ENGLISH ABSTRACT: Uncertainty of continued donor funding poses a risk to microfinance operations worldwide, and thisstudy explores the circumstances under which African microfinance institutions (MFIs) will considercommercial funding as a viable alternative source of funding. This research aims to identify thefactors that are associated with successful access to private capital for pro-poor financialinstitutions. It examines the suitability of new opportunities for accessing fresh capital by MFIs fordevelopment and poverty reduction using commercialisation as an option. In a world awash inprivate capital, it is vital to harness the power of the private sector to solve key developmentchallenges (World Bank, 2007). As microfinance institutions grow, they increasingly findthemselves in need of additional capital to finance expansion of services to cover more poorcommunities.The study undertook a cross-country data analysis of 103 microfinance institutions to help provideunderstanding of the critical success factors that underpin successful access to commercial capital.The study also tested the hypothesis on the viability of commercial finances, and developed andtested a commercialisation success model for tapping commercial funds. The prediction modelbased on firm-level data from a sample of 21 African countries between 1998 and 2003, aims tominimise chances of failure and act as a screening system by investors as well as a selfassessmenttool for MFIs intending to seek commercial capital. On examining the direct andindirect impact of firm-level success factors on commercialisation, the study identified keypredictors of success and guidelines for MFI financing’s integration with the larger financial system.The study finds that certain critical success factors (CSFs) define minimum pre-conditions formicrofinance institutions considering commercial funding as an alternative source of finance. Thereis evidence to suggest that the desire to tap into the capital markets and capacity to link withcommercial investors is a realisable vision for African MFIs. The research evidence is instructive ofwidened financing options for MFIs and capacity to relax growth constraint in the industry. Basedon the CSFs, the study suggests how MFIs can break free from 'captive' donor funding as anecessary platform for the switch to commercial finance in the industry. However, the findings alsosuggest the need for MFIs to satisfy the interests and requirements of prospective commercialinvestors to overcome new challenges.In particular, the results show that the extent of organisational formalisation and transparency infinancial reporting are absolutely essential in drawing commercial lenders to invest in microfinance.In addition the study establishes the reasons why traditional approaches to financing microfinancecannot work any longer. There are some concerns on mission drift; in particular whether the poorgain from commercialisation, and under what circumstances their interests are taken care of inorder to preserve the long-term social value of microfinance as a poverty reduction strategy.The study was carried out based on a rather limited time series data. However, the number of firmsand the diversity is considered adequate for the study, as well as sample representation acrossAfrica. The study also used views of 'thought leaders' as the source of information. Otherpersonnel calibre may have had different suggestions. Perceptions were drawn from commerciallenders/investors of microfinance programmes based in Africa. Needless to say, any generalisationof CSFs beyond the African microfinance context should be made with caution.This study is probably one of the first attempts to explore the possibility of a linkage betweenmicrofinance and capital markets and it will be of interest to MFIs, commercial banks, internationaldonors and investment funds with an interest in investing in the microfinance industry. The findingssuggest that the speed of increase in financial leverage per country depends as much on thedynamism of the market, as it does on the level of development of the finance sector. The resultsindicate that commercial investors will be attracted by good financial returns and administrativeefficiency (return on assets, cash-flow adequacy and operating expense ratio), transparentreporting and information disclosure and clarity, as well as low inflation levels. Investors will also belooking for larger, regulated and profitable MFIs with a low-risk profile for their investmentportfolios.The study found strong support to the hypothesis that the commercialisation index (CI) is a bettermeasure of successful commercialisation than the LMA (leverage multiplier added), given thevariables used. In all cases, compelling evidence shows that the CI has more explanatory powerand is an accurate predictor of two-year success in commercialisation as examined by logisticregression. These results suggest that the superior predictive abilities of the CI commercial ratingrule could be explored to guide screening efforts for winners, investment decisions and otherbinary classification investigations. Specifically, the model can be useful in guiding successfulcommercialisation schemes in Africa because it provides MFIs with a structured approach forachieving sustainable commercial microfinance.