From Responsible Lending to Responsible Profit

Financial Access Initiative, 16 November 2012

If there’s one issue that’s most difficult for microfinance practitioners to explain to the lay public, it’s high interest rates.  As Elisabeth Rhyne describes it, at some point the numbers get so high that people become outraged and stop listening altogether.  Most recently, the issue was put back in the public eye through Hugh Sinclair’s Confessions of a Microfinance Heretic and the media coverage it has spurred.

With few exceptions, his critique that microfinance investors are investing in MFIs charging exorbitant interest rates has gone largely unanswered. That’s not a tenable position for the long-term.  For a socially responsible fund, the case ought to be simple – if you have investments that you’d rather not have to publicly support and explain, then either those investments don’t belong in your portfolio or you should learn how to explain those investments.

Rates in excess of 100% (in APR terms) are not unknown in microfinance.  more →

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Can borrowers be trusted to reschedule their own loans?

Financial Access Initiative, 13 September 2012

I have written before how tiny Zidisha Microfinance is challenging long-held assumptions by leveraging internet social media and mobile payments like M-PESA to lend to clients without the help of loan officers or local staff.  Since then, Zidisha has grown from tiny to small, with a portfolio now at $200,000, over 430 active borrowers, not to mention its 1400+ lenders.  And, as before, its operations remain solid, with PAR30 at a respectable 6.6%[1] (check out its stats for more).

I’ve been advising Zidisha since before its launch in 2010, and with that had the opportunity to watch the evolution of the platform’s many innovations.  One feature, introduced in August 2011, allows borrowers to request to reschedule their loans, regardless of whether they are delinquent or not.  more →

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What’s wrong and what’s right about consumer finance?

Financial Access Initiative, 8 May 2012

It’s the microfinance bête noire.  The great unspeakable.  The furtive shadow slinking down the narrow alleys of poverty.  Yes, the consumer loan.  Has microfinance really come to this, we ask?  Helping the poor buy a TV?  Charging 40% interest for the couch to go in front of that TV?  And what about family celebrations, festivals, dowries?  Is that really what microcredit is for?

Consumption lending has been creeping out from the shadows for some time, but mostly for “good” consumption like school fees, urgent medical care, or basic needs like food during those difficult periods when income is scarce.  Still, for many of us the TV-on-credit notion that represents what is so easy to think of as “bad” consumption remains too painful an idea to swallow.

But how to draw the line?  If not the TV, then what about a microwave?  A motorbike?  Plumbing in the home?  Is there a framework one can use to evaluate when consumer credit is acceptable and when it is not?  No less importantly, how does an institution dedicated to serving poor customers decide what type of funding mechanism – savings or credit – is more appropriate for a given purpose?  more →

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