The Battle for the Soul of Microfinance

Just wanted to draw your attention to a great article in this past weekend's Financial Times on microfinance. It addresses some of the debates we've had in class this semester: commercial banks moving into microfinance, Compartamos' IPO, etc. It asks one really important question: "for how long will donors fund microfinance projects with so little compelling evidence about exactly what kinds of project really works?"

A really worrying question. Maybe someone from our class will figure that out one day...!

You can read the article here:

The Battle for the Soul of Microfinance

Global Credit Crisis and Microfinance

About two weeks ago, Reuters published an article on the impact of the global credit crisis and microfinance. The article starts off rather dire, talking about how the credit crisis has the potential to be devastating for the microfinance world. MFI's like Kashf Foundation in Pakistan (where the economic situation is frighteningly bad), are looking for international lines of credit, and since there is generally "less money out there... there is less money for MFIs."

But then the article ends on a more positive note, reflecting that there is the potential for a well-managed MFI to actually go stronger during a crisis, because the needs that are being addressed are so basic that the demand for them is not affected. Plus, this could be a good time for banks to increase microfinance lending since these loans are lower-risk than big loans.

I'm a little torn -- I would like to believe that banks will see the value in increasing microfinance portfolios right now, but I'm skeptical that it will be seen as a priority given all the other priorities that banks have at the moment. The cynic in me is worried that there really will be less money for MFIs. I was wondering what people think about this.

Are women better customers?

In our last class, Ira brought up the fact that the WTCs and the MTCs (from our Rama Reddy case) showed the same delinquency rate - proving that men and women show equal risk as borrowers. However, most of our subsequent reading focused on women as better borrowers regarding their repayment rate. What do you think??

It seems to me that the WTCs and MTCs are set up in a way that levels the playing field between men and women. For example, the WTCs and MTCs require an accumulated contribution to withdraw greater amounts. Which means the delinquency would result in little to no additional loans, and motivate borrowers to repay. Perhaps the initial success of the WTC generated loyalty among the MTCs? Another explanation is that men, in fact, are not any more risky than women. That also brings up the question - is it low risk that is important...or high impact?

Any thoughts?

Why a flat rate interest rate structure

In class we discussed why you might charge a flat interest rate on a microfinance loan. Beyond its simplicity and the fact that this may the pricing that is already used in the informal market, it may also be a way of earning the most income while complying with government usury laws that cap interest rates. Thanks to Tanmay for pointing this out to me after class.

Welcome

Welcome to the PED-328 blog. A student in the class suggested I start a blog for everyone to share their thoughts about all things microfinance-related. So here we are. Please feel free to post interesting thoughts of your own or articles that you find interesting.