Changes in the Microfinance Industry?

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Permalink Reply by Dallys-Tom Medali on February 4, 2010 at 8:20am

The global financial crisis, the food crisis and climate changes have been impacting the world for a while, increasing the challenges the Microfinance actors and the populations are facing. I hope the industry will find the best ways to adapt to these situations and continue to sustainably expand. I also hope that lessons learned in Bangladesh and Bolivia will reach the other parts of the world. The only way towards success will be unity and collaboration. In this regards, portals such as MFIconnect and local, regional as well as global meetings will link individual organizations and enable them to learn from others and improve their operations.

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Permalink Reply by Grant on February 4, 2010 at 2:21pm

I spent half a year living on the periphery of Kibera, Africa's largest slum - a valley of corrugated tin teeming with energy and excitement and entrepreneurialism. It's also a hotbed of development experiments, hundreds (maybe thousands?) of NGOs tackling issues from HIV to credit access. Most operate in parallel, the AIDS clinic rarely interacting with the nearby MFI.

We know that in our own lives, finance touches everything: our ability to provide for our children's education, to access medical care, or more broadly ensure independence and build self-esteem. So it's unsurprising that emerging research points towards microfinance as an effective 'intervention strategy' in disparate fields: meaning, the AIDS clinic should be collaborating with the MFI to ensure widowed mothers have the opportunity to build businesses, provide for their children, and finance their treatments.

Now that microfinance has emerged as a field to be reckoned with, I'd love to see practitioners reaching out across sectors. School principals and public health experts alike could greatly benefit from a seat at the microfinance table. I think that this broadening and opening of the field to actors across the development spectrum should be a primary goal of the industry.

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Permalink Reply by Casey Marie on February 5, 2010 at 6:19am

We've already seen major improvements in the MF sector on a global scale: microcredit --> microsavings --> microinsurance = microfinance. These services have positively impacted the lives of millions of individuals because sometimes credit is not enough.

We have also already seen integral services being delivered, linking microfinance programs and health, literally providing many families who would otherwise be without reproductive health, as Grant mentioned, HIV and AIDS education and awareness, general health services - from Grameen to BRAC to Crecer and CARD. Integral services have also included education (for time and space I won't go into this as I did with health).

With this in mind, I would like to see three major changes in the MF field:

1) Reaching the poorest (how) - operational costs limit the credit officer from reaching those that need microfinance more than others - be it environmental issues, lack of infrastructure, or whatever the case, many institutions are not able to effectively reach those that are in most need of MF. How to deal with this? Mobile banking, using resources we already have as a network (shop owners as a point of contact for transactions), and other innovative ideas.
2) Greater links between private institutions, motivated by social responsibility or other and the MF institutions. Grameen and Danone broke the limits of imagination as to how we can take this on and in what capacity. Stop the reliance on grants and tenable funding from NGOs and governments by creating lasting partnerships that benefit both sides.
3) The creation of a shared information database across the globe for investigation, research outcomes, "best" practices, experiences, transparancy for organizations, etc!!

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Permalink Reply by Maddie Brandenburger on February 5, 2010 at 6:13pm

Here are some of the barriers in microfinance growth that I've observed while researching micro finance projects in Uganda during the summer of 2008 and during my experience as a Grameen Foundation intern last summer...

1. Collaboration: There are many leaders who work to alleviate poverty and bring major changes to the developing world; however their impact could be vastly increased with greater collaboration. Conferences such as the Microcredit Summit Conference in Nairobi provide invaluable opportunities for collaboration and support among MFI practitioners. Organizations should focus on leveraging the available, successful resources, which requires more transparency and "best practices" from organizations, instead of focusing on efforts to "re-invent the wheel." Resources such as MFI Connect and the MIX market- microfinance information exchange, are also great resources to spur collaboration.

2. Lack of technology: Technology has the power to increase people's to information and communications and enable people to participate in civil society by connecting them to wider global community. Many MFI leaders are reluctant to invest their resources on technology because they have not witnessed the impact on their goal of helping more people out of poverty. A program such as the Grameen Foundation's Mifos initiative, an open-source technology platform to provide microfinance institutions with a long term management system, is a great example of technology's potential to extend an MFI's impact.

3. Measuring progress: Building client profiles and tracking changes over time using standards of measurement that produce reliable information will enable the MFIs to improve their ability to identify and track new clients, understand the effectiveness of their products/services, and make necessary changes in order to increase their impact.

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Permalink Reply by Taylor MacKay on February 8, 2010 at 3:24pm

Microfinance is powerful. What an exciting movement to be a part of. Over the last twenty years the industry has seen incredible growth. Obviously this system is working. The greatest stumbling block to even further growth is the access to capital. In this financial economic environment, financial institutions across the globe are fighting for capital and liquidity. I would love to see the microfinance industry get access to private funds. This trend is already emerging with social impact investment firms, with online peer to peer lending such as Kiva, Micro Place, and Vittana. This is really exciting. I would love to see microfinance investments in the average persons IRA, 401k or other investment portfolios.

I am also very interested in microfranchise and other BoP models. The innovation taking place in this sector is fascinating. I just recently researched a company in Ghana called Burro. They provide a rechargeable battery service for rural populations not connected to the power grid. They franchise their model to local entrepreneurs who receive their start up funding via microfinance. What a cool idea. These kinds of BoP business models are popping up all over the place. I think that microfinancing will be even more successful as this kind of innovation continues to expand.

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Permalink Reply by Rory Felton on February 10, 2010 at 2:37am

1. Interest Rates Reduced

I believe the interest charged to the average borrower is still too high and I believe there are avenues to do that with technological improvements.

2. Technology Improvements

With the advent of mobile money transfers, the cost of servicing a loan and collecting payments can be greatly reduced. Mobile to mobile money transfer platforms need to be made available in every country where microfinance institutions operate.

Online social networking between borrowers and interested lenders in countries like the United States can greatly build trust and increase investment in the microfinance industry.

3. Transparency

This is huge. There is not enough clarity in where money goes and how it works in microfinance. I believe it's important for the information to made available to everyone. True information needs to be distinguished from false information.


4. Consistent Community Analytics

A consistent metric of community analytics needs to be gathered independently of microfinance institutions to gain a clearer picture of the net impact in the quality of life of the borrowers. New products need to be tested and information gathered.

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Permalink Reply by MIB on February 14, 2010 at 4:09am

Since microfinance is still emerging, the industry is filled with possibilities and potential hurdles. Two questions/ ideas I often ponder are as follows.


1) How the microfinance industry can avoid the same fate as wall street, with bundling packages specifically. If MFI's are able to bundle loans and repayment rates continue to falter, the industry is bound to take a major blow. I am interested to see if there is a new direction microfinance can take to avoid this fate yet continue to make small credit loaning profitable for banks.

2)I would like to see a model of self-sufficiency. Mobile banking can dramatically cut down the operational costs of MFI's, thus lower interest rates. With the new wave of technology, I would like to see MFI's enter into communities for short periods (1-2) years and establish a solid institutions for credit and savings. After the given period, hand over to institution to the locals and put them in charge of its operations. The logistics appear very complicated, however, bottom-up institutions should have a pledge to self-sufficiency. More than half the world is in need of credit, therefore to maximize access, MFI's need to constantly expand to new communities. This will only be possible if communities take over the reins of existing institutions.

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Permalink Reply by Fehmeen Khan on February 17, 2010 at 3:28pm

Many MFIs face the problem of poor governance because their structures are rather informal and because the field of microfinance is still new (companies may actually end-up mixing business with charity). As the market grows, donors and regulatory agencies are demanding better governance (India's central bank comes to mind). Of course, this will eventually help micro entrepreneurs, but the change is taking place at the supply-end.

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Permalink Reply by Lisa Kant on February 18, 2010 at 4:31pm

My work in Microfinance has been on the donor side, helping donors understand what Microfinance is, how it works, and why they should donate their money to this industry.

While the goal of many Microfinance agencies is to achieve sustainability, it will take a very long time to reach this,especially considering the large amount of non-financial or social services that are often necessary for the poor to be able to use the financial services provided by the MFIs.

To that end, it is increasingly important to develop systems of performance measurement that both provide regulatory services to keep MFIs in check, and increase transparency for donors, without endangering the process of Microfinance or creating improper incentives. This is in important caveat, as organizations can be negatively impacted/incentivized by the goals of a performance measurement analysis, leading them to alter their activities to increase the outcome of the product that is being measured in order to achieve positive results. The designing of the actual test therefore is critical.

Performance measurement needs to be tailored to the specific goals & mission of the MFI while simultaneously being broad enough to invite comparisons with other MFIs and to create a basis for rating agencies internationally. Furthermore, they need to be funded by outside organizations without vested interested in the results, which often means they need to be funded by donors or NGOs.

I hope that as Microfinance moves forward the importance of these types of performance measurement tools will become a central issues, increasing awareness and funding which will lead to better tools and analysis over all.

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Permalink Reply by Lizah Nyemba on February 19, 2010 at 10:54am

My response is scientfic as I first look at history and then were I think we are now
In the 1960s and 1970s the microfinance debate, views and policies focused on the provision of agricultural credit as a necessary support to the introduction of new, more productive technologies that would simultaneously improve farmers’ incomes and feed their families. Later the focus broadened to include credit provision to the rural population engaged in other enterprises, such as trade arts and craft and small scale industry.

Central to the role of microfinance in rural development is the debate around the implementation of rural credit policies through financial institutions which has evolved over history as follows:
•Debate triggered by ; “Spring Review” an evaluation of small-farmer programs by USAID in the 1970s (Donald, 1976), which made available worldwide experience on the achievements and failings of credit programs by governments and donors
•Shift in debate; In the 1970s discussion shifted from “lack of capital” and consequently “the need for cheap credit” to “cost-covering interest rates” that would enable financial institutions to continue to operate ( Adam & Von Pischke, 1992).
•Widening the debate; To include imperfect information as one of the distinctive characteristics of rural credit markets (Hoff & Stiglitz,1993) that leads to insight into screening, monitoring and enforcement problems that rural microfinance institutions face.
•Current debate; presently we see a sort of consensus around the operations of microfinance institutions: they should strive towards both outreach and financial sustainability. “the microfinance revolution , sustainable finance for the poor “Marguerite S Robinson


Going to the practical especially in Africa , I would like to see more sustainable microfinance institutions in Africa. innovation is Key in microfinance in the global village. Microfinance should look at linking microfinance beneficiaries to large corporations value chains and to tradeing with other global participants. Eg craft marketers can export to other countries hence can pay back and also grow business.

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Permalink Reply by Mark Wang on February 19, 2010 at 12:20pm

Despite the attention microfinance has received in recent years, it is far from a panacea to development. However, I do believe that microfinance does have the potential to grow and become a sustainable method of ameliorating development through providing credit and leverage to those that previously could not attain this credit. In order for this to reach a critical scale, I feel that the MFI sector needs to embrace a profit-driven sustainable approach. This would allow MFIs to focus on generating revenue, mitigating default losses, and increase the social bottom line.

Through prudent management and a profit focused approach, MFIs can make well informed decisions on the allocation of credit thus mitigating credit losses while providing those that can use the credit (or insurance, etc) for productive means to improve future welfare, while ensuring that they are being paid back. By doing such, the MFIs can reduce reliance on grants and can attain favorable terms from commercial debt sources of funding.

An additional impact of becoming profitable and sustainable is that the secondary financial market currently emerging around microfinance can better support profitable MFIs. These firms are interested in either equity investments in well-run MFIs or are interested in acquiring debt from MFIs (to either securitize or benefit from the interest payments). All this allows for the actual MFI to be able to attain more capital and focus on the business at hand of allocating and managing loans or microinsurance. All this leads to a critical scale.

Compartamos is an example of this. However, as much as they have been criticized for their pricing strategy, I must point out that as other MFIs begin their path to profitability and growth, there will be consolidation and essentially competition will rise up against credit issuers like Compartamos. All this will drive down pricing to those that need the credit.

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Permalink Reply by Heather Chojnacki on February 19, 2010 at 2:00pm

The change that I would like to see is balance. I think that MFIs create wonderful opportunities for the people who know about them, but the penetration rates vary greatly among nations. I think that this change can only take place by expanding the industry in places where it is not widespread by sharing information. The Kenya conference is a great start, giving young people the skills and knowledge to get involved and go home as leaders in the field.

Another thing that I think is worth mentioning is the objective of the credit institutions. I think that we have seen that microfinance works best when its goals are altruistic. Yes, it can be profitable; it is more of an investment than a donation, which is why it is effective. However, it is important that the objectives of the investor take into consideration the altruistic nature of the industry.

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