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Monday, June 09, 2008

MFIs: where to go next

If you do not have time to read Muhammad Yunus book "Creating a world without poverty", I recommend this article from the Stanford Social Innovation Review:

This is what I got from the article:
- I like to think about these things in terms of ecosystems, where there needs to be a balance between all players. And therefore there should be a cap on the overall returns that an investor can get from micro-finance, and the goal should be to keep these rates at a max that would be close to typical average market returns (S&P for example). This guarantees sustainability from the investor prospective, they are not "losing" money when investing in MFIs, but at the same time higher returns should be not acceptable because then other parts of the ecosystem are getting squeezed. What the investor gets for his money is that he will not loose, and then he is contributing to helping the poor by choosing to invest in the right places instead of going for the usual suspects (oil and guns on the stock market to be extreme).
This is where there is good co-existence between the 2 worlds within the larger global ecosystem, because the markets provide a good benchmark for what is reasonable. Then the decision from the investor prospective becomes a choice between getting high returns from companies whose impact on the world is not considered, or reasonable returns from companies who also do good somehow. An analogy here is what Peer-to-peer lending ( for example) is doing today, where people decide what level of return they want from one person/project or another. The good news from what I have read is that borrowers tend to get better rates there than from regular loans, because investors value good credit more than a bank would, and they are happy to keep their return "reasonable" if it can help these "good" borrowers.

- Once this is established, I see MFIs being a platform as 2 things (what the article promotes):
-- a blueprint, with processes and governance that can be applied to other under-served areas. This is what I think the examples in the article talking about Grameen Healthcare and Grameen Renewable Energy are about. This is horizontal growth, getting into other "markets" where similar recipes can be applied.
-- and then each individual MFIs is its own platform in the sense that it is a social network of people who work together and share a chart of ethics (the glue between these people) that guarantees the success of their effort. This social network as a platform can be expanded from the original mission to fulfill other needs of the people within the group. Call it vertical growth, expanding from providing loans to providing insurance for example. This is where the reinvestment of profits above the reasonable rate of return come into play.

Clearly a good way to grow from where we are with Microfinance to a better world overall. And very much in sync with the Entrepreneur Commons project I have launched recently :-)