For-profit vs non-profit microfinance?

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Permalink Reply by Josh DeBartolo on April 25, 2009 at 10:57pm

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 May 2, 2009 at 2:18am

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 June 8, 2009 at 4:04pm

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 June 9, 2009 at 12:39am

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 June 30, 2009 at 12:23am

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?"

Attachments:

• thesis_final.pdf, 832 KB

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