Do impact investors expect too much?

The history of microfinance shows how far off-mission social enterprise can go under the weight of massive investment.

By Mal Warwick, Paul DiLeo, and Paul Polak

Today, microfinance is estimated to be a $68 billion industry worldwide, with a track record of substantial private investment now stretching 10 years or more. The industry provides financial services that help clients manage their resources—a crucial function when income and assets are stretched. They also help meet both routine and extraordinary demands such as food to stave off starvation after a bad harvest, or hospital care and pharmaceuticals during a health emergency. While these undoubtedly help poor clients better manage their poverty, the impact of the industry toward increasing the income of the poor and eliminating poverty—its original ambition—has fallen short.

What went wrong? How did a movement dedicated to ending poverty fall so far short of that goal after nearly 40 years? And is there any reason to think that other well-intentioned, mission-driven businesses won’t find themselves heading down the same path?

We believe that two features have combined to produce the disappointing result . . .

Read the full article here.

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