Okay, so I had this idea...
Micro-Finance organizations all over the world are dominated by non-profit, religious based NGOs. They are there to help people by giving them a low interest, sometimes even zero interest loans to start a business and feed their families. In theory the recipients pay back the loans into the pool and the money is then re-loaned to others or they take out new loans to expand their businesses take on new employees etc and thereby benefit the whole community.
But there are some who say that Micro-Finance doesn’t work. My guess is that the religious connections of the organizations alienate some ethnic communities, the loan amounts are too small to really make a difference, the communities are too focused on subsistence to truly run effective businesses or that it creates a culture of dependence on easy credit (sound familiar?). There is also some merit to the argument that the recipients have almost no concept of how a free market economy actually works.
The fact that the seed capital came as a donation from an individual that does not expect a return on investment also creates a culture whereby the parent organization does not have a long term investment in the recipient, without an expectation of a return there is no mechanism that allows the Micro Loan to grow beyond a very small amount, enough to effectively support a growing economy.
What if Micro-Finance were managed like a bank or bond market, complete with shareholders who expected a return on their investment?
Simply put – a Bond is a created when a debt is portioned out to a number of different individuals. If I buy $1000 bond in a mortgage company that doles out mortgages to individuals in the amount of $100.000, I in essence own 1% of someone’s house. As the mortgage is repaid I receive a dividend equal to value of my ownership plus interest and I can sell my entire bond at market value at any time. So if the house increases in value, so does the value of my bond.
As always these brain storms bring up more questions than they answer.
Questions – What are the reasons most often cited that Micro-Finance doesn’t work?
- Who can I partner with on the ground to manage these loans?
- What is a realistic rate of return?
- What kind of regulatory hurdles are there to making this work?
If anyone out there can help me answer these questions I would appreciate it....
Here I am! I am from microfinance industry, with more than ten years in microfinance! I work for international organization, World Vision.I occupied different positions from junior to senior positions: I am now Credit and Operations Director.
ReplyDeleteI have seen miracles where lives of poor were transformed through microfinance.
A microfinance institution has to be sustainable, it has to produce enough income to cover its expenses.
I am inviting you to invest in my country Rwanda. The country is rated to best performer in improving the business investment. See http://www.bbc.co.uk/worldservice/africa/2009/09/090909_rwanda.shtml and http://www.doingbusiness.org/ExploreEconomies/?economyid=160.
Microfinance in Rwanda is well regulated. There is a new microfinance policy, there is a network for microfinance institutions. You can read this: http://www.sparkassenstiftung.de/archivdetail.html?&L=1&tx_ttnews[tt_news]=137&cHash=22d2f67db1
Do you need someone to partner? I am the one, I have a dream to create a microfinance institution locally based.I struggle capital but the technical side is there.
I would like to SEND you my private e-mail then we start discussion: birasapatrick@gmail.com.
Canadians are the most welcomed in Rwanda. There is no visa required to come to Rwanda. Rwanda and Canada has a link, because of General Romeo Dallaire serving in Rwanda during genocide.
I stay in touch for further explanation.
Another downfall of microfinance... being targeted by fraudsters. ;)
ReplyDeleteI like your thoughts on this. My husband and I have had discussions about this kind of thing with the fellowship group we are discipling, but haven't gotten as far as you in our musings. It gives us more to think about to make a dream like this into reality. Thanks for inviting me to your blog - it's awesome! :)
Hey there Lauren,
ReplyDeleteI am in Japan and have been working with an org called HOPE International. I was in Cambodia in August where I saw microfinance working really well. It seems though that broad integration is an important key. The successful families I saw were started off with a well for clean water, and that was completely free. But then they could grow more vegetables. Then they were loaned a cow for a year, and allowed to keep the calf. The next year the cow goes to another family. The change in five years was remarkable. I am supposed to have made a video about it on my Youtube page already, but i haven't gotten around to it yet. Soon!!