News & Insights
Going Beyond Microfinance
Microfinance has been promoted as one of the most successful economic innovations for global financial inclusion for people living in poverty. Yet, a recent study and several articles have come out questioning the value of traditional microfinance institutions to permanently lift people out of poverty. While there’s plenty of data suggesting that it has been successful at ‘poverty alleviation,’ some argue that the same cannot be said about ‘poverty reduction.’* Hard data measuring the success of traditional microfinance in terms of permanent poverty reduction remains elusive.
Our roots were built on the promise of microfinance to help alleviate poverty (relieve the stresses of poverty) and we were pioneers in investing in microfinance organizations. But as we've grown, we’ve learned that it takes more than access to capital to permanently reduce poverty. It also requires integrated services in addition to capital. That’s why we’ve shifted from investing solely in microfinance institutions (MFIs) to investing in a variety of socially-motivated organizations including cooperatives and social enterprises as well as MFIs. We select organizations that can deliver capital along with additional services within our 4 impact areas, including health care, technical assistance (for small-scale farmers), affordable solar lighting, and business/financial education (for microentrepreneurs).
As a nonprofit impact investor, there are 3 things that differentiate us from microfinance institutions:
- We do not give loans directly to individuals.
- We use different sources of capital that include both investment loans and grants.
- We invest in organizations beyond the realm of microfinance institutions including cooperatives and social enterprises.
In addition to the above, we deploy our capital to catalyze promising solutions. This means we can explore and learn about new ways to expand opportunity for people living in poverty.
*From Chris Dunford’s CGAP blog post, March 2013. Dunford is the former president & current senior fellow of Freedom from Hunger.
- Read about GP’s model.
- “Where impact investing meets microfinance” published by CGAP.
- “How Evidence is helping us reframe our perspective on microfinance” by Chris Dunford.