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Microfinance at a Crossroads

Posted on May 11, 2006

As most of you know, I was lucky enough to be able to attend the microfinance conference at the University of Chicago recently. The topic of the conference was “Microfinance at a Crossroads.” There were many distinguished speakers at the conference who spoke a lot about where microfinance is going and where it should be going. Three common themes emerged.

I have already talked about treating microfinance like a business in another post so I won’t bring that up again. Also, I don’t think much more needs to be said about making an effort to truly reach the poorest of the poor including those in rural areas. That’s the goal and we are all aware of it. On a side note, I think it will be easier to reach to poorest of the poor, even those in rural areas, as microfinance becomes more efficient. That said, in this post I would like to focus on the addition of more products into the microfinance mix.

Most microfinance institutions out there today are providing microcredit, or small loans, to the people they serve. Microcredit has proven throughout the last 30+ years to be a great asset in the fight against poverty. However, the word finance implies a network of many different financial services that work together. Therefore, microfinance should also have other products in its arsenal. These other products will build on the success of microcredit by creating a fully integrated microfinancial infrastructure.

You may be wondering why we need other products if microcredit is doing such a great job. Answering that question is as simple as thinking about your daily financial life. What if you could take out a loan but had no savings/checking account, no insurance, no retirement fund… See what I mean? Finance is so much more than credit.

Creating microsavings, microinsurance and microretirement will aid in the transition from just living above the poverty line (thanks to microcredit) to living comfortably above the poverty line with a chance to eventually retire. It will also help with disaster relief. We sometimes forget that most of the places where microcredit has been successful are the same places that are disaster prone. It can take a borrower years to rebuild the small business they lost in a disaster. If they had insurance or savings the disaster would cause less of a blow since they would be able to get back on their feet faster.

There are already some microfinance institutions working on these products. In fact, I believe Accion is experimenting with some savings products and I know Opportunity International is providing microinsurance. The Grameen Bank has also been doing some innovative things like their cell phone service, housing loans and educational scholarships. It is great to see microfinance institutions moving forward and becoming complete financial networks.

Efficiency will be key to making this work and good, inexpensive technology (like Grameen USA’s open source MFI software) will certainly drive efficiency through better back end management of all the new product offerings. It’s time to put our financial and technical skills to work to help finally eradicate poverty. It can happen in our lifetime.

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  1. […] I have written about this subject before in the context of microfinance and I have advocated for the for-profit model. I believe that for-profit models lead to businesses that are efficient and that efficiency will lead to a better, cheaper product for the consumer and a sustaining business that will drive more social good. Detractors of this idea will talk about the passion that can be found in non-profit organizations and how that passion can be lost when socially motivated businesses move toward a for-profit model. I would disagree with this notion. […]