A Model of Mission Drift in Microfinance Institutions

In this paper we offer a theoretical examination of the phenomenon known as mission drift. In recent years there have been claims that the entry of large donors with deep pockets have led to a mission drift phenomenon, whereby microfinance institutions who were previously catering to the poorest agents have drifted towards catering to the less poor. We offer an explanation for how the change in the lending portfolio of a poverty minimizing microfinance institution might be linked to the phenomenon of increasing commercialization through the advent of these large profit oriented donors. The degree to which lending portfolios change turns out to be a function of both the supply of donor funds and the strategic interaction between heterogeneous microfinance institutions.