A Heretic in Our Midst

David Lehr — Thu, 07 Aug 2008 21:10:33 -0400

Last month, the Silicon Valley Microfinance Network cosponsored "Microfinance West: The Investment Opportunity Conference." This event, which brought together some of the leading commercial players in the microfinance field, was heavily geared towards institutional and retail investors in the financial community. The topics ran the gamut from attracting capital to mitigating risk to benchmarking against other asset classes.

Though the focus was clearly financial, heavyweights from the development side also presented, including Elizabeth Funk, Chairman of the Board of Unitus, and Mary Ellen Iskenderian, President of Women's World Banking. The most provocative comment, however, came from Janine Firpo of Sevak Solutions as she described the evolution of financial services in the US and how technology has continued to lower the costs of transactions.

Warning the audience in advance, Janine shared her thoughts on an area that many might consider to be heretical. She challenged the attendees to question whether default rates on microfinance loans were really the right place to focus, or if in fact the emphasis on achieving 99% repayment rates might be somewhat misguided. Most microfinance institutions today follow a high-touch model, relying on a loan officer that makes frequent visits to his or her clients to collect loan payments and continually reinforce their need to repay. While this has been extremely effective it is also inherently unscalable; as the client base increases, the number of loan officers needed to serve them must also increase.

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A Heretic in Our Midst