This report is part of USAID’s Accelerated Microenterprise Advancement Program (AMAP) Transitions to Private Capital research. It explores the relationship between microfinance and the double bottom line with the objective of understanding how to maximize poverty alleviation as the sector evolves. Chapter One employs a sector development lifecycle model to demonstrate that microfinance is approaching a “convergence point” where commercialization and private capital, invested in existing MFIs and in new market entrants, will influence the adoption of more conventional business management practices and correspondent impacts on poverty alleviation goals. Chapter Two briefly examines three business models that will likely characterize the sector as it evolves: the traditional social enterprise MFI; the “corporate social responsibility” model; and laissez faire, “base of the pyramid” (BoP) businesses. Each model is presented in turn, focusing on their evolution in developed and developing countries as well as in the financial and microfinance sectors. The objective is to understand trends, issues, and challenges each model faces as they could affect microfinance.

The assessment concludes that the predominate social enterprise (SE) MFI will remain significant but will give way to profit-maximizing corporate social responsibility (CSR) and BoP models; models which may have equal if not greater social impacts than the SE model. A survey of MFI poverty reduction objectives supports these observations at the conclusion of Chapter Two. Chapter Three examines important ethical considerations and approaches to poverty alleviation in the context of the approaching “convergence point”. It explores the social impact implications of credit prices, and profits and stake-holder viewpoints. Chapter Four summarizes findings, arguing that donors and sector stakeholders have a critical role in shaping the structure of the sector. A range of actions is called for to support two broad objectives: support the development of market based social performance standards and benchmark expectations; and developing sustainable supporting financial sector infrastructures that encourage better social impacts.