III.4.2- The institutionalists' approach
Supported by international organizations such as the World
Bank and the United Nations, the institutionalists? approach (Woller et al.,
1999) considers that the one best way to reach the large majority of the poor
without access to financial services is to integrate microfinance in the formal
financial system. It seeks to encapsulate MFIs within the logic of the "money
market", while insisting on the will of the installation of perennial
microfinance systems as well as on mass distribution of credit (De Briey,
2005). Each MFI should aim at financial sustainability by maximizing its
effectiveness and its productivity, in order to reach financial autonomy.
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
This emphasis on self-sufficiency started from awareness that
funds are scarce. Institutionalists believe in the need for a large scale
intervention, which requires financial resources beyond the amount the national
or international backers (donors and investors) can provide. They fear the
backers? fickleness, because a MFI searching for sustainability that becomes
structurally dependent on subsidies, would likely be a program without a
future. The only means of obtaining the necessary financial resources is to
resort to private sources (savings, commercial debts, own capital stocks and
capital risk). Institutionalists designed a set of best practices, which aim at
enhancing efficiency as regards management systems, finance and accountancy,
marketing, services delivery, etc. The adoption of such practices is an
essential stage to reach large scale financial self-sufficiency, to access the
money market, and to reach the maximum of poor customers: This win-win approach
contends that: "Institutions following best practices are also those which
succeed better in fighting poverty" (Morduch, 2000).
Institutionalists emphasize the performance evaluation from
the standpoint of the institution rather than from that of the customers: They
consider financial autonomy as a criterion which fulfills their social mission
as well as possible (Cornée, 2007). They cover two main trends. On the
one hand, the upgrading process of some MFIs (such as regulated NGOs in the
countries which regulate microfinance specialized agencies), gives birth to
regulated financial institutions, which clearly fit in a logic of profitability
(De Briey, 2005). On the other hand, the more recent downgrading process of
village co-operatives and some commercial banks searching for new market niches
and convinced by the potentialities of micro credit, led establishments that
have an easier access to funds and better marketing tools, such as Rakyat Bank
of Indonesia and BancoSol in Bolivia, to enter the microfinance sector: Thus,
they can directly grant credit to micro-entrepreneurs or take participations in
MFIs.
The institutionalists? approach faces also some criticisms.
Concerning the targeted population, its core customers are micro-entrepreneurs
very close to the poverty line, geographically, concentrated, with high-output
activities and short production cycle. It requires rather high interest rates
from customers in order to ensure financial autonomy within a period of five up
to twelve years. However, the goal of financial and institutional viability
remains out of reach for most MFIs (De Briey, 2005).
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
Table 4 - Summary table: welfarists and
institutionalists
|
Welfarists
|
Institutionalists
|
|
Approach
|
Performance evaluation from
the standpoint of customers: - Social outreach
- Impact assessment
|
Performance evaluation from
the standpoint of the institution: - Broadness of the MFI
- Sustainability of the MFI.
|
|
Targeted customers
|
Very poor ($1/day)
|
Micro-entrepreneurs close to
the poverty line ($2/day)
|
|
Type of institutions
|
Social bonds
|
Commercial contracts
|
|
Methodology
|
Resort to subsidies
|
Financial self-reliance
|
|
Criticisms
|
- Sustainability issue - High operation costs - Various impact
measurement methods
- Failures (refunding rate <
50%)
|
- Customers selection bias
(MFIs do not reach the very poor)
- High interest rates
- Long term self-reliance
strategy
|
|
Common goal
|
Poverty alleviation
|
| 
