As you can tell, the team at Arrested Development has taken a little break ever since we
picked up a terribly distracting hard drug habit had to return to the back-breaking grind of the real world.
In other news:
CGAP has a great series of posts on the recent release of Indian MFI giant SKS’s initial public offering (IPO). While this isn’t the first time an MFI has gone public (Los Compartamos got a lot of attention for it 3 years ago), it brings us to ask if the microfinance sector is going through mission drift. But more importantly, will this drift benefit the “bottom of the pyramid” that microfinance ostensibly serves?
By going public, an MFI gains access to vast amounts of capital and reduces their potential dependance on donors (although SKS is at this point well beyond the need for grants). At the same time, bringing in new share-holders necessitates a greater focus on short-term profits, which some might argue can be opposed to the needs of poor clients.
IPOs aren’t the only way MFI’s can commercialise. The more common route is for MFIs to offer more sophisticated financial products (individual loans for example) to comparatively richer clients. The new yields can either cross-subsidise more poor clients or help move the MFI closer to sustainability (or a commercial enterprise).
Commercial MFIs tend to have better profit focused results than their development-oriented counterparts. They achieve width (more clients) of financial inclusion. But do they have more depth (reaching poorer clients)?
Malawi provides an interesting case here. Around 2005, two of the largest MFIs, FINCA and OIBM began reaching out to richer clients by offering new savings and loan products marketed to the Malawian middle class. The other two major players, Microloan Foundation and Concern Universal kept the focus on poorer clients and continued to rely on donor subsidies to run low-yield, pro-poor loan programmes.
Two major changes happened within FINCA and OIBM. Their average loan size compared to GNI per capita rose and their ratio of female to male borrowers significantly decreased.
OIBM succeeded in widening financial access, jumping from 5,000 borrowers in 2005 to 45,000 in 2009. FINCA on the other hand actually experienced a decline in borrowing.
These charts are messy. But
I really don’t give a shit. We apologize for this.
But did either achieve depth? Women, who are traditionally excluded from financial services in Malawi, certainly didn’t gain from commercialisation. Most of OIBM’s loan sizes were already too large for most of Malawi’s poor and commercialisation hardly made them accessible to the poor . Despite the volatility in loan sizes, balances continued to hover atleast 4 times higher than that of OIBM’s counterparts.
Commercialisation of MFIs can do wonders if your goal is to offer consumption credit to the middle class. But don’t expect it to increase access for the poor.