Last month, the Silicon Valley Microfinance Network cosponsored "Microfinance West: The Investment Opportunity Conference." This event, which brought together some of the leading commercial players in the microfinance field, was heavily geared towards institutional and retail investors in the financial community. The topics ran the gamut from attracting capital to mitigating risk to benchmarking against other asset classes.Though the focus was clearly financial, heavyweights from the development side also presented, including Elizabeth Funk, Chairman of the Board of Unitus, and Mary Ellen Iskenderian, President of Women's World Banking. The most provocative comment, however, came from Janine Firpo of Sevak Solutions as she described the evolution of financial services in...
Back in December 2006 I blogged a meeting in Paris at which the Consultative Group to Assist the Poor (CGAP), a sort of microfinance think tank operating out of the World Bank, won a mandate to hold a mirror up to the aid agencies that fund it. A year and a half later, CGAP's new SmartAid Index looks at the quality of donors' work in supporting micorofinance. For example, it asks, do they learn and apply lessons from past experience? Do they hold staff accountable for results? My observation at the meeting was that people who were directly responsible for microfinance activities, while seeing the good sense in external scrutiny, were somewhat uncomfortable with the prospect. Meanwhile, people closer to the top of their agencies were eager for ways to understand the effectiveness...
Acumen Fund investee Kashf Foundation is the featured 5 Diamond profile of this month on the MIX Market, a global microfinance information platform on the web. The MIX Market rates Microfinance Institutions (MFIs) on their transparency in reporting, by scoring them on a scale of one to five “diamonds”, with 5 being the highest possible level of accuracy and clarity in financial and operational program reporting. The MIX is seen as a global leader in championing financial transparency, accountability and disclosure standards in microfinance.
Kashf Foundation is one of Pakistan’s fastest growing microfinance institutions, with a mission of financial inclusion and providing women in Pakistan with access to microfinance products and services. Acumen Fund has been investing...
Microfinance has at times been labeled as one of the greater international development solutions of the 21st century. The idea underlying it is quite simple - people in developing countries, stuck at the bottom of the economic ladder, can change their life and become self-sustained with loans as small as several hundred dollars. On an aggregate country level, this generates growth by moving people out of extreme poverty.
Over the past few years, a number of microfinance banks and organizations have sprung up around the world, driven partly by the global attention generated by Muhammad Yunus and his Nobel Prize. These institutions are becoming an alternative to big banks, unwilling or unable to give loans to “the little guy” who often lacks collateral. I myself have...
Like any business, base/bottom of the pyramid ventures fail - often. I have neither the space nor the inclination to list those I know of - besides, writers from Erik Simanis to Aneel Karnani to Anand K. Jaiswal have done some of the heavy lifting for me. We don't talk enough about failed bottom of the pyramid ventures. After all, what CEO wants to risk his company by talking about all the things they did wrong? Answer: Matt Flannery. The Kiva CEO is incredibly forthright when discussing what they've done well and what they haven't. His latest blog post is practically a how-to guide for talking about failure inside a BoP venture.(This post continues past the break; click "Read More" to continue) read more...
There have been some interesting base of the pyramid-related topics afoot in both the mainstream media and the blogosphere lately, including a call for water privatization in developing countries and a self-critical blog post authored by the founder of a media-darling BoP startup. Without further ado, what follows is a quick roundup of the latest rumblings and grumblings in the base of the pyramid world: Water privatization is not a new concept, nor an uncontroversial one. The latest to take up the banner is George Mason economics professor and Marginal Revolution author Tyler Cowen. I admire Cowen and read his blog regularly – he's particularly good at making esoteric economics arguments come alive in readable language. He authored an opinion piece in Forbes back on June 19...
Microfinance, in its for-profit avatar, is attracting capital, talent, blogposts - you name it - and a fair bit of criticism. So when Alex Counts, President & CEO of the Grameen Foundation proposed his vision for Reimagining Microfinance in the Stanford Social Innovation Review, he targeted the right issues. The problem, as I see it, is that elements of Counts' vision are simply not realistic.I agree with Alex that microfinance is better placed as a platform from which to develop and distribute a range of products and services—not just financial ones. I also agree that microfinance institutions stand to gain by structuring themselves to gain from high volume, not high margin models. This will help not just in terms of revenue, but also in terms of managing what can be a...
A recent Forbes publication, "Microfinance Fights Growing Pains," examined the rapid growth and associated challenges of the microfinance field. As noted in the article (and thanks to Vital Wave Consulting for highlighting this), the explosion of new entrants and the overall rapid growth of microfinance may be creating an environment ripe for inefficiency or fraud. For example, with little communication between lending agencies, some loan recipients have borrowed multiple times against the same collateral. The Forbes article called for credit bureaus to be established so that lenders can communicate (formally and informally) with each other in order to avoid double or triple lending to dishonest borrowers. Credit evaluating mechanisms exist throughout the developed world -...
Here is the presentation on the US Subprime Crisis & Implications for Microfinance by Katherine McKee, CGAP from the SVMN May 18th meeting:...
SVMN and Financial Research Associates partner on our very first Microfinance Investment Conference!
For more info, view the Microfinance West conference brochure here.
Register now with 15% SVMN discount by clicking here.
Nonprofit, government and institutional investor rate:
Conference Only ($795) Conference and Workshop ($995)
Discounted SVMN Registration:
Conference Only ($1525.75) Conference and Workshop(1780.75)...
The U.S. Subprime Crisis:
Lessons & Implications for the Microfinance Industry
Our next SVMN meeting will be on Monday, May 19th and will feature Katherine McKee of CGAP and Steve Hardgrave of Gray Ghost Ventures. Join us to discuss what consequences the sub-prime crisis might have for microfinance in developing countries, and what lessons our field can draw from its underlying cause.
Katherine McKee, Senior Advisor at CGAP
Steve Hardgrave, Partner at Gray Ghost Ventures
Less than two years ago, problems started to emerge in the U.S. sub-prime market. What began as a niche problem has now spread in dramatic fashion. With an estimated two million sub-prime loans likely to default, and housing values plummeting in many markets, the crisis is setting off worldwide concerns about how...
Nine years ago, Avarzed could not have gotten a small business loan anywhere in her province, even if she had possessed 10 times the value in collateral (which she didn't). She lives in the province of Dornogobi, part of the Gobi Desert in Mongolia, a land-locked country between China and Russia known for harsh winters, arid steppes and nomadic herders. In this country, 2.9 million people are spread out over a land the size of Western Europe, although more than a million of them live in the capital city of Ulaanbaatar. Avarzed was a single mother with three children in school, barely making ends meet by operating a small kiosk selling food and sundries. Then she got her first loan; she used the US$80 to buy more goods to sell in her kiosk. "I am grateful that someone trusted me, and I...
It is impossible to argue against the need for reliable energy at the BoP. Energy drives every facet of society, from nourishment to communication. According to the UNDP, at least 1.2 billion people suffer from energy poverty, which has profound impact on health, education, and livelihoods. Increasingly, people are calling for the new energy models in developing nations to be "sustainable" and drawn from "clean" and renewable sources. The accepted belief is that if we can get developing nations on a path of adopting clean technologies, they can completely leapfrog the dirty, self-perpetuating system we have created in the west. However, there are barriers to establishing renewable energy projects at the BoP, on both the supply and demand side. One recently-launched...
This is a continuation from Part I which focused on a recent New Yorker article.New York Times ArticleElizabeth Malkin recent wrote an article in the New York Times called, Microfinance’s Success Sets Off a Debate in Mexico where she outlines some of the issues in the debate on the commercialization of microfinance. This article focuses on Banco Compartamos, a successful microfinance bank in Mexico, which went public in 2007 resulting in a large amount of publicity on investor returns from a bank which serves Mexico's poor.First, if you'd like to get a deeper understanding of the Compartamos IPO, there is an excellent case study written by Richard Rosenberg and published by CGAP (Consultative Group to Assist the Poor ... part of the World Bank) called CGAP Reflections on the...
It is healthy and expected for any growing trend or endeavor to receive critique and microfinance is no exception. I've decided to do a mini-round up of some recent critiques for those of you who might not have seen them.The New Yorker ArticleThe New Yorker recently published an article by James Surowiecki called What Microloans Miss. In this article, Surowiecki argues that while microloans definitely have positive impact they are not what poor countries need most in order to get richer. He observes that the majority of people in developed countries are salaried workers, not entrepreneurs, hence we need more new small/medium businesses which hire people (he calls the "missing middle".) He also states that microloans are often used for non-business activities including providing...
Today in New York, I had the pleasure of attending a round table organized by the Council on Foreign Relations entitled The Commercialization of Microfinance: The Good, The Bad and The Ugly. Moderated by CFR Senior Fellow Isobel Coleman, the discussion featured comments from Mary Ellen Iskenderian (of Women's World Banking) and Roshaneh Zafar (of the Kashf Foundation.)I arrived early, set up my laptop and grabbed a bite to eat (if you're curious, the CFR building is beautiful and they do a good lunch spread). Before I was through my sandwich, the room had filled to capacity and CFR staffers were scrambling to set up overflow seating – there’s clearly a lot of interest in the recent controversy surrounding microfinance. It was quickly apparent that women outnumbered men in the...
Guest blogger Lauren Withey is a research assistant for the World Resources Report at the World Resources Institute, in Washington D.C. By Lauren Withey It used to be that most U.S. college graduates, perhaps after spending a few years testing their penchants for various occupations or getting a second degree, would expect to settle into a consistent office job for the rest of their working lives. Attending a Microfinance Research Symposium at Georgetown University last week reminded me why such a smooth career path has become increasingly the exception rather than the rule among young job seekers today. The Symposium was organized by FINCA International, a non-profit microfinance institution founded in 1984. Its first project was to create a group lending system - a "Village...
The New York Times ran a story on Saturday by Elisabeth Malkin, called "Problems for Microfinancing in Mexico," that illustrates the difficulties of sizing up microcredit. The article surveys the controversy over the initial public offering of shares in Compartamos, a Mexican microfinance bank, which "began as a nongovernmental organization in 1990, started by a Catholic social action group called Gente Nueva, whose inspiration was a visit by Mother Teresa to Mexico." The spectacular IPO last April raised $450 million for the company, turned the founders into multimillionaires, and generated nine-figure gains for early investors including non-profit Accion International and the World Bank's private sector lending arm, the IFC. The IPO was a Richter-9 earthquake in the microfinance world,...
Carlos Danel and Carlos Labarthe turned a nonprofit that lent money to Mexico’s poor into one of the country’s most profitable banks.Micaela Rivera Abendes with her cheese in her mother's kitchen. She receives a credit loan by Microfinance Institution Compartamos.But rather than inspiring the admiration of colleagues in the world of microlending — so named for the tiny loans it grants — the co-executives of Compartamos are being villified as “pawnbrokers” and “money lenders.”They are the center of a fractious debate: must microfinance become big business?On one side stand traditional microlenders, like the economist Muhammad Yunus, founder of the most famous microlender, the Grameen Bank, and winner of the 2006 Nobel Peace Prize. On the other side are the Two Carloses, as...
Via NextBillion ally Reuben Abraham, I was pointed to James Surowiecki's recent article, What Microloans Miss in The New Yorker.Surowiecki points out that while microfinance does a tremendous amount of good, there are also real limits to what it can accomplish. With over $25 billions of loans and websites to lend to the poor, microloans are increasingly being viewed as a panacea for all issues of poverty. An excerpt:The idealized view of microfinance is that budding entrepreneurs use the loans to start and grow businesses—expanding operations, boosting inventory, and so on. The reality is more complicated. Microloans are often used to “smooth consumption”—tiding a borrower over in times of crisis. They’re also, as Karol Boudreaux and Tyler Cowen point out in a recent paper,...
Guest blogger Mallika Ahluwalia works for ACCESS Development Services, an Indian firm providing inclusive and innovative livelihood solutions enabling the poor to ovecome poverty and live with dignity. By Mallika AhluwaliaYakalakshmi lives in Nekkunda village, part of the Telengana region of Andhra Pradesh, with her husband and two children. Though she has water piped to her house by the village panchayat, her entire family fell ill for a month last monsoon season by drinking water directly from the tap. "We all got high fever and severe diarrhea," and as a result, "we had to spend around Rs. 4000 ($100) on health care, which was very difficult for us." So, when Yakalakshmi got the opportunity this past January to buy an effective water purifier through her Self Help...
Microfinance institutions urgently need to improve management and corporate governance to cope with growing competition and a flood of capital that threatens to erode lending standards, a think-tank warns in a report published today.Born of philanthropy, microfinance - making tiny loans to the very poor - has come into vogue among commercial banks and international investors, inspired in part by the Nobel prize-winning Muhammad Yunus, founder of Bangladesh's Grameen Bank.The sector is growing quickly. The number of lenders is rising by 25 per cent a year, and the stock of -foreign capital investment trebled to $4bn (€2.6bn, £2bn) from 2004 to 2006, according to the survey by the Centre for the Study of Financial Innovation.See full Article (paid subscription...
Ride Metrocable, an impressive system of cable cars that connects to the Metro and carries Medellin's poorest citizens over the steep hills that host the city's slums (traveling together with an increasing number of curious tourists). Step down in the uppermost station, and you'll have a beautiful view of two remarkable buildings that summarize Medellin's transformation at the BoP level: the beautiful Santo Domingo Public Library, part of a network of five such centers in the city's most depressed areas, and the neighborhood's Cedezo (Local Center for Enterprise Development), an equally impressive building that hosts Medellin's Cultura E (Entrepreneurial Culture), a program led by the city government through a partnership with local Microfinance Institutions....
Microfinance institutions urgently need to improve management and corporate governance to cope with growing competition and a flood of capital that threatens to erode lending standards, a think-tank warns in a report published today.Born of philanthropy, microfinance - making tiny loans to the very poor - has come into vogue among commercial banks and international investors, inspired in part by the Nobel prize-winning Muhammad Yunus, founder of Bangladesh's Grameen Bank.The sector is growing quickly. The number of lenders is rising by 25 per cent a year, and the stock of -foreign capital investment trebled to $4bn (€2.6bn, £2bn) from 2004 to 2006, according to the survey by the Centre for the Study of Financial Innovation.See full Article (paid subscription...
In "The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid," the authors analyzed several markets. However, only one market - financial services - was not estimated in terms of exact size and scope. Financial services can be a fiendishly hard thing to measure, but is at the same time a crucial tool to develop markets for BoP customers. In fact, financial markets often help other BoP markets flourish. Data measuring access and efficiency in financial markets are notoriously hard to come across in emerging countries, because most of these markets lie under the cover of informal economies.A new publication by the World Bank, Finance for All? Policies and Pitfalls in Expanding Access, tries to give an overview of the most recent advances and conclusions...
Intellecap recently e-mailed us about a couple of interesting job opportunities.About Intellecap:Intellecap is a leading consulting firm focused on capital advisory and innovations for the inclusive finance space, endeavoring to createand deliver mainstream, profitable solutions to address the problems of poverty and expedite sustainable development.Career Opportunities:Editor – Microfinance Insights, MumbaiProfile: Work as a full-time editor and manager of the magazine; Coordinate, plan issues, content; Coordinate with authors,subscribers and various industry stakeholders; Raise sponsorship and advertising revenues; Establish brand identity of the print and online magazine. Senior Associates/ Associates – Publications and Knowledge Advisory, MumbaiProfile: Work closely with...
Muhammad Yunus, 2006 Nobel Peace Prize recipient, has recently released his second book, Creating a World Without Poverty. The centerpiece of this book is Yunus proposal for a new kind of institution called a "social business" which is a for-profit business which has as its top objective a social objective/mission. Yunus makes a passionate argument for the benefit and role of social businesses in helping us move extreme poverty to museums.Read full book...
Today, Bill Gates' speech at Davos has thrown the spotlight on "creative capitalism" and an emerging groundswell of interest in market-based solutions and business models that can drive positive social and environmental change. The excitement around these ideas to create self-sustaining, scalable options for development at the bottom of the economic pyramid (BoP) is encouraging, and the potential for a snowball effect of increased action is huge. Yet all of the grand words and fanfare remind me that what is most riveting - what really seems to capture attention and combat ingrained suspicions (about "development aid" and about "capitalism") - are the actual stories of the models themselves. So, today I'd like to provide a brief vignette of pieces...
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Intellecap in partnership with Aavishkaar Goodwell and The Financial Express has announced the launch of the Srijan Microfinance Business Plan Competition 2008. Deadline: March 15, 2008Srijan (meaning creation in English) is a search for entrepreneurs, groups, individuals and microfinance institutions with innovative ideas and viable business models that aim at improving the sector and promoting financial inclusion of the poor. This annual business plan competition provides both start ups and established businesses an excellent opportunity to:(This post continues past the break; click "Read More" to continue) read more...