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

I don't disagree with how microfinance was funded - nor do I disagree with what you are describing as the intent. Interventions to encourage private market participation are sadly not unusual and it is right that this subsidized capital should end.

That said, there is very much innovation and wealth creation for consumers (as suggested even of longer term studies of usurious rates in South Africa because of the access to capital) - and the issues you outline of high interest rates and fees are not isolated to for-profits as not for profits also attempt to use fees to cover sometimes ever bloated and burgeoning administration costs.

If there is not a reasonable chance of repayment, nor value created, clients just don't come back to the same institution with declining opportunities over time for said institution unless the assumption is that their clients are effectively easily susceptible wall flowers. In fact, based on publications over time of prevailing interest rates in Mexico - despite the 105% APR that Mr. Waterfield has outlined being charged by Compartamos, interest rates have fallen dramatically.

I would suggest with commercialization, microfinance is doing precisely what it was intended to do - create larger commercial lending institutions who target to the "poor"(er). The fact that clients continue to return and there remains tremendous growth in loans and portfolios shows that these institutions are not like money lenders of the past. And... at some point these institutions will even more directly seek to pursue each other's clients and prices will fall even faster than they have before if experience in every other sector of finance is any guide as it has done even in Mexico.

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

Microfinance was sold as a way to reduce poverty. See how much money was given as a grant, low interest loan from IADB, WB, USAID, and Europeans and how much capital was invested by original shareholders. And, when user is charged in addition to high interest rates, commission for all sort of training that never took place and you added up, rates go throughout the roof and the poor clients get creamed. That is no innovation or wealth creation for the consumer. Yes. It is for the owners who probably never put up a dime and made lots of money when they sold their investments a return on capital almost infinite.

My point is not that making a profit by MF to be a bad, if they are competitive, and there are regulations and price transparency fine. But Microfinance is not what it was intended to be another Money lender.

Chale Espinosa A

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Posted by: clementwan@yahoo.com

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