Disruptive innovation in microfinance - the case of Kenya

Details

Supervisors

Janssen, Frank

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Microfinance has made great strides since its popularization by Mohammed Yunus in 1982, but the industry is now coming of age and an important question stands in front of microfinance institutions: do they follow their current customers upmarket, or do they instead maintain their focus on ‘banking the unbanked’? While the answer to this question is everything but straightforward, and empirical research overall has found mixed results, an important stream of it is criticizing microfinance institutions of abandoning their social mission in favour of higher financial gains – a process known as mission drift. This study contributes to the mission drift debate by analysing the case of microfinance in Kenya. Specifically, it does so through the lens of disruptive innovation, a theory which conveniently sorts innovations according to whether they encourage upstream or downstream movements. The findings provide mixed answers to the question of whether mission drift is present in Kenya. Crucially though, they also reveal that a possible reason for which prior research has been inconclusive or has diagnosed mission drift is because of an outdated categorization of microfinance institutions. Furthermore, the innovation scan of the Kenyan market appears to further corroborate this by identifying both sustaining and potentially disruptive innovations, and by suggesting that socially-oriented institutions are more likely to detect disruptive innovations. Implications for microfinance practitioners are discussed, and future research avenues are explored.