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

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

On Sunday, September 14, 2014 3:52 AM, "Priscilla Mirembe Serukka priscilla.serukka@stromme.org [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

Agreed with you. We need to change. In the past excuse was about becoming sustainable and other excuses of having very risky clients. This no longer holds. Priscilla

On 12. sep. 2014, at 08:17 PM, "'Chuck Waterfield' waterfield@microfin.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

I'm reaching the decision that I'm wrong on something I believe passionately about.

I believe the microfinance industry needs to stake out a clear position that we do not make excessive profits off of the poor, that we do not charge usurious rates to the poor. Others do that, and they have that choice. But to me, responsible practice means we restrain ourselves and make no more than moderate profits.

I've been saying that over and over for 7 years. But the industry disagrees. We still do not have a good definition of "responsible price" and we do not have any industry position on responsible profit vs. profiteering.

Last month, Compartamos became the 22nd MFI in the world to be certified as meeting the SMART principles, despite prices of 105% and profits of US$1M a day.

I made my case last week, at the Micro Credit Summit in Mexico. My views are summarized in this article by NextBillion:

http://www.nextbillion.net/blogpost.aspx?blogid=4057

I have recorded my position in this 15-minute video here:

http://www.mftransparency.org/making-markets-safe-vulnerable-good-intentions-concret-actions/

I know there are many people who share my views. But we are outvoted. (Oh there are no votes taken on these positions.)

Self-regulation has a serious risk of really being self-interested regulation. Until open debate and objective decision-making takes place, I see no change possible. But what open forum is there for debate and decision-making on these topics? I certainly haven't seen one.

So maybe I'm wrong on all of this. But without discussion and debate, I can't be convinced that I'm wrong.

Chuck Waterfield