Microfinance Practice: Re: [MFP] Microfinance's position

This seems like a tired discussion that is recycled repeatedly - that seems to stem more from a discomfort or perhaps misunderstanding of markets and the assumption that with "excess" profits (whatever that means) must come some form of thievery, manipulation or immorality.

Why this hand wringing over profits particularly given that the vast majority of these profits are being reinvested and leveraged to provide more capital to more clients?

These clients aren't in captive markets - so would our so-called "watchdogs" also object to the funds that are being lent out or the lives improved because of the lending?

Are our so-called "watchdogs" also objecting to the bloated bureaucracies, poorly formed service offerings and inefficiencies in competitive institutions that have resulted in clients flocking to (much more profitable and efficient) institutions that meet their needs?

Now the question needs to be asked - is it possible that just maybe, given the growth of these significantly more profitable institutions like Compartamos despite competing against other local, marginally profitable if even unprofitable firms including co-ops, suggest that they're meeting the needs of clients better than others?

In a just world, commercialization - also associated with standardization, efficient delivery of resources and growth, would be celebrated rather than decried. In the meantime, they are free to "exploit" the "poor", delivering the services that the "poor" want and need. Instead of seeing "empowerment" as a catch phrase, these are the institutions that actually deliver - seeing the "poor" as clients who they serve and for whom they must deliver value. What a shame.

Now, given that there are many who would cast aspersions on the motives of some significantly profitable institutions and their managers, while pushing for price controls - or more appropriately, profit limits, who are "watchdogs" actually serving? To be entirely impolitic - are "watchdogs" serving the "poor" or an industry of marginally profitable if not unprofitable institutions that seek to limit competition because they just aren't able to hack it?

Clement

---In MicrofinancePractice@yahoogroups.com, <getanehg2002@...> wrote :

Dear colleagues,

Good!! True, it is hard to have a DEFINITION of a 'fair' microcredit interest rate!! The factors that should go into its computation are well known in the industry, and they depend on the 'context' (e.g labour cost, infrastructure, etc) where the MFI works. … Some of these factors can be relatively benchmarked (with comparable contexts) while others (specially 'profit') cannot be … So in many contexts, it is left for the decisions of microfinance institutions -- to 'self regulate' themselves....

But I don't think this can ever be left for 'self-regulation', and some monitoring is relevant. For this, I believe that Muhammed Yunus' earlier proposal is a good starting point. … He made a generic proposal (at different forums, including at Microcredit Summit). … His suggestion is based just on one of the four key elements that should go into the computation -- i.e on the 'Cost of Capital'' (which, he argues, can NOT be influenced by the microfinance institutions, and therefore is 'given').

He described ''fair microfinance'' as follows. Cost of money + 10% -- that was the acceptable "green zone" of business. Cost of money + 15% -- you were entering the ''yellow zone'', bordering on being questionable. More than 15% over the cost of money, and he had no doubts - that was the ''red zone''.

Does anyone has a better proposal? Or should this issue still can be left for 'self-regulation?

Thanks and Regards

Getaneh Gobezie

LinkedIn Profile:

http://www.linkedin.com/profile/view?id=47039565&trk=wvmp-profile

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Posted by: clementwan@yahoo.com

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