Comments on: Microfinance datapoints of the day http://blogs.reuters.com/felix-salmon/2010/09/02/microfinance-datapoints-of-the-day/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: adsprung http://blogs.reuters.com/felix-salmon/2010/09/02/microfinance-datapoints-of-the-day/comment-page-1/#comment-18011 Fri, 03 Sep 2010 21:29:07 +0000 http://blogs.reuters.com/felix-salmon/?p=5198#comment-18011 Yes, “the facts on the ground are likely to be a lot more complicated.” But Felix, it’s you who are oversimplifying, and overgeneralizing from a few overheated microfinance markets. It’s true that in some regions in India, and in other countries including Nicaragua — and years ago, Bolivia — too many MFIs piled into a limited market and too many clients took out multiple loans. But some facts that you don’t consider:

1) Rates that seem high by western standards on an annual basis are generally far lower than rates the poor in those markets are accustomed to paying to lenders from a variety of informal sources (those sources are not always exploitative. A one-week $10 loan with $10.25 due at week’s end comes to 261% on a compound annual basis (Portfolios of the Poor, http://amzn.to/bORHOC). In many cases, too, saving is as expensive as borrowing, as people pay substantial fees to have their money kept safely and delivered predictably.

2) Microfinance rates are driven mainly by the high cost of servicing lots of small loans. Nonprofits do not generally charge lower rates than for-profits.

3) MFIs cannot sustain themselves over time by inducing clients to roll over debt. If that were the norm for Compartamos, why does its client base keep expanding, and why are its repayment rates among the best in the business? No one is putting a gun to Mexicans’ heads and forcing them to take out loans.

4) The largest MFIs in India have moved quite swiftly to address problems of client overindebtedness that have cropped up in some torrid markets (while large swaths of India remain underserved). They have formed a trade association, MFIN, with 42 members, which is creating a credit bureau, with which it will require members to register, and has promulgated a comprehensive code of conduct that it plans to enforce strictly http://bit.ly/aD6mN6. A global effort, The Smart Campaign for client protection in microfinance, http://www.smartcampaign.org, / aims to institutionalize client protection principles throughout the global microfinance community

5. It is true that some maturing microfinance markets are not the most productive targets for aid dollars. Grant funding should be directed at MFIs that reach marginal groups, or for R&D for development of new products like microsavings and insurance, or for development of industry infrastructure like credit bureaus. See Congressional testimony by Elisabeth Rhyne, director of the Center for Financial Inclusion at ACCION http://bit.ly/d4scrO (disclosure: I work for ACCION).

5) For-profit institutions have not only helped lift people out of poverty- they are the primary engines of human prosperity. Investing in the right for-profit ventures can indeed help to alleviate poverty.

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By: soaphope http://blogs.reuters.com/felix-salmon/2010/09/02/microfinance-datapoints-of-the-day/comment-page-1/#comment-17952 Fri, 03 Sep 2010 01:11:53 +0000 http://blogs.reuters.com/felix-salmon/?p=5198#comment-17952 This is exactly why we support only nonprofit MFIs who moderate their interest rates to target sustainability and include business education in their programs. When MFI capital pools are burdened with the requirement of generating a return for investors, it’s the impoverished borrowers who pay the price.

Our approach generates interest-free capital for MFIs. I encourage social entrepreneurs to follow our model, known as Good Returns. In this model companies sell products in the developed world and then invest 100% of profits into sustainable non-profits at zero interest for successive one-year terms.

Aside from being socially beneficial, Good Returns creates drives many business advantages: customers reward this good corporate behavior with loyalty and word of mouth referrals; employee morale is boosted in a company with a deep social mission; and the company receives much needed local press for their mission.

Our company Soap Hope is an example of a successful Good Returns business. Soap Hope (http://soaphope.com) invests 100% of profits into three sustainable nonprofit MFIs at zero interest each year. Customers are passionate about our cause and spread the word to family and friends.

My vision is to teach 1,000 entrepreneurs the Good Returns model and thereby generate one billion dollars in interest-free capital for MFis and other sustainable nonprofits worldwide. You can read more about Good Returns on my blog at http://salahsblog.com.

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By: GingerYellow http://blogs.reuters.com/felix-salmon/2010/09/02/microfinance-datapoints-of-the-day/comment-page-1/#comment-17951 Thu, 02 Sep 2010 23:43:30 +0000 http://blogs.reuters.com/felix-salmon/?p=5198#comment-17951 There have in fact been several microfinance securitisations. None, that I know of, have actually securitised the micro-loans themselves. They’ve securitised loans (usually created for the securitisation) to microfinance insititutions. So they’re more like a club funding CLO than a consumer loan ABS. But there have only been a handful (maybe $500m total), and most of the investors have been development banks and the like, although more private sector investors have got involved in recent deals.

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