Battling a Wicked Problem

by Arvind Ashta (Author)
©2016 Monographs 228 Pages
Series: Business and Innovation, Volume 15


A school of thought hails microcredit as a social innovation, a messiah to enable people to help themselves out of poverty through entrepreneurship. An opposing school of thought considers microcredit as a capitalist demon ensnaring the poor in poverty and debt. The layman and the million professionals working in this industry are at a loss to make sense of the stories that circulate about microcredit. This book provides this sense-making, useful for students, professionals, investors and researchers who are attracted to this field.
Poverty is a wicked problem, akin to Hydra, the Greek mythological monster with many heads. As microcredit tries to balance multiple objectives to grapple with these multiple heads, it has needed to shift the weapons it uses. The arsenal for this battle has needed new philosophies, changing ethics, differing missions, institutional partnerships, the latest technologies and new products. These rapid innovations have differed in speed across the world, with adaptations in developed and developing countries. This book presents these with many case studies and field research.
It is clear that development initiatives, no matter how financial, cross academic disciplines. At the very least, they affect disciplines such as economics, business management, sociology, history, geography, politics, legal systems in place, as well as science, which is evolving at such a high speed. The book provides this multidisciplinary view and motivates future research and practices.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Foreword. The Controversial Universe of Microfinance
  • Preface. A Journey into Microfinance
  • Contents
  • List of Figures
  • List of Tables
  • List of Acronyms used
  • Chapter 1. Microcredit as a Response to a Wicked Problem
  • Responsibility for Wicked Problems
  • The Wickedness of the Sustainable Development Problem
  • The Origins and Evolution of Corporate Social Responsibility
  • Alternatives for Helping the Poor
  • Microcredit: An Instrument to Address a Wicked Problem
  • Why People Did Not Lend to the Poor
  • How Microcredit Solved the Problems
  • Is Microcredit a Social Innovation?
  • The Evolution of Microcredit
  • The Spread of Microcredit
  • The Transformation of Microcredit
  • The Achilles’ Heel of Microcredit
  • Outline of the Book
  • Chapter 2. Institutional Study of Microcredit: Successes and Failures
  • What Made Microcredit Successful?
  • Regional Analysis
  • Industry Analysis
  • Organizational Analysis
  • Unsustainable Growth of Microcredit
  • The Impact of Financial Crisis on Microcredit
  • Ethical Crisis within Microcredit Organizations
  • Life Crisis among Microcredit Beneficiaries
  • Enabling Institutions to Protect Microcredit
  • Usury Legislation
  • Transparency
  • Religion
  • Concluding Remarks
  • Chapter 3. Innovations to Make Microcredit a more Powerful Tool
  • MIS to Control Operating Costs and Increase Outreach
  • MIS Packages and Cross-Purposes Problem
  • Free and Open Source Software (FOSS)
  • SaaS for Microfinance
  • Crowdfunding to Lower Financing Costs and Increase Financing
  • Understanding the Peer to Peer Lending Space
  • The Role of Trust in Online Funding
  • Socio-Ethics as a Barrier to Innovation
  • Process Innovations Concerning Risk, Outreach and Impact
  • Financial and Time Use Diaries
  • Credit Scoring to Reduce Risk and Mission Drift
  • Poverty Scoring to Reduce Mission Drift
  • Concluding Remarks
  • Chapter 4. Other Micro Products and Services to Attack the Problem
  • Reducing Stress through Equity
  • Microangel Investment Process
  • Microequity Movement
  • Slow Money and Impact Investments
  • Levelling Wicked Problems Through Wages, Insurance and Savings
  • Minimum Wage Solution
  • Innovating Microinsurance
  • Influencing Microsavings Behavior
  • Building Entrepreneurial Capacity with Complementary Institutions
  • Capacity Building with Microcredit
  • Innovative Cooperatives of Entrepreneurs
  • What Capacity for the Future
  • Concluding Remarks on Motivation for Research
  • References
  • Index
  • Series index

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List of Figures

Figure 1.1: Sustainable Development

Figure 1.2: Poverty focused view of Social Responsibility

Figure 1.3: Evolution of Microfinance Research

Figure 1.4: Why the poor did not receive loans

Figure 1.5: Why MFIs are able to lend

Figure 1.6: Microfinance Stakeholders

Figure 1.7: The evolution of microfinance

Figure 1.8: Composition of MFIs by legal status

Figure 1.9: Outreach by legal status of MFI

Figure 1.10: Evolution of average loan size by region

Figure 1.11: Average Loan Size by legal status

Figure 1.12: Average loan size as percentage of GNI

Figure 2.1: Panorama of Microfinance Industry in Togo

Figure 2.2: Microcredit outreach in India by legal status

Figure 2.3: Microcredit Outreach in Bangladesh by MFI

Figure 2.4: Evolution of Value of Compartamos

Figure 2.5: Stakeholders of Compartamos

Figure 2.6: Power versus Interest Grid of Compartamos’ Stakeholders

Figure 2.7: Usury ceilings create rationing

Figure 3.1: Break-down of Total income as a percentage of Assets

Figure 3.2: Mapping innovation

Figure 3.3: Impact of technological innovation on costs

Figure 3.4: Technological innovations and costs in the Supply chain of microfinance

Figure 3.5: Business Model Gap in the software market for microfinance ← 21 | 22 →

Figure 3.6: The long tail of MFIs

Figure 3.7: The value proposition of SaaS and Clouds

Figure 3.8: SaaS fills up the Business Model Gap

Figure 3.9: Web 2.0 innovation map

Figure 3.10: Models of online lending

Figure 3.11: Forms of communication

Figure 3.12: A modified Household Economic Portfolio Model

Figure 3.13: Development, loss aversion and mobile banking regulation

Figure 4.1: The microangel clubs

Figure 4.2: Evolution of the microangel clubs

Figure 4.3: How Index Insurance works

Figure 4.4: The saturation triangle

Figure 4.5: The Livelihood triad of Basix

Figure 4.6: Some tools to alleviate poverty

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List of Tables

Table 1.1: Social Innovation characteristics of Microcredit

Table 1.2: Regional distribution of microcredit

Table 1.3: Return on Assets in the Microfinance industry

Table 1.4: Loan loss rate in microcredit

Table 1.5: Example of Effective Interest Rates depending on payment terms

Table 1.6: Evolution of the Yield of MFIs

Table 2.1: Some salient Institutional Features of North African countries

Table 2.2: Evolution of Microcredit in Morocco, Egypt and Tunisia

Table 2.3: Correlation between World Bank Governance Indicators and microcredit outreach in WAEMU

Table 2.4: Financial Analysis of top three MFIs in Bangladesh

Table 2.5: Microfinance Risks

Table 2.6: Cost and profit components of interest rates for the median MFI, Compartamos and SKS

Table 2.7: Comparison of adjustments to be made in calculations of interest rates in different countries

Table 3.1: Market capitalization of a few High Technology firms

Table 3.2: Evolution of average loan size

Table 3.3: Evolution of MFIs by size

Table 3.4: Poverty and Credit Risk

Table 4.1: Profiles of French microangels

Table 4.2: Comparison of Investor Profiles

Table 4.3: Comparison of Project Profile ← 23 | 24 →

Table 4.4: Per capita Income in the ten poorest countries

Table 4.5: Savings and Development indicators

Table 4.6: Capacity Building Programs run by SKDRDP

Table 4.7: The Four laws of Future Studies

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List of Acronyms used1

AFC Average Fixed Cost

AMT African Microfinance Transparence

APIM Association Professionnelle des Institutions de Microfinance

APR Annual Percentage Rate

ATC Average Total Cost

ATMs Automated Teller Machines

BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest

CAE Coopérative d’Activité et Emploi

CGAP Consultancy Group to Assist the Poor

CEO Chief Executive Officer

CERMi Centre for European Research in Microfinance

CIGALES Club d’Investisseurs pour une Gestion Alternative et Locale de l’Epargne Solidaire

CNRS Centre National de la Recherche Scientifique

CSFI Centre for the Study of Financial Innovation


ISBN (Softcover)
Publication date
2016 (October)
Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien, 2016. 228 pp.

Biographical notes

Arvind Ashta (Author)

Professor Arvind Ashta, holder of the Banque Populaire Chair in Microfinance at the Burgundy School of Business (ESC Dijon), has degrees in economics, business management, political science and law from prestigious institutions in India and France. He has been teaching and researching microfinance for the last decade, with a prolific publication record in academic and professional journals and books. He has been invited to present courses and seminars on microfinance across the world.


Title: Microfinance
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