Hybrids in Financial Services: The Case of Microfinance

Thankom Arun and Mitchell J. Larson

Scholars typically juxtapose for-profit business models against non-profit social mission models. Recently companies have attempted to merge these seemingly mutually exclusive perspectives into ‘hybrid’ businesses, where the pursuit of profit runs parallel to, but more importantly is justified by, the achievement of a desirable social outcome. The microfinance industry represents one sector where this hybridization of models has taken place in opposite ways, though not without difficulties and adjustments along the way. This paper examines two generations of microfinance organizations to explore how each of these goals finds expression in the stated values, financial structure, and operating practices of the selected institutions. Two paradigms exist in the development of hybrid companies in microfinance and each generation took a different approach to using the funds generated by its business activities to pursue the same social mission.