Navigating the Microfinance Conundrum: Assessing the Impact of Commercialization on Financial Sustainability and Inclusion of the Poor in Developing Countries: A Review Literature

Abstract

Aims: Following the inception of commercialization shifts in microfinance institutions (MFIs), financial inclusion of the poor has remained an open question. Moreover, the existing research results on this issue provide mixed findings. Thus, this study aims to analyze the effects of commercialization in MFIs on financial sustainability and inclusion of the poor.  The Study Design: The design of this study is literature review. Methodology: The study collected related literatures from different database such as google scholar, web of science, research gate, and general google search. More related scholarly published literatures were selected depending on clearly defined inclusion and exclusion criteria. Results: The finding of the study reveals a contentious discourse among scholars, with some asserting that commercialization leads to mission drift and a tradeoff between financial performance and depth of outreach, while others argue it offers opportunities for MFIs to achieve financial self-sustainability without compromising their original social goals. Conclusion: Empirical evidence suggests existence of tradeoff, as MFIs, driven by the need for financial viability, shift from serving the very poor to better-off customers, potentially neglecting their social mission. Policy recommendations call for a balanced approach, acknowledging the need for financial sustainability while emphasizing the importance of continued social outreach to alleviate poverty. Significance: The current study provides recent updates on existing debates and enriches knowledge.