Comments on: How the public sees microfinance http://blogs.reuters.com/felix-salmon/2011/03/24/how-the-public-sees-microfinance/ 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: Seankline http://blogs.reuters.com/felix-salmon/2011/03/24/how-the-public-sees-microfinance/comment-page-1/#comment-25419 Tue, 29 Mar 2011 01:24:05 +0000 http://blogs.reuters.com/felix-salmon/?p=7714#comment-25419 Amen Felix!

Rather than lamenting the lack of philanthropic capital the hundreds of millions of poor need from Western investors, here are three steps I suggest those of us in the microfinance field concerned with poverty should consider focusing on instead:

1. Advocate for country legal frameworks around the world that enable institutions to mobilize poor people’s savings. This would: ensure only those institutions that are up to the task of safeguarding poor people’s money can; put poor people’s money in a safer place than under a mattress, as jewelry around a women’s neck, or in the form of cattle or other illiquid assets; put poor people’s money to work for them in ways that we take for granted; and, most importantly to the current debate, mobilize serious local money at lower cost than international borrowing to meet the serious unmet demand among the millions of entrepreneurially-inclined.

2. Support institutional forms like credit unions and cooperatives that make poor people themselves owners; reduce the cost of funds and, hence, the cost to borrow; and yield financial returns to the poor first and foremost rather than wealthy investors in Seattle, San Francisco or New York. An alternative might be to hardwire existing MFIs’ statutes in ways that ensure reduction in interest rates come before dividend payouts to investors when an institution produces a surplus. The weakness in this approach is that trustees/owners find ways to change the rules to meet their needs (I watched this happen first-hand at an MFI I founded, which now manages a $60 million portfolio and aspires to go public like Compartamos. Sigh…).

3. Support low-cost, simple, informal microfinance models that equip the poor to intermediate their money on their terms in places banks and microfinance institutions have proven they cannot and will not go: very rural areas. Here I’m talking about savings groups—also known as village savings and loan groups, self-help groups, etc.—that quietly serve the basic needs of hundreds of millions of very poor people in very rural areas across Asia, Africa and (to a lesser extent) Latin America. This is a powerful “good enough” approach that simply does not get the attention it deserves, most likely because someone on a computer or a high-net worth individual cannot claim a stake in it. What a shame.

Even a cursory look at the evolution of microfinance over the past 35 years points to the inevitable weaknesses of microfinance institutions as tools for anything other than market development. Any serious look at microfinance as a facilitating mechanism for poverty-reduction has to account for the fact that the most visible manifestations of microfinance—non- and for-profit institutions that focus primarily on lending rather than savings for low-income and non-poor clients in peri-urban and urban areas—fail to address the priority needs of very poor people: a safe place to save, health care, clean water, knowledge and skills, etc. Microfinance may not meet all of these needs, but certainly we can aspire to more than money lending with a mission.

Sean

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By: Auros http://blogs.reuters.com/felix-salmon/2011/03/24/how-the-public-sees-microfinance/comment-page-1/#comment-25365 Fri, 25 Mar 2011 20:36:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7714#comment-25365 I’d kind of expect Yunus to agree with you, at least about the question of bank ownership. A community-based Savings and Loan model (that is, pre ’80s de-reg S&L, when local savers funded loans to local borrowers) is clearly where he was going, with the original Grameen.

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