Is channelling commercial capital to MFIs an effective way to scale-up?

Many microfinance experts continue to grapple with the question: Is channelling commercial capital to microfinance institutions (MFIs) an effective way to scale-up?

Well, I am of the view that channelling commercial capital to MFIs is indeed an effective and best way to scale up. There are a number of reasons for this: Firstly, commercial capital, unlike grants, entails that MFIs will repay with interest. This has the advantage of ensuring that the capital is efficiently and effectively utilised as contrasted to a grant, which could be utilised with laxity knowing that it will not have to be repaid. Secondly, commercial capital encourages MFIs to commercialise their activities as well, which has the advantages of ensuring sustainability. Thirdly, commercial capital will normally be available without much of the conditions entailed with a grant. In this case, commercial capital enables MFIs to invest the capital in their best interest.

Dr. Kennedy B. Lweya
Posted to Voices of Microfinance - http://www.uncdf.org