Friday, January 27, 2006
To Anyone familiar with banking in the rich world, the world of microfinance can seem rather odd. The main providers have not been motivated by anything as straightforward as making money, at least until recently. The core of the industry today consists of some three dozen multinational networks of microfinance providers, which despite their superficial similarities and inspirational rhetoric compete fiercely and fight over everything.
The main areas of strategic disagreement are whether the financial needs of the poor are best met by group or individual loans; by market or capped interest rates; by catering for all the poor or only the very poorest; by concentrating on credit only or offering savings accounts and insurance too; and whether financial services should be provided alone or in conjunction with education, health care and, in a few cases, religion. The biggest networks include Opportunity International, FINCA, ACCION, Pro-Credit, Women’s World Banking and arguably Grameen (which has no formal ties to other banks but a “replication” programme that it says encompasses more than 100 institutions around the world). There are also national networks, regional networks and even networks of networks, each with their own set of institutions and strongly held views.
At one end of the spectrum are those organisations and networks that, by intent, are barely profitable and concentrate on providing credit, such as Grameen and most of FINCA’S and Opportunity’s operations. They offer relatively lenient repayment terms and interest rates that do little more than cover costs. Typically, these groups are not-for-profit, or owned by customers or by investors of the religious and philanthropic sort, rather than by shareholders seeking a financial return.