Paradigm Shift in the Microfinance Sector and its Implications for Theory Development: Empirical Evidence from Pakistan

Financial and non-financial subsidized resources at the disposal of international donoragencies available for continued support of the microfinance sector are not unlimited. One ofthe strategies resorted to by the donor community to ensure supply of financial resources tothe sector was to make it lucrative to private-sector investment. Thus, for more than a decadenow, the donor community has been emphasizing profitability on the part of microfinanceinstitutions to enable the sector to attract commercial capital. This move on the part of thedonor community led microfinance institutions to adapt both functionally and structurally tobetter cope with donor’s expectations and show them profits. Many microfinance institutionsset example of successful adaptation and reorientation of their tangible and intangibleorganizational elements to enable them to survive under these new conditions. Laughlin’s(1991) Model of Organizational Change provides a theoretical base for understanding such anorganizational change in the light of changing external circumstances. While the Modelplacated all the relevant research questions, it did not fully explain all the trends observed inthe empirical data collected for the study, which lent a room for development in the Model.