Harnessing Student Potential In Microfinance
For-profit vs non-profit microfinance?
I know there has been a lot of controversy and mixed opinion on for-profit microfinance. I was wondering what the MFI Connect community is thinking about the issue...
Replies to This Discussion
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Permalink Reply by Josh DeBartolo on -
I think its a direction microfinance has to go if it wants to tap into its full potential. As SRIs are gaining steam with individual and institutional investors, sites like microplace.com and the calvert foundation with their community notes (http://www.calvertfoundation.org/) offer options for people who want to earn a modest return on their portfolio while helping people in need....
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Permalink Reply by Dan on
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I think there are good cases on both sides. The danger may lie in over-securitization of MF products. And in too much private capital entering the sector...which will lead to too much securitization. We wouldn't want a repeat of the sub-prime mess. I'd say that sub-prime mortgages began as a mission-driven product but were pirated by profiteers and look where we are. I believe that a line will have to be drawn for the profit sector where there will be some sort of limit to secondary markets and private capital in Microfinance. I am interested in other thoughts.
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Permalink Reply by Matt Brooks on -
One of the issues I've heard raised as regards for-profit microfinance is that many organizations involved in for-profit microfinance are seeking out clients from higher income brackets in order to enhance profitability, which if true is a betrayal of the entire mission of microfinance. Furthermore these loans are often used for the purchase of commodities like refridgerators, which brings up the question of how these kinds of loans are any different in spirit from bank-based commercial loans. I'd be very interested to hear other people's thoughts and experiences with this issue, to either confirm or deny what I have heard.
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Permalink Reply by Joseph Varghese on -
Microfinance is a excellent business model having elements of Social Work. The outreach of an MFI cannot expand beyond a specified limit, if it works through not for profit model.This is because capital plays a major role in the growth of any Organisation. There is wonderful scope for Private Equity Investment in Profit model .Investors are ready to pump plenty of money to the sector. This helps Microfinance Institution to maintain reasonable Debt Equity Ratio and Capital Adequacy Ratio by infusing additional equity from time to time.
But there is a possibility of drifting from the original vision when MFI turns to profit Model. Management has to ensure on a continuous basis that the Company's vision is not drifted
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Permalink Reply by Brian R. Weinberg on -
It doesn't matter. Every type of entity needs to be at the table. And each bring something substantial to be considered. For me its more about leveraging social responsible capital to fund all this great work. But check out my Undergraduate Honors Thesis below entitled " For profit versus non profit micro-finance; how are the poor affected?"
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thesis_final.pdf, 832 KB
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Permalink Reply by Eddie Wokabi on -
I concur.However, without profit models, matters such as inflation and continuity of the microfinance institutions would not be arrested.
The idea behind acruing interest on credit provides the youn entrepreneur a chance to run their business while repaying pseudo-loans;a taste of things to come in the real business.
Eddie Wokabi
C.E.O. - Turner & Hernshaw
Joseph Varghese said:Microfinance is a excellent business model having elements of Social Work. The outreach of an MFI cannot expand beyond a specified limit, if it works through not for profit model.This is because capital plays a major role in the growth of any Organisation. There is wonderful scope for Private Equity Investment in Profit model .Investors are ready to pump plenty of money to the sector. This helps Microfinance Institution to maintain reasonable Debt Equity Ratio and Capital Adequacy Ratio by infusing additional equity from time to time.
But there is a possibility of drifting from the original vision when MFI turns to profit Model. Management has to ensure on a continuous basis that the Company's vision is not drifted
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Permalink Reply by Eddie Wokabi on
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I concur.There is a limit to the credit line values extended to members of micro finance groups.Else, it creates an undue advantage to otherwise credit worthy groups.
Micro finance has been developed to uplift the very low income earners and shift them from abject poverty to just "above the water".
Eddie Wokabi
C.E.O. - T &H
Matt Brooks said:One of the issues I've heard raised as regards for-profit microfinance is that many organizations involved in for-profit microfinance are seeking out clients from higher income brackets in order to enhance profitability, which if true is a betrayal of the entire mission of microfinance. Furthermore these loans are often used for the purchase of commodities like refridgerators, which brings up the question of how these kinds of loans are any different in spirit from bank-based commercial loans. I'd be very interested to hear other people's thoughts and experiences with this issue, to either confirm or deny what I have heard.
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Permalink Reply by Eddie Wokabi on
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We at T&H would be interested as the demand for financiers in the rural parts of Kenya far outstrips supply; noting that we are doing quite well.
Any idea on which organizations or investors willing to venture in our small operation?
Eddie Wokabi
C.E.O. -T&H
Josh DeBartolo said:I think its a direction microfinance has to go if it wants to tap into its full potential. As SRIs are gaining steam with individual and institutional investors, sites like microplace.com and the calvert foundation with their community notes (http://www.calvertfoundation.org/) offer options for people who want to earn a modest return on their portfolio while helping people in need....
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Permalink Reply by Eliud Njathi Mungai on -
Simply said, " Nobody ever ended poverty by going bankrupt.' The case for 'For Profit MFI's' is built on the fact that the key success indicator for the firm would be sustainability by being self sufficient with client deposits, and customer loan portfolios and having social impact by providing progressive larger loans.
It is a good operation T&H you are having, and we as Strathmore Microfinance Student Association would consider partnering with you if we pull off structuring our own campus kiva model.
Eddie Wokabi said:We at T&H would be interested as the demand for financiers in the rural parts of Kenya far outstrips supply; noting that we are doing quite well.
Any idea on which organizations or investors willing to venture in our small operation?
Eddie Wokabi
C.E.O. -T&H
Josh DeBartolo said:I think its a direction microfinance has to go if it wants to tap into its full potential. As SRIs are gaining steam with individual and institutional investors, sites like microplace.com and the calvert foundation with their community notes (http://www.calvertfoundation.org/) offer options for people who want to earn a modest return on their portfolio while helping people in need....
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Permalink Reply by Eliud Njathi Mungai on
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Very true, if the main focus becomes profit making vis a vis social impact, there is usually a clear mission drift especially on the target clientele who are relatively higher income households especially those with salaries now because of high securitization.
Matt Brooks said:One of the issues I've heard raised as regards for-profit microfinance is that many organizations involved in for-profit microfinance are seeking out clients from higher income brackets in order to enhance profitability, which if true is a betrayal of the entire mission of microfinance. Furthermore these loans are often used for the purchase of commodities like refridgerators, which brings up the question of how these kinds of loans are any different in spirit from bank-based commercial loans. I'd be very interested to hear other people's thoughts and experiences with this issue, to either confirm or deny what I have heard.
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