The microfinance sector responds to the turbulent external environment: A case study of the Akrsp in Pakistan

Abstract

The drastic shift in the microfinance paradigm during the early 1990s, when the donor community adopted a new approach as to the sustainability of microfinance institutions, changed the overall scenario of the paradigm. Instead of providing subsidized financial services to microfinance institutions (MFIs) for their life time, the donors started emphasizing self-sustainability, financial as well as operational, on the part of MFIs through making them adopt principles of commercialism. The shift in the donors' approach gave rise to a state of stiff competition among MFIs as they had to struggle for more business to ensure their survival in the long run. These new issues came as external disturbances for MFIs, which were previously heavily dependent on the donors' subsidized funding, and they had to adapt and reorient to the changed external conditions. The study resorted to two theoretical frameworks - Laughlin's (1991) Model of Organizational Change and Institutional Theory (DiMaggio and Powel, 1983) to placate two independent but mutually intertwined aspects of the research issue.