I recommend also the following article that deals with this tension between profits and social mission in social enterprises. It is a very good additional reading for this theme:
Platform, Not Product is the right approach to fight poverty at developing countries, yet what we see at developing countries is that awareness about existence MFI’s are at the minimum. To mention an example many government run schools are in miserable condition so as children and their parents. Children refuse to attend the school due to various reasons like they cannot even afford a simple breakfast (two slices of bread or milk), no classrooms, under the tree classrooms, winters are nightmare for them without a warm clothing they cannot sit under a tree…etc. MFI as an platform be part of Corporate Social Responsible (CSR) products and MFI’s visibility and purpose must be more specific. MFI’s kiosks/counters must be physically seen at government schools and in also in slums where world’s poorest live in horrible condition. MFI"s must find poorest locally than poorest coming across existence of the MFI’s by chance.
I like to think about these things in terms of ecosystems, where there needs to be a balance between all players:
And I agree that there should be a cap on the overall returns that an investor can get from micro-finance, and the goal should be to keep these rates at a max that would be close to typical average market returns (S&P;for example). This guarantees sustainability from the investor prospective, they are not “losing” money when investing in MFIs, but at the same time higher returns should be not acceptable because then other parts of the ecosystem are getting squeezed. What the investor gets for his money is that he will not loose, and then he is contributing to helping the poor by choosing to invest in the right places instead of going for the usual suspects (oil and guns on the stock market to be extreme).
This is where there is good co-existence between the 2 worlds within the larger global ecosystem, because the markets provide a good benchmark for what is reasonable. Then the decision from the investor prospective becomes a choice between getting high returns from companies whose impact on the world is not considered, or reasonable returns from companies who also do good somehow. An analogy here is what Peer-to-peer lending (prosper.com for example) is doing today, where people decide what level of return they want from one person/project or another. The good news from what I have read is that borrowers tend to get better rates there than from regular loans, because investors value good credit more than a bank would, and they are happy to keep their return “reasonable” if it can help these “good” borrowers.
Once this is established, I see MFIs being a platform as 2 things:
- a blueprint, with processes and governance that can be applied to other under-served areas. I think this is what the examples you are giving with Grameen Healthcare and Grameen Renewable Energy are about. This is horizontal growth, getting into other “markets” where similar recipes can be applied.
- and then each individual MFIs is its own platform in the sense that it is a social network of people who work together and share a chart of ethics (the glue between these people) that guarantees the success of their effort. This social network as a platform can be expanded from the original mission to fulfill other needs of the people within the group. Call it vertical growth, expanding from providing loans to providing insurance for example. This is where the reinvestment of profits above the reasonable rate of return come into play.
Clearly a good way to grow from where we are with Microfinance to a better world overall…
It is a nice article and hopefully a good number of MFIs will adopt and put into practice the proposed MODEL.
Along the same line there is a need to create global platforms to spread more education and practices on Microfinance and how best can Microfinance be used to fight poverty across the world. Such a platform can be GLOBAL TELEVISION FOR MICRO-FINANCE DEVELOPMENT which will have at least 10 channels and broadcast across the world in various languages.
By the way can countries like China come with a GLOBAL MICRO-FINANCE FUND in order to ensure supply meets the demand. An annual injection of about 50bn from China can make a lot of difference.
Good day and wish you all success.
I fear , it is not about calling it platform or product , call it what you want, it does not make a difference to the client / customer/ investor. The depth, quality and continuum of service is what matters for the poor , and greater / larger/ quantum and continuity of return is what matters for the investor. While you can have a balance, you cannot maximise both, even by spinning off as separate entities !! there could be few exceptions as in Bangladesh. What happens when there are too many players and banking system has a strong presence…. I feel serving the poor through redesigned products , like the SHG-Bank Linkage programme works for the commercial banks is very much effective and banks are happy competing with one another ( a healthy competition for the customer ) and it often leads to quoting lesser interest rates, quicker processing , lesser charges and delivery of better services etc etc, the relationship talked about in the article is very product …it is the product , that has enabled the relationship banking and platform for continuance. …..but , I fear it would be conflicting for mFis , especially the “for profit registered entities” , in which the equities has been picked up by investors and venture capitalists. Here the investors look for increasing dividends, capital appreciation of the stock if listed ( increased market capitalisation etc) and so on …this puts a lot of pressure on the owner- management … I have seen many wrestle with that as well… this could lead to a possibility of a mission drift …often unintentional.
Further, I fear in both these, whether you call a poor customer (in social entities ) or client ( in profit entities ) , there is also a conflict in the culture , tradition and the values and this would lead to incongruity in function beyond a point. Even when you spin off as separate entities …and charge the client for the non-financial service
Thank you for such very informative article. As touched upon in the article, one of the important challenges in the microfinance development is reconciling the ‘financial’ and ‘social’ objectives. More articles and debates on this very issue would be an important intervention. GETANEH
If enough emphasis is placed on social performance indicators by lenders and donors, MFIs will be compelled to make a decision as to whether to pursue a double bottom line approach or not. Those that do not will compete against each other for capital that does not place value in a social mission. Those that do will offer investors and donors seeking more than financial returns with real value. Using market forces to distinguish the effective from the ineffective is not new, but the application of it to social indicators is.
Ryan Calkins
Executive Director http://www.seattlemicrofinance.org
Poverty results from an undemocratic distribution of power in society. Tragically, the deeper issues of money system as a system power are not being addressed by the microfinance community.
The Grameen Bank model has a number of distinctive features that few other microcredit programs replicate, beginning with the fact that it is a real bank cooperatively owned by village women and provides its owners with a variety of depository, savings, and lending services self-financed in the local currency. This keeps money, including interest and profit, circulating in the community to facilitate activities that build community wealth that stays in the community. When programs are controlled and financed by outside organizations and investors, interest and profits flow out of the community, thus transferring the benefits of wealth accumulation from the community to program administrators and foreign investors far removed from the community in question.
Unfortunately, all too few microcredit programs replicate the features of the Grameen Bank that secure the power and benefit of the flow of credit for the poor. Too often they instead replicate many or all of the features of a global money system that virtually guarantee an ever greater concentration of wealth and power in the hands of a small global financial elite and a perpetuation of economic exclusion for those the programs presume to help.
These important perspectives have led to the creation of Truelift, a trust mark for microfinance (and other forms of social business) to signify true success in pro-poor practice. We invite you to come take a look at our assessment tool and the first MFIs to be recognized for their successful pro-poor practices.
COMMENTS
BY Juan Gabriel Osuna
ON June 9, 2008 04:10 PM
I recommend also the following article that deals with this tension between profits and social mission in social enterprises. It is a very good additional reading for this theme:
http://redalyc.uaemex.mx/redalyc/src/inicio/ArtPdfRed.jsp?iCve=81803006&iCveNum=7797
BY Rajesh
ON June 10, 2008 12:12 AM
Platform, Not Product is the right approach to fight poverty at developing countries, yet what we see at developing countries is that awareness about existence MFI’s are at the minimum. To mention an example many government run schools are in miserable condition so as children and their parents. Children refuse to attend the school due to various reasons like they cannot even afford a simple breakfast (two slices of bread or milk), no classrooms, under the tree classrooms, winters are nightmare for them without a warm clothing they cannot sit under a tree…etc. MFI as an platform be part of Corporate Social Responsible (CSR) products and MFI’s visibility and purpose must be more specific. MFI’s kiosks/counters must be physically seen at government schools and in also in slums where world’s poorest live in horrible condition. MFI"s must find poorest locally than poorest coming across existence of the MFI’s by chance.
BY Marc Dangeard
ON June 10, 2008 12:19 AM
I like to think about these things in terms of ecosystems, where there needs to be a balance between all players:
And I agree that there should be a cap on the overall returns that an investor can get from micro-finance, and the goal should be to keep these rates at a max that would be close to typical average market returns (S&P;for example). This guarantees sustainability from the investor prospective, they are not “losing” money when investing in MFIs, but at the same time higher returns should be not acceptable because then other parts of the ecosystem are getting squeezed. What the investor gets for his money is that he will not loose, and then he is contributing to helping the poor by choosing to invest in the right places instead of going for the usual suspects (oil and guns on the stock market to be extreme).
This is where there is good co-existence between the 2 worlds within the larger global ecosystem, because the markets provide a good benchmark for what is reasonable. Then the decision from the investor prospective becomes a choice between getting high returns from companies whose impact on the world is not considered, or reasonable returns from companies who also do good somehow. An analogy here is what Peer-to-peer lending (prosper.com for example) is doing today, where people decide what level of return they want from one person/project or another. The good news from what I have read is that borrowers tend to get better rates there than from regular loans, because investors value good credit more than a bank would, and they are happy to keep their return “reasonable” if it can help these “good” borrowers.
Once this is established, I see MFIs being a platform as 2 things:
- a blueprint, with processes and governance that can be applied to other under-served areas. I think this is what the examples you are giving with Grameen Healthcare and Grameen Renewable Energy are about. This is horizontal growth, getting into other “markets” where similar recipes can be applied.
- and then each individual MFIs is its own platform in the sense that it is a social network of people who work together and share a chart of ethics (the glue between these people) that guarantees the success of their effort. This social network as a platform can be expanded from the original mission to fulfill other needs of the people within the group. Call it vertical growth, expanding from providing loans to providing insurance for example. This is where the reinvestment of profits above the reasonable rate of return come into play.
Clearly a good way to grow from where we are with Microfinance to a better world overall…
BY Josephat S. Sanda
ON June 10, 2008 07:39 AM
It is a nice article and hopefully a good number of MFIs will adopt and put into practice the proposed MODEL.
Along the same line there is a need to create global platforms to spread more education and practices on Microfinance and how best can Microfinance be used to fight poverty across the world. Such a platform can be GLOBAL TELEVISION FOR MICRO-FINANCE DEVELOPMENT which will have at least 10 channels and broadcast across the world in various languages.
By the way can countries like China come with a GLOBAL MICRO-FINANCE FUND in order to ensure supply meets the demand. An annual injection of about 50bn from China can make a lot of difference.
Good day and wish you all success.
BY Dr. B.S.Suran
ON June 10, 2008 08:36 AM
I fear , it is not about calling it platform or product , call it what you want, it does not make a difference to the client / customer/ investor. The depth, quality and continuum of service is what matters for the poor , and greater / larger/ quantum and continuity of return is what matters for the investor. While you can have a balance, you cannot maximise both, even by spinning off as separate entities !! there could be few exceptions as in Bangladesh. What happens when there are too many players and banking system has a strong presence…. I feel serving the poor through redesigned products , like the SHG-Bank Linkage programme works for the commercial banks is very much effective and banks are happy competing with one another ( a healthy competition for the customer ) and it often leads to quoting lesser interest rates, quicker processing , lesser charges and delivery of better services etc etc, the relationship talked about in the article is very product …it is the product , that has enabled the relationship banking and platform for continuance. …..but , I fear it would be conflicting for mFis , especially the “for profit registered entities” , in which the equities has been picked up by investors and venture capitalists. Here the investors look for increasing dividends, capital appreciation of the stock if listed ( increased market capitalisation etc) and so on …this puts a lot of pressure on the owner- management … I have seen many wrestle with that as well… this could lead to a possibility of a mission drift …often unintentional.
Further, I fear in both these, whether you call a poor customer (in social entities ) or client ( in profit entities ) , there is also a conflict in the culture , tradition and the values and this would lead to incongruity in function beyond a point. Even when you spin off as separate entities …and charge the client for the non-financial service
Cheers
Dr.B.S.Suran
BY Getaneh Gobezie
ON June 11, 2008 06:04 PM
Thank you for such very informative article. As touched upon in the article, one of the important challenges in the microfinance development is reconciling the ‘financial’ and ‘social’ objectives. More articles and debates on this very issue would be an important intervention. GETANEH
BY Ryan Calkins
ON February 7, 2009 02:30 PM
If enough emphasis is placed on social performance indicators by lenders and donors, MFIs will be compelled to make a decision as to whether to pursue a double bottom line approach or not. Those that do not will compete against each other for capital that does not place value in a social mission. Those that do will offer investors and donors seeking more than financial returns with real value. Using market forces to distinguish the effective from the ineffective is not new, but the application of it to social indicators is.
Ryan Calkins
Executive Director
http://www.seattlemicrofinance.org
BY David Korten
ON February 1, 2011 05:41 AM
Poverty results from an undemocratic distribution of power in society. Tragically, the deeper issues of money system as a system power are not being addressed by the microfinance community.
The Grameen Bank model has a number of distinctive features that few other microcredit programs replicate, beginning with the fact that it is a real bank cooperatively owned by village women and provides its owners with a variety of depository, savings, and lending services self-financed in the local currency. This keeps money, including interest and profit, circulating in the community to facilitate activities that build community wealth that stays in the community. When programs are controlled and financed by outside organizations and investors, interest and profits flow out of the community, thus transferring the benefits of wealth accumulation from the community to program administrators and foreign investors far removed from the community in question.
Unfortunately, all too few microcredit programs replicate the features of the Grameen Bank that secure the power and benefit of the flow of credit for the poor. Too often they instead replicate many or all of the features of a global money system that virtually guarantee an ever greater concentration of wealth and power in the hands of a small global financial elite and a perpetuation of economic exclusion for those the programs presume to help.
The issues are elaborated in “Microcredit: The Good, The Bad, and the Ugly.”
http://www.yesmagazine.org/blogs/david-korten/microcredit-the-good-the-bad-and-the-ugly
David Korten
GSB MBA ’61, PhD ‘68
Board chair, YES! Magazine and author of Agenda for a New Economy
BY JD Bergeron
ON March 10, 2014 01:53 PM
These important perspectives have led to the creation of Truelift, a trust mark for microfinance (and other forms of social business) to signify true success in pro-poor practice. We invite you to come take a look at our assessment tool and the first MFIs to be recognized for their successful pro-poor practices.