The Alliance is a response to challenges that only recently emerged in the industry. About a decade ago the profit motive was largely absent in the industry. Practitioners were mostly non-profit NGOs and investors were predominantly funding agencies or public sector investors. All worked towards the same over-arching objective of providing affordable finance to poor people.

The introduction of the profit motive at scale in the late nineties has eroded industry-wide adherence to this over-arching objective. In fact, the concept of affordable finance has been replaced with sustainable finance across the board. Originally introduced as a concept to indicate break-even capacity of the service provider, sustainability is now more and more used to indicate profitability for practitioners and investors.

The rationale of it all is the wide-spread belief that microfinance has to become a profitable proposition in order to capture major capital market investments. This, in turn, is deemed necessary to finance the accelerated industry growth needed to bridge the gap between demand and supply globally. This way, the sense of urgency in microfinance has steadily shifted, first, from customer to practitioner concerns and, later, from practitioner to investor concerns.

This may indeed be the best way to realize the self-proclaimed industry target of serving billions of clients by any year in the future. Private sector capital does need to come aboard to bring the industry to that level of operations. However, the emergence of the profit motive and private sector capital in the industry does not come without serious ethical and legal challenges.

In microfinance today, growing numbers of practitioners are relying on practices that would be considered illegal or unethical in mature financial market: untrue information, unlawful repossession and usurious interest rates in particular. Lack of adequate customer protection in emerging markets thus easily opens the door to exploitation of poor people.

And whereas the vast majority of practitioners and investors work hard to treat customers fairly and appropriately, the massive and often uncontrolled growth of the industry has given rise to the rapid proliferation of bad practice in the industry, occasionally leading to serious backlashes which threaten to undercut the credibility of the industry at large.

The Alliance aims to set standards on ethical business principles in the industry to help both practitioners and investors refraining from practices in emerging markets for which they could be prosecuted in mature markets.