Microfinance is a powerful development tool with which to alleviate the problem of
poverty through providing financial services to the poor. The real essence of all
microfinance efforts around the world is to enable the poor to break the cycle of poverty by establishing and nourishing small businesses. The international donor community1 and governments have had substantial financial and non-financial investments in developing and providing subsidized financial services for the poor on the premise thatthey have limited access to the formal mainstream financial institutions.
There was a drastic shift in the microfinance paradigm during the early 1990s when the donor community changed its thinking and approach as to the sustainability of
microfinance institutions around the world. Instead of providing subsidized financial
services to microfinance institutions (MFIs) for their life time, the donors started
emphasizing self-sustainability on the part of MFIs through cost control, efficient
operations, and adopting commercialism. The shift in the donors’ approach, in turn,
resulted in competition among MFIs as they had to struggle for more and more clients
to ensure their sustainability. These new issues came as external disturbances for the
MFIs which were previously heavily dependent on the donors’ subsidized funding, and they had to adapt and reorient to the changed external conditions.
This study is a case study based on the Aga Khan Rural Support Programme (AKRSP) ─ one of the prominent microfinance institutions in Pakistan. It explores the internal adaptation and reorientation of the Programme’s microfinance division in response to these changed external circumstances. The study has two different aspects; first, the internal adaptation and reorientation of the microfinance division of the AKRSP to the changed external circumstances and, second, its passive submission to the changed environmental conditions. Therefore, the study resorted to two theoretical frameworks ─ Laughlin’s (1991) Model of Organizational Change and Institutional Theory (DiMaggio and Powel, 1983) to placate the two aspects of the research issue. The study provides insights into the successful adaptation of the AKRSP in which it had to tailor all of its tangible and intangible organizational elements in response to the changed external conditions to ensure its survival and sustainability.
The study examines the process of transformation of the subject as it changed from a donor based institution to a sustainable, commercial institution. The study draws parallels between the theories of Laughlin, and DiMaggio and Powell, and the events that took place during this transformation.
Key words: microfinance, sustainability, commercialism, organizational change.
1 The term ‘international donor community’, referred to as ‘donors’, ‘donor community’, or ‘donoragencies’ in the thesis, connotes international sources of subsidized funding for the poor. This includes bilateral and multi-lateral financial organizations such as the Consultative Group to Assist the Poor
(CGAP), The World Bank, and the Asian Development Bank (ADB), among others.