NGOs’ Capacity Building and Mission Drift : Commercialization of Microfinance Programs and Poverty Reduction in Bangladesh

Abstract

The primary focus of this study is to analyze the capacity of non-governmental organizations (NGOs) to reduce poverty in Bangladesh. Due to shrinking of donor funding and emphasis on self-sustainability, NGOs in Bangladesh have moved toward commercialization by adding or shifting to microfinance programs from their development operations. However, there is an increasing debate about the motives of microfinance NGOs regarding profit seeking in the name of organizational sustainability and its possible negative impact on poor people. This study, therefore, investigates the following research questions: 1) Does microfinance reduce poverty? 2) To what extent are microfinance organizations capable of achieving both objectives of poverty reduction and organizational sustainability simultaneously? 3) Does the commercial approach of microfinance lead toward mission drift for NGOs? This study collected empirical data from three leading NGOs in Bangladesh. The primary method of data collection consisted of in-depth interviews of 50 microcredit clients and 20 credit officials, supplemented by focus group discussions with the microloan recipients. Observation as well as the use of a semi-structured questionnaire provided useful additional data for this study. Data organization and analysis followed primarily an inductive approach. The findings of this study suggest that microfinance organizations have, to some extent, drifted from their primary organizational mission, that is, from poverty reduction and women’s empowerment. The main expressions of this mission drift include high interest rates, many forms of service charges, management pressure on credit officers for achieving disbursement targets, and credit officers’ misconduct with credit clients. This study found that current microfinance operational systems have negative effects on people in poverty, leading, for example, them to being trapped in over-indebtedness and in a cycle of poverty. As a result, to get the optimum benefits of microfinance programs, NGOs need to build both their managerial and operational capacities.