Microfinance: “Ripe for disruption”
Is the goal of microfinance to lift people out of poverty or financial access for all? This was the opening debate of the 8th European Microfinance Platform (e-MFP) conference. The event, which is held each November in Luxembourg, attracted 380 delegates from 59 countries and was opened by HRH the Grand Duchess of Luxembourg, an engaged and knowledgeable supporter of microfinance.
Opening the debate, Michael Chu, managing director of the IGNIA fund and senior lecturer at Harvard, argued for microfinance institutions (MFIs) to be judged on what they do: “They remove the obstacle of access to finance”. Long term, businesses can and do fail, he continued; it is not appropriate to judge them on long-term social impact.
Taking the opposite view, Suresh Krishna of Grameen Financial Services argued that people don’t necessarily want money. Their priority might be education, healthcare or access to sanitation: “I don’t want to run a business, I want a salary!” is a frequent response in customer studies.
In the ensuing debate Mr. Chu argued that everybody needed money but that the existing model of microfinance, which had once overturned the way banking was conducted, was now 20 years old. The model is “ripe for distruption … or irruption”, he joked.
“High touch” acquisition of new clients puts pressure on costs, interest rates and scalability. Ideas for achieving “low touch” include revolutionary ICT solutions, such as one company that is testing a 10 question online psychometric quiz to ascertain whether a loan should be given. However, other delegates spoke up for the need not to lose the human touch.
The theme of the conference “The future of microfinance” was a Leitmotif that ran through some 50 sessions and working groups. The environmental question is particularly sensitive. A moving description of the damage caused by Typhoon Jolanda in the Philippines put in context the difficulty of changing attitudes towards rain forest destruction and other practices: “Survive today” and “Do not harm the environment” cannot be a binary question.
Microfinance is contributing significantly to meeting several of the Millenium Development Goals. However, the targets for 2015 were only ever interim goals on the road to zero tolerance of hunger and exclusion by 2030. It is time to think creatively. As one Mexican delegate summed up the challenge that faces even his highly successful MFI: “We don’t want to be the Kodak of microfinance.”
Picture: ©Eric Chenal/tous droits réservés