At the last MicroCredit Summit in Merida, Mexico in September 2014, Chuck Waterfield CEO of Microfinance Transparency (MFT) tried to ask this very question “How much profit should microfinance institutions be able to make from their poor clients?” Several large Mexican MFIs charge in excess of 100% interest on their loans. Noticeably missing from the plenary and from the entire Summit was the largest MFI in Mexico, the Acción affiliated Banco Compartamos, which made $275 million in profit in 2013, which represents a contribution of $107 from each poor Mexican client. While the microfinance industry has tried to promote self-policing of their members through efforts like the SMART Campaign (funded by Acción who profited handsomely from investing in Compartamos), the Social Performance Task Force and Truelift, fall short of keeping away loan sharking MFIs since they are voluntary and lack the teeth that regulatory agencies should have. Government regulation of MFIs in many developing countries is non-existent or weak and so poor clients are often on their own to ward off the legal loan sharks. This means, as far as impact investors are concerned, the check and balance system to prevent investment into usurious and disreputable MFIs must begin with the investors themselves and the Microfinance Investment Vehicles (MIV) where they often park their funds. There must be agreement about how much profit is ethical and deep understanding that institution oriented, profit-maximizing investment can be disastrous to poor people and that investors must insist on client centered, anti-poverty oriented policies by the institutions where they invest.
Government legislations regarding MFIs in most establishing international locations is non-existent or poor therefore very poor consumers are often independent to reduce the chances of the authorized bank loan sharks.
This means, as far as effect investors come to mind, the check in addition to sense of balance technique to avoid expense straight into usurious in addition to disreputable MFIs have to commence with the investors independently along with the Microfinance Expense Automobiles (MIV) exactly where sometimes they recreation area their money.
There ought to be contract about how precisely precisely very much revenue is ethical in addition to strong knowing that establishment driven, profit-maximizing expense can be unfortunate to the indegent and this investors have to require client focused, anti-poverty driven guidelines with the corporations exactly where they spend.
The goal of “maximizing” financial return on investment cannot live in a sustainable triple bottom line business model. Such a model requires intentional balance. Achieving minimum stated goals with the possibility of exceeding them is a more honest approach.
No investor wants to be limited in an equity investment, but shareholders who believe the goal is to “maximize” financial ROI will instinctively abhor expenses which do not directly contribute to it.
Please, no arbitrary maximums. Let’s not even ask the question, how much is enough, lest we destroy the instincts we hope to “capitalize” on.
A timely question to ask. There is currently a little too much hype around impact investment from my perspective. Many social investors are not seeking market based financial returns as highlighted by the JPM/GIIN survey.
Supporting social enterprise to start up and grow is increasingly being seen as an opportunity to invest in sustainable social impact as distinct from securing market rate returns.
The rejection of paying bribes has led me to destruction of family life, enormous mental & physical torture, disturbance in professional life, disturbance in education for my daughter. __ and all these acts can be considered as the inhuman, unpardonable & heinous acts which cannot be forgotten or forgiven in any way. All these 11-12 years I have lost all my precious time & energy to fight for the cause ___ &, you know time once lost cannot be redeemed.
The water resource should be made available to all irrespective of person’s, consumer’s, caste, creed, race, religion & origin & this can be done by enactment of law.
I, my self domestic water connection at home being the effect of my own efforts through the recourse of available administrative support after toiling hard for 11-12 years.
Half the job is accomplished still I am to get all other civic amenities. Other then domestic Water connection & domestic electricity after 11-12 years due to all corrupt officials of the whole systems in India.
The illustration as done above is based on the experience I have had for not being able to get basic civic amenities like water connection, sewerage drainage line, street light, cleanliness area, leading approached road as town planning etc.. That too in an urban area & the city in which I am living has a population of 30 lakhs & is known to be one of the most literate, cultural, historical & moral ethics citizen cities of India.
In view of pathetic living conditions I was living in 13-14 years ___ I had to leave the place of my earlier residence due to un-hygienic filthy living condition & have started living elsewhere thanks to all those corrupt, lethargic, whimsical, political illiterates’ elements & touts who have always wished to let me live under trying circumstances. The old residential place is now becoming threadbare as the days & years go by.___ Look up the matter & come out strongly to give me justice & punish the culprits who are still working in the systems enjoying all facilities, salaries & perks without sensing the feel of wrong doings.
As mentioned above, I do not reside on the address Hitesh H Bhatt. R.R.Patel bunglow, Nr. Shanti sager society, 51/1, Plot No-3, B/h. Wadi-mohmmad talav, B/h. Ram-vatika society, Waghodiya Road, Vadodara-390 019. Gujarat specified, however, I am deprived of (Electricity connection 5-6 years & drinking water connection for 10-11 years in the past) & now, 11-12 years now & yet the basic need for getting sewerage drainage line, leading approached road to my resident, cleanliness surrounding my resident, street light etc…. at my residence in spite of having made several applications, & personal meetings with the Vadodara Municipal Corporation (VMC) officials.
The answer could be even simpler. To what extent are social impact investors (or whatever the latest catchprase is) motivated be ideology rather than reality? Microfinance sang the right tune at the right time. Teach a man to fish, the power at the bottom of the pyramid, recycling credit, self-help, entrepreneurship, business creation. Here was a fresh alternative to vanilla aid. Everyone was a winner, and best of all, we could get our money back in the end, sometimes with vast profits. Whether it worked or not was, and remains, a detail to these folk. What evidence was there of the effectiveness of microfinance in 2005 when the UN declared the Year of Microcredit? What evidence of poverty reduction did the Nobel Prize folk have in 2006 when they awarded Yunus and Grameen the Nobel Peace Prize? These decisions are not made on rational, objective criteria, but feel-good ideological motivations mixed with some good old-fashioned greed. Microfinance became sexy, innovative, entrepreneurial. Silicon Valley took to it, big investment banks entered the fray, it was acknowledged and legitimized by everyone, from the (rather intransparent) Nobel Prize judges to the World Bank, Clinton, Oprah Winfrey, Bono, it even got on the Simpsons. And done cleverly it could generate ludicrous returns. Compartamos, mentioned above, is far more profitable that Apple or Google. Who cares if it works or not - that is a detail! Most social impact investors talk the talk, but don’t go any deeper. Those that do have invariably quit the microfinance sector entirely. Microfinance is simply commerical banking in unregulated environments to vulnerable clients, draped in an opaque veneer of “doing good”, and with a decent lobbying/marketing campaign behind it. The few effective operators have no need, nor intention to become household names and keep well below the radar. To fix this sector we need transparency, financial literacy, and formal regulation - the three things the sector detests the most. Providing financial literacy training is expensive and reduces returns. Transparency is good for other people, but not for the investment community or their investments. And regulation is the mother of all evils - the free market must reign unchallenged. This is, alas, the sector we have created, and while I fundamentally question the grounds upon which Yunus received his Nobel Prize, I agree with him when he lamented “I never imagined that one day microcredit would give rise to its own breed of loan sharks”.
An excellent article and – as mentioned above – very timely indeed. I agree with Glenn Thomas that ‘Business As Usual’ operates in ways that can’t be sustained. It’s potential returns are diminishing every day. Solutions for unleashing new economic opportunity through alternative ways of working are out there. But they are new and the returns they offer can feel unfamiliar - they don’t give the financial returns that the 54% of impact investors want.
Most investors don’t have much of an understanding of the markets; they understand finance. We can’t force investors to see things differently, but we can ‘get creative’ at finding ways for the markets to educate investors by demonstrating impact themselves. The way business is done will change because it has to. The sooner we get on it, the lesser devastation made. I believe that we live in a time when the catalyst to economic change is the people. Here’s the ‘Why’ to a start-up I co-founded called ‘The Citizens Media’ (CM) intended to help make this so:
“Most of the world’s economies are run by politicians and corporations. They work so the more you have, the more you can be or do. As a result, 1% of us make more than the other 99% combined, which is leading to environmental and social collapse. People are losing their homes; their needs not met; their skills undervalued and underused.
Yet politicians are just tools. How we use them is up to us. For real change to happen, the people must be given the means to build and lead economic activity themselves.”
It’s a crowdfunding platform that brings finance to community based projects. It uses communication and community currency exchange to release the collective power of the people in a way that makes solutions delivering the greatest value to people and planet, to trickle to the surface. Funds will be managed through an investment cooperative that uses information collected on impact to attract larger investments. You can read more about how it works by visiting http://www.the-cm.com. For a 3 minute video on the coop, visit the-i3.com.
If you’d like to learn more, please contact me at .(JavaScript must be enabled to view this email address).
COMMENTS
BY William Maddocks
ON January 8, 2015 11:32 AM
At the last MicroCredit Summit in Merida, Mexico in September 2014, Chuck Waterfield CEO of Microfinance Transparency (MFT) tried to ask this very question “How much profit should microfinance institutions be able to make from their poor clients?” Several large Mexican MFIs charge in excess of 100% interest on their loans. Noticeably missing from the plenary and from the entire Summit was the largest MFI in Mexico, the Acción affiliated Banco Compartamos, which made $275 million in profit in 2013, which represents a contribution of $107 from each poor Mexican client. While the microfinance industry has tried to promote self-policing of their members through efforts like the SMART Campaign (funded by Acción who profited handsomely from investing in Compartamos), the Social Performance Task Force and Truelift, fall short of keeping away loan sharking MFIs since they are voluntary and lack the teeth that regulatory agencies should have. Government regulation of MFIs in many developing countries is non-existent or weak and so poor clients are often on their own to ward off the legal loan sharks. This means, as far as impact investors are concerned, the check and balance system to prevent investment into usurious and disreputable MFIs must begin with the investors themselves and the Microfinance Investment Vehicles (MIV) where they often park their funds. There must be agreement about how much profit is ethical and deep understanding that institution oriented, profit-maximizing investment can be disastrous to poor people and that investors must insist on client centered, anti-poverty oriented policies by the institutions where they invest.
BY Elena Moreno
ON January 8, 2015 03:27 PM
Government legislations regarding MFIs in most establishing international locations is non-existent or poor therefore very poor consumers are often independent to reduce the chances of the authorized bank loan sharks.
This means, as far as effect investors come to mind, the check in addition to sense of balance technique to avoid expense straight into usurious in addition to disreputable MFIs have to commence with the investors independently along with the Microfinance Expense Automobiles (MIV) exactly where sometimes they recreation area their money.
There ought to be contract about how precisely precisely very much revenue is ethical in addition to strong knowing that establishment driven, profit-maximizing expense can be unfortunate to the indegent and this investors have to require client focused, anti-poverty driven guidelines with the corporations exactly where they spend.
BY Glenn Thomas
ON January 9, 2015 06:52 AM
The goal of “maximizing” financial return on investment cannot live in a sustainable triple bottom line business model. Such a model requires intentional balance. Achieving minimum stated goals with the possibility of exceeding them is a more honest approach.
No investor wants to be limited in an equity investment, but shareholders who believe the goal is to “maximize” financial ROI will instinctively abhor expenses which do not directly contribute to it.
Please, no arbitrary maximums. Let’s not even ask the question, how much is enough, lest we destroy the instincts we hope to “capitalize” on.
BY David Brookes
ON January 18, 2015 05:19 PM
A timely question to ask. There is currently a little too much hype around impact investment from my perspective. Many social investors are not seeking market based financial returns as highlighted by the JPM/GIIN survey.
Supporting social enterprise to start up and grow is increasingly being seen as an opportunity to invest in sustainable social impact as distinct from securing market rate returns.
BY HITESH BHATT
ON January 23, 2015 07:39 PM
The rejection of paying bribes has led me to destruction of family life, enormous mental & physical torture, disturbance in professional life, disturbance in education for my daughter. __ and all these acts can be considered as the inhuman, unpardonable & heinous acts which cannot be forgotten or forgiven in any way. All these 11-12 years I have lost all my precious time & energy to fight for the cause ___ &, you know time once lost cannot be redeemed.
The water resource should be made available to all irrespective of person’s, consumer’s, caste, creed, race, religion & origin & this can be done by enactment of law.
I, my self domestic water connection at home being the effect of my own efforts through the recourse of available administrative support after toiling hard for 11-12 years.
Half the job is accomplished still I am to get all other civic amenities. Other then domestic Water connection & domestic electricity after 11-12 years due to all corrupt officials of the whole systems in India.
The illustration as done above is based on the experience I have had for not being able to get basic civic amenities like water connection, sewerage drainage line, street light, cleanliness area, leading approached road as town planning etc.. That too in an urban area & the city in which I am living has a population of 30 lakhs & is known to be one of the most literate, cultural, historical & moral ethics citizen cities of India.
In view of pathetic living conditions I was living in 13-14 years ___ I had to leave the place of my earlier residence due to un-hygienic filthy living condition & have started living elsewhere thanks to all those corrupt, lethargic, whimsical, political illiterates’ elements & touts who have always wished to let me live under trying circumstances. The old residential place is now becoming threadbare as the days & years go by.___ Look up the matter & come out strongly to give me justice & punish the culprits who are still working in the systems enjoying all facilities, salaries & perks without sensing the feel of wrong doings.
As mentioned above, I do not reside on the address Hitesh H Bhatt. R.R.Patel bunglow, Nr. Shanti sager society, 51/1, Plot No-3, B/h. Wadi-mohmmad talav, B/h. Ram-vatika society, Waghodiya Road, Vadodara-390 019. Gujarat specified, however, I am deprived of (Electricity connection 5-6 years & drinking water connection for 10-11 years in the past) & now, 11-12 years now & yet the basic need for getting sewerage drainage line, leading approached road to my resident, cleanliness surrounding my resident, street light etc…. at my residence in spite of having made several applications, & personal meetings with the Vadodara Municipal Corporation (VMC) officials.
BY Hugh Sinclair
ON March 11, 2015 10:52 AM
The answer could be even simpler. To what extent are social impact investors (or whatever the latest catchprase is) motivated be ideology rather than reality? Microfinance sang the right tune at the right time. Teach a man to fish, the power at the bottom of the pyramid, recycling credit, self-help, entrepreneurship, business creation. Here was a fresh alternative to vanilla aid. Everyone was a winner, and best of all, we could get our money back in the end, sometimes with vast profits. Whether it worked or not was, and remains, a detail to these folk. What evidence was there of the effectiveness of microfinance in 2005 when the UN declared the Year of Microcredit? What evidence of poverty reduction did the Nobel Prize folk have in 2006 when they awarded Yunus and Grameen the Nobel Peace Prize? These decisions are not made on rational, objective criteria, but feel-good ideological motivations mixed with some good old-fashioned greed. Microfinance became sexy, innovative, entrepreneurial. Silicon Valley took to it, big investment banks entered the fray, it was acknowledged and legitimized by everyone, from the (rather intransparent) Nobel Prize judges to the World Bank, Clinton, Oprah Winfrey, Bono, it even got on the Simpsons. And done cleverly it could generate ludicrous returns. Compartamos, mentioned above, is far more profitable that Apple or Google. Who cares if it works or not - that is a detail! Most social impact investors talk the talk, but don’t go any deeper. Those that do have invariably quit the microfinance sector entirely. Microfinance is simply commerical banking in unregulated environments to vulnerable clients, draped in an opaque veneer of “doing good”, and with a decent lobbying/marketing campaign behind it. The few effective operators have no need, nor intention to become household names and keep well below the radar. To fix this sector we need transparency, financial literacy, and formal regulation - the three things the sector detests the most. Providing financial literacy training is expensive and reduces returns. Transparency is good for other people, but not for the investment community or their investments. And regulation is the mother of all evils - the free market must reign unchallenged. This is, alas, the sector we have created, and while I fundamentally question the grounds upon which Yunus received his Nobel Prize, I agree with him when he lamented “I never imagined that one day microcredit would give rise to its own breed of loan sharks”.
http://www.nytimes.com/2011/01/15/opinion/15yunus.html?_r=0
BY Caroline Smalley
ON January 23, 2017 11:25 PM
An excellent article and – as mentioned above – very timely indeed. I agree with Glenn Thomas that ‘Business As Usual’ operates in ways that can’t be sustained. It’s potential returns are diminishing every day. Solutions for unleashing new economic opportunity through alternative ways of working are out there. But they are new and the returns they offer can feel unfamiliar - they don’t give the financial returns that the 54% of impact investors want.
Most investors don’t have much of an understanding of the markets; they understand finance. We can’t force investors to see things differently, but we can ‘get creative’ at finding ways for the markets to educate investors by demonstrating impact themselves. The way business is done will change because it has to. The sooner we get on it, the lesser devastation made. I believe that we live in a time when the catalyst to economic change is the people. Here’s the ‘Why’ to a start-up I co-founded called ‘The Citizens Media’ (CM) intended to help make this so:
“Most of the world’s economies are run by politicians and corporations. They work so the more you have, the more you can be or do. As a result, 1% of us make more than the other 99% combined, which is leading to environmental and social collapse. People are losing their homes; their needs not met; their skills undervalued and underused.
Yet politicians are just tools. How we use them is up to us. For real change to happen, the people must be given the means to build and lead economic activity themselves.”
It’s a crowdfunding platform that brings finance to community based projects. It uses communication and community currency exchange to release the collective power of the people in a way that makes solutions delivering the greatest value to people and planet, to trickle to the surface. Funds will be managed through an investment cooperative that uses information collected on impact to attract larger investments. You can read more about how it works by visiting http://www.the-cm.com. For a 3 minute video on the coop, visit the-i3.com.
If you’d like to learn more, please contact me at .(JavaScript must be enabled to view this email address).