Moving Past Controversy: The Future of Microfinance

The following post is part of TriplePundit’s coverage of the 2011 Net Impact Conference in Portland, Oregon. To read the rest of our coverage, click here.

By Eliza Huleatt

It’s been a tough year for the image of microfinance. Mohammud Yunus was removed from his Nobel Prize winning Grameen Bank in March and scandals have erupted due to increased debt and high interest rates in countries such as India. Is microfinance just a fad that is now approaching its end? No way, say the experts. At the 2011 Net Impact Conference, the outlook was positive surrounding the future of microfinance.

Innovations to Keep an Eye On:

1. Technological Innovation

Thanks to innovative companies like M-PESA in Kenya, mobile banking is revolutionizing microcredit in developing countries. Mary Ellen Iskenderian, President & CEO of Women’s World Banking, confirms that powerful things can be done these days with a cell phone. She asserts that internationally, women are 33 percent less likely to own a phone, yet they are the primary money managers in the family. “Women value confidentiality and convenience,” Iskenderian explains, “and mobile banking offers both.” She sees increasing access to mobile banking as a main priority in the near future and is determined to get phones into the hands of more women worldwide.

2. Product Innovation

Why stop at microloans? Both Iskenderian and Rupert Scofield, President & CEO of FINCA, discussed the movement of broadening microcredit to other areas such as micro-insurance or micro-energy. Scofield cites product innovation as one of the “areas of unfinished business” in the microfinance field. He suggests that we should further explore ways to combine social entrepreneurship with microfinance in order to expand product offerings.

3. Process Innovation

MFIs need to focus on social collateral and figure out ways to really make it work in order to avoid driving women further into debt. When moving from a group model to an individual model, organizations need to make sure that the loans are actually reaching the woman and, by extension, her children and family.

Moving Beyond Controversy

Alex Counts, President & CEO of Grameen Foundation USA, is confident that microfinance will survive the controversies that have plagued it and he is adamant that the general model of microfinance is not to blame. In the India scandal, for example, he cites a lack of proper training. He does admit that the industry waited too long before addressing the issue of consumer protection, noting that the Center for Financial Inclusion is now more involved. Moving forward, Counts says, “we need to focus on accountability and standards.” All three experts agreed that major progress will be made in the next two years regarding MFI certification, accountability, and reporting. They encourage potential investors to question the social performance tools that MFIs use and to ensure that organizations are compliant with the Smart Campaign or with similar regulations.

Microfinance In The US?

No discussion on the future of microfinance would be complete without mention of how these tools can be applied in the United States. More and more organizations are exploring the space for microcredit here at home. Alex Counts thinks that microfinance can find success in the United States as long as banks continue to comply with consumer protection and utilize their CRA credits. He notes that one way for microfinance to work here is for US-based MFIs to take on banking partners. Grameen America, founded in 2008, is one great example. Using the peer-lending model that originated in Bangledesh, Grameen America has partnered with corporate banks to provide savings accounts, financial training, and microloans to women in New York City, Indianapolis, and Omaha. Demonstrating that these models can make an impact in developed nations as well, Grameen America and other organizations are starting what Counts calls “the new wave” of microfinance.

As Mary Ellen Iskenderian put it in her closing words, “don’t give up on a model that still has a lot of power and energy in it…we haven’t even begun to reach the majority of people.”

----

Eliza Huleatt is a 2012 MBA Candidate at Johns Hopkins University Carey Business School.