Comments on: Political risk in microlending A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Brian Hasbrouck Tue, 10 Nov 2009 23:25:02 +0000 My biggest problem with the MFI has always been the idea of leaning on entire groups of people rather than just one lender. Yunus covered the reasons for this in his book “Banker To The Poor” but I still always found that the most distasteful part of the programs. Otherwise, I agree that organic and locally-owned MFIs are the way to go if just so that people know that they money is not coming from some “faceless corporation” but their own community.

By: nadezhda Mon, 09 Nov 2009 23:28:55 +0000 Hear, hear! Ever since “We can tap the capital markets for Micro” was a pipedream ten years ago, I have consistently tried to throw cold water on the various schemes to steer large amounts of foreign private money to Micro.

I have great sympathy with those who are desperate to scale up financial services to meet the hundreds of millions of underserved. But it’s going to end in tears for all the reasons you’ve outlined if some significant caution isn’t introduced soon.

Though I understand your preference for co-ops, I don’t think that co-ops are the only way to go, if for no other reason than they have major start-up difficulties. By definition most potential Micro clients aren’t integrated into formal parts of the political economy, so they aren’t already members of organizations that can be tapped for co-op particiation. However, non-profits of various other origins can serve a similar purpose and can, over time, include a co-operative dimension.

But regardless of legal form, I do agree that the equity part needs to non-profit-maximizing (and if it’s from foreigners, preferably a large part in the form of out-and-out grants). And the lion’s share of the liabilities need to be denominated in local currency.

As for your criterion “autonomous”, I’m not sure what you mean. A “Grameen” is “autonomous” vis a vis other countries and financial institutions, but its various local branches aren’t “autonomous”. Some other well-performing MicroFIs may be autonomous all the way down to the branch level but are part of networks that share technology, training, etc. and sometimes some common ownership or funding sources. And others are for most practical purposes multi-national banks (or parts of bank holding companies) that specialize in a certain clientele and set of products. What part of “autonomy” do you think is critical?

I do think it’s important that a significant part of a MicroFI’s balance sheet should (eventually) be liabilities subject to normal competitive rates. Unlike grant funding, market-priced liabilites provide the “market discipline” that forces the MicroFI to adopt and maintain sustainable business practices.

But I’d much rather see those liabilities grow organially along with the FI’s assets — frex, offering payment transfer and savings services are some of the most important financial services MicroFIs can provide to the otherwise non-bankable part of the population, often as or more important than credit. One of the reasons I prefer to talk about Micro Finance and Micro Finance Institutions, not Micro Credit or microlenders.

Small amounts of foreign borrowing can help a MicroFI get beyond start-up stage, or a foreign loan at a critical moment can help a MicroFI shift to another growth pattern. But foreign loans should never be viewed as one of a MicroFI’s core sources of funding.