NextBillion.net - Development Through Enterprise - Is the Microfinance Model Broken? - Comments

The ugly head of greed and corruption is always there

Anonymous — Wed, 27 Jun 2007 08:39:32 -0500

I think it is naive and misguided to believe any endeavour where money is involved can be free of risk. International aid and microfinance to end poverty needs to be separated from its kind words and high aspirations. Human beings are human beings, and exploitation is something that will happen and needs to be prevented. I think at times like this there is so much enthusiasm people become blind to what history and experience has shown us: much bad has been done in the name of good. Just because someone says they are doing something to better the poor doesn't mean they really are or will. Everyone needs to be judged on one thing only: the impact of what they are doing. Ideas like accountability, auditing and benchmarking are not just about box ticking: they must be integral to all microfinance schemes.

One Objective

www.globalisierung-infos.de — Tue, 26 Jun 2007 12:06:50 -0500

I think it is important to focus on one primary objective. Of course there are always some drawbacks, but the most important thing is to reduce poverty.

Is the Microfinance Model Broken?

Derek Newberry — Tue, 26 Jun 2007 11:27:11 -0500

Provocative, yes, but it has become fashionable to ask this question in other subsections of the financial community - the state of the venture capital industry and more recently, the private equity industry have been heavily and often bitterly debated.

It seems timely to revisit the need for scrutiny in the microfinance industry as it enters the mainstream and to hopefully broaden the debate beyond academic circles and development institutions. CGAP this month published a focus note analyzing the Compartamos IPO, essentially seeking to answer the question of whether the exceptionally high profits Compartamos has earned for its private shareholders can be justified for an organization that is supposed to have the social interests of its clients in mind. CGAP's answer, while not completely damning, is not a vindication for Compartamos either - they conclude that the NGO could have reasonably charged lower interest rates that would have decreased profits but allowed poor clients to keep more of their earnings.

This is an informative case to watch, because it shows that despite all the positive media attention fawning over market-based solutions to social and environmental issues, the ugly reality of trade-offs will eventually become unavoidable. All the feel-good talk in the world praising triple bottom-line initiatives is put in perspective when you realize that as organizations like Compartamos become successful, they have to do the difficult work of stating precisely how they will measure and prioritize social, environmental, and economic returns.

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