The Critical Role of Trust in Microfinance Success: Identifying Problems and Solutions

Trust is the basis of many aspects of microfinance operations and is a critical determinant of microfinance success. Trust governs interactions within borrowing groups, between clients and loan officers and between clients and institutions. To effectively address the many strategic challenges microfinance institutions (MFIs) face, they must design control systems that address low levels of interpersonal and institutional trust in their target populations. By increasing focus on trust, MFIs can significantly improve their financial sustainability and social impact. This paper examines trust and its important role in both existing challenges and effective solutions in the microfinance industry. Informed by prior literature and field experience, a model is developed that can provide an effective foundation for scholars and MFI leaders to better understand and manage for improved microfinance success.