Microfinance success is defined as an independent organization providing financial services to large numbers of low-income persons over the long-term. An assessment of risks against this definition results in three categories of institutional risk: social mission, commercial mission, and dependency.
Social Mission
While all MFIs do not have the same mission statements, in general they have a dual mission: a social mission and a commercial mission. Their social mission is to provide valued financial services to large volumes of low income persons that will enable them to improve their welfare. Microfinance institutions are vulnerable to social mission risk if they do not have a clearly defined target market and monitoring mechanisms to ensure that they are providing appropriate financial services to their intended clientele.
Commercial Mission
The commercial mission of MFIs is to provide financial services in a way that allows the organization to be an on-going concern; that is, to exist for the long-term as a self-sufficient organization. MFIs are exposed to commercial mission risk if they do not set interest rates high enough to cover costs and if they are not managed as a business.
The social and commercial missions sometimes conflict with each other. For example, offering larger loans might make it easier to become sustainable, but this could undermine the social mission to serve low-income and harder-to-reach people who traditionally demand smaller loans. The microfinance challenge is to balance the social and commercial missions to achieve them both.
Dependency
Dependency risk is similar to commercial mission risk, but it is most pronounced for MFIs started and supported by international organizations such as CARE, particularly when the microfinance activities are operated as a project rather than as an independent organization. These MFIs are vulnerable to dependency on support provided by the external organization. While this support may initially seem like an advantage, it can significantly undermine efforts to build an independent institution that will exist for the long-term.