Microfinance Whirlwind

Last Tuesday rounded out my week of action-packed, star-studded microfinance bliss.  The micro-marathon began the previous Wednesday, when I arrived in San Francisco for the second annual Microfinance USA Conference, which brought together professionals working internationally and in the burgeoning domestic microfinance field to share best practices and discuss the next frontier of poverty alleviation.

I arrived back in Seattle just in time to catch Muhammad Yunus give a Town Hall lecture about his latest book, Building Social Business.  I expected my evening in the presence of the father of microfinance to be the fitting capstone to my microadventures, only to be surprised with an opportunity to see Dr. Fazle Hasan Abed, founder of BRAC–yet another highly successful and well-established poverty alleviation organization–speak on two days later.

All that microfinance mania resulted in a broad array of industry perspectives, predictions, and personalities.  Here are some highlights:

The Neverending Story. Additional services MFIs could offer—such as business education, agricultural development, and health care—was a major theme both at the conference and in the subsequent lectures in Seattle.  BRAC offers incredibly comprehensive social programs in Bangladesh in tandem with the banking services the organization offers.  In addition to establishing primary schools and extensive public health initiatives, BRAC has been using social businesses—the theme of Yunus’ lecture and book—to answer clients’ needs since the 70s.  Dr. Ahbed explained that originally these businesses, such as urban retail outlets to market rural artisan goods, were called Program Support Enterprises and evolved from market opportunities to service clients.

To Profit or Not to Profit? This question came up on many of the conference panels, and is a debate Yunus has weighed in on in the past. Elizabeth Funk of the Dignity Fund addressed the fear that for-profit lenders will unreasonably inflate interest rates for excess profit.  Funk argued that market forces and wise investors would eventually disallow excess profit, but acknowledged that in a young industry abuses are slower to be corrected.  Funk also brought up “mission drift,” or the fear that institutions will lose focus on poverty in favor of profit.  Funk reasoned that in cases when people at slightly higher socioeconomic levels seek loans, it’s often to expand small business, which could lead to more employment opportunities.

Stephanie Cohn gave a great rundown of the pragmatic, high-level approach the Omidyar Network uses to maximize the social impact of their investments.  She used three examples to illustrate the spectrum of this flexible approach: 1) Grants in areas where subsidized capital is needed, such as communities with little financial literacy; 2) For-profit investment in areas that can reasonably offer a market return; 3) A hybrid of the two.  Cohn explained that it’s not so much about tradeoffs between for-profit and non-profit approaches as deliberate sequencing and deciding what is appropriate for each market.

The first microfinance institution in India to go public, SKS, came up several times at the conference.  Maya Chorengel of Elevar Equity pointed out that SKS has had an extraordinary rate of growth that’s made it the largest MFI in the world (over 6 million borrowers with almost $1 billion portfolio), which would not have been able to achieve without employing market-driven financial tools.  Chorengel compared this to the slow-growing pace generally facilitated by private donors and foundations, which makes it difficult to rapidly expand and reach more borrowers.

A Brave New World. Technology is enhancing microfinance worldwide, particularly the opportunities that widespread cell phone proliferation provide.  Kenya’s M-PESA system was cited at the conference as a preview into the future of mobile banking, and has been the subject of recent blogposts by David Roodman and Ignacio Mas.  The importance of wireless technology for tracking information in the field and possibilities such as mobile microinsurance came up as well.

Chuck Slaughter, CEO of Living Goods, summarized his vision of Microfinance 2.0 quite succinctly: franchising.  Microsavings was another hot topic.  Abed envisoned a collaborative frontier that facilitates “brain circulation” rather than “brain drain.”  Amidst all the opinions and predictions for what will be next for microfinance, there seemed to be a consensus that transparency and consumer protection are crucial for ensuring an honest, socially successful future in microfinance domestically and abroad.

Advertisement