19 Mar 2011

“Poverty is the name of the game”

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“Poverty is the name of the game …”

Conference ALFI Micro Finance 2011

… dixit Damian von Stauffenberg, founder and CEO of Microrate, Washington, one of the leading microfinance rating agencies.

Kimanthi Mutua, President of the AMTF (African Microfinance Transparency Forum), Nairobi, describes the microfinance’s stake with other words : he outlines the permanent tension existing between financial return and social performance.
What microfinance is aimed to serve ? The end beneficiaries first or the investors ? Can there be both in the same time ? In my view, there is a priority to serve : the development, the improvement of living standards of the poor, etc … so “investors first” is definitely not the good way of thinking in this sector. We should rather suggest a win-win contract, which a combination between financial and social return (the so-called “bottom line”).

The 17th March was the 3rd annual Microfinance conference organized in Luxembourg by the ALFI (Association of Luxembourg Fund Industry). A high spot in the calendar of the microfinance European events.
The most recent experiences the industry has gone through in 2010 were in the center of the agenda and discussions of the day : the Indian crisis, the impact of the global economic downturn, the level of interest rates, etc …

When microfinance brings out the diversity of the needs

In a global overview of the microfinance market trends and perspectives, Damian von Stauffenberg has stated that the “stage of innocence is definitely over”. Microfinance is becoming a “young adult” resulting in biggest challenges to overcome. The first one is to take into account the large diversity of situations at the grassroots : from Asia to Latin America passing through Central Europe and Africa, the hurdles the poor are facing can be extremely different to each other. The poverty factors may vary significantly from one country to another, depending on their economic, social and political context. There is a growing demand to set out specific solutions and practices close to each situation. It should require to get closer to the academic world, as suggested by Marc Labie, Professor at the Mons University, Belgium, as the business cases are becoming more and more complex and need to innovate increasingly.

Technical assistance : a further way to secure investments

In this perspective, it was reminded that microfinance is not only a question of microcredit … meaning that technical assistance (TA) aiming at reinforcing local capacities should also be part of the global package. The TA is too often let aside just because it costs, not only money but merely time. It requires on top of this a strong commitment from the MFI, in order to make it a success. It may be time consuming. Some MIVs (microfinance investment vehicules) fund the TA through the allocation a certain percentage of their financial return (for instance 10 bps). Some of them see in TA a non negligible leverage to reduce the risk on the MFIs (microfinance institutions) they invest in. Indeed capacity building does help MFIs to reinforce their governance and their professionalism as a whole.

Transparency : certainly the most urgent point to address

Last but not least, the lack of transparency has been deeply discussed, as it appears to be a major obstacle and danger for a sustainable development of microfinance. “What has been done in Andhra Pradesh, India, is not microfinance, just microcredit”, said Damian von Stauffenberg. MFIs have lent without checking the utilization of the money. most of the beneficiaries have used it to acquire consumption goods. It witnesses the lack of transparency in the sector’s practices. At the very bottom, information and reporting on the MFIs activities are still dramatically missing, although some efforts have already been done.

It may result in very asymmetric and sometimes inconsistent objectives and strategies between how MFIs intend to grow and what their funders (MIVs among them) are expecting from them. In this context, it is not surprising that investors get rapidly helpless, when they try to get details on their investments in microfinance.

As a conclusion, microfinance is any other than a standard product as it has used to being considered until now. The challenge of this decade will be to deliver more and more flexible and tailored solutions matching with the local situation. Subsequently it will oblige MFIs and MIVs to explain and communicate more in depth on their approach. It should help for more transparency.

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One Response to “Poverty is the name of the game”
  1. I am highly dehieltgd about the way things have been clarified in the texts. Please, there is this favour that I would like to ask from you especially the foundations involved in helping the poor. There is this association of poor street women, parents for that matter who are looking for just small amounts of money to start businesses in order to better their lives and get something to cater for their children.This association is found in Ghana and it was formed by the director of the light outreach foundation, Ghana office.The office had so far helped 50 of these 150 women to establish their own businesses.However, the office has run out of money and is therefore pleading with donor agencies and supportive institutions to help fund these women to get businesses of their own so as to get enough to feed themselves and their children who are the leaders of tomorrow.Thank you very much for deciding to help.


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