NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In case you haven’t heard, there’s this new thing called MicroPlace. It’s a major turn in the life of the microfinance movement founded by entrepreneur (philanthropreneur?) Tracey Pettengill Turner. In between advancing her vision for solutions to poverty and running Ironman triathlons, Tracey takes a moment to discuss her new project with NextBillion.net.

I know you have probably heard enough of MicroPlace being compared to P2P lenders like a certain four-letter organization that starts with a “K.” Still, I have to ask: How do you address the concern that the MicroPlace securities model creates one more intermediary between borrowers and their much needed microloans? What is the advantage of the securities model over P2P that outweighs this extra middleman?

Actually, there will be the same number of players in either model. As we grow, MicroPlace will offer investments in diversified microfinance funds and in specific microfinance institutions. Investors can choose depending on how diversified a portfolio is desired. The real differences between our marketplace and P2P services lay elsewhere. In setting out to create MicroPlace, I spent a lot of time thinking about the emerging P2P businesses and came to the following conclusions:

– I think that it is about treating the working poor with dignity; not as problems, but as opportunities; not as charity cases, but as equals. Investing in the working poor (and earning a return on your investment like you would any other investment) honors them as the business people they are. At MicroPlace, we spent 2 years building the infrastructure-It’s about investing. The magic of microfinance (by becoming a registered broker-dealer) necessary for everyday people to invest and earn a return.

– It’s about scaling. How do we go from reaching 100 million people to reaching a billion people? We need out-of-the-box thinking that enables us to grow the industry in a step-function way. Access to capital is one part of the equation and MicroPlace enables people to invest as much as they like without limitation (of course within regulations).

-It’s about sustainability. Microfinance won’t succeed unless we build it in a sustainable way, which means everyone needs to earn a return from the investor in Indianapolis to the borrower in Bangladesh. Charity dollars are just not enough, even if every single charity dollar was given to microfinance organizations. We need people to start thinking about microfinance with their investment wallets, not their charitable wallets. Then we’ll really see the power of microfinance!

Now that MicroPlace has been active for a few weeks, are you starting to see trends in the region or type of fund your users prefer? What do you think is influencing these trends?

It is really too early to tell. But stay tuned! I think we will have some very interesting trends to report over time.

The MicroPlace model seems to have the advantage of being able to reach MFIs that have not received as much donor support – at the same time, how do you manage quality control to ensure the integrity and viability of the MFIs your users are investing in?

In addition to some brand name microfinance institutions, we are delighted to be featuring some lesser known MFIs as well. There are so many MFIs doing great work around the world. While all investments inherently have some risk, investors should know that extensive research, due diligence and background checks are conducted before we allow an investment to be listed on MicroPlace. This is an important role we play as a brokerage firm and part of the infrastructure we created that I mentioned above.

What do you think is next for the mainstreaming of microfinance? Are we coming upon a time when people can check a box to divert 10% off their 401k to MFIs, for example? What do you envision for this movement?

Definitely! I believe the capital markets are really waking up to microfinance as a new asset class. Soon people will be putting a portion of their investment portfolio in microfinance. People will be allocating a portion of their 401K. Where once people gave savings bonds for holiday gifts, now people will be giving gifts of microfinance investments. The industry consistently proves to be a good investment, so there is no reason to think otherwise. And given the nature of the underlying assets, microfinance is also uncorrelated with global markets. In other words, the working poor around the world pay back their loans even when the US economy is flagging.