• DOI: http://doi.org/10.1111/basr.12017

Microfinance, Mission Drift,

and the Impact on the

Base of the Pyramid:

A Resource-Based Approach

R. MITCH CASSELMAN AND LINDA M. SAMA

ABSTRACT

This article draws on resource-based theory and the lit-

erature on strategic intent to develop a theoretical model

that explains the concept of mission drift in microfinance

institutions (MFIs). We argue that the differential strategic

intents of commercially oriented, for-profit, and socially

oriented nonprofit organizations drive the acquisition of

disparate resources and capabilities, which in turn drives

distinct performance outcomes, including a focus on dif-

ferent markets within the overall base of the pyramid

(BOP). The article suggests that it is the dynamic aspects

of changing strategic intent and the consequent timing

delays in the development of associated resources and

capabilities that lead to various issues of mission drift.

Finally, we suggest that cross-sector alliances between

for-profit and nonprofit MFIs may benefit from the unique

Dr. R. Mitch Casselman is the Director of the Center for Global Business Stewardship and an

Assistant Professor of Management at St. John’s University, Queens, NY. E-mail: casselmr

@stjohns.edu. Dr. Linda M. Sama is the Executive Director of the Center for Global Business

Stewardship at St. John’s University; Director of GLOBE, a student managed microfinance

institution; the Joseph F. Adams Professor of Management and Associate Dean for Global

Initiatives at the Peter J. Tobin College of Business, Queens, NY. Email: samal@stjohns.edu.

bs_bs_banner

Business and Society Review 118:4 437–461

© 2013 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,

350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

capabilities of both types of organizations and deliver the

most and broadest impact on poverty alleviation in BOP

markets.

INTRODUCTION

Microfinance, defined as the provision of credit and other

financial products and services to the poor, has been

lauded as an effective antipoverty tool for raising income

levels, empowering women, and improving living standards for

those occupying the base of the pyramid (BOP). At the same time,

and with the advent of a trend in commercialization of microfinance

from a largely not-for-profit (NFP) initiative to a for -profit business

venture, concerns have been raised over the degree to which the

“new players” in the field are staying true to the social mission of

the earlier pioneers in the industry and whether any observed

“mission drift” is negatively affecting the ability of microfinance

institutions (MFIs) to effectively sustain support to the poorest of

the poor. Furthermore, the trend begs the question of whether or

not a microfinance organization can morph easily or successfully

from a nonprofit to a for-profit (Fernando 2004) and whether the

transformation will have positive or negative effects on outreach to

the poor (Hermes et al. 2011). This tension between for-profit and

nonprofit MFIs mirrors similar discussions about the nature of

mutual value creation in the broader literature on the BOP (London

et al. 2010; Prahalad 2004; Prahalad and Hammond 2002); con-

cerns over conflicts within hybrid forms of business (Grassl 2011);

and issues of mission drift in nonprofits (Jones 2007; Weisbrod

2004).

Although the censure of for-profit MFIs has predominated in

the relevant debate, there is also criticism lodged against the

NFP and related nongovernmental organization (NGO) sector

players. One criticism of NFPs and NGOs delivering microfinance

services when compared with for-profit MFIs is that the former

are less effective because of restrictions imposed on them by

donor institutions, particularly bureaucratization requirements

such as project appraisal, reporting, evaluation, and accounting

(Chahine and Tannir 2010). More generally, any NFP or NGO

that undertakes social venturing is more likely to face increased

438 BUSINESS AND SOCIETY REVIEW