SVMN Panel: Is Microfinance Dying?

Featuring: Dr. Ruth Shapiro, Maya Chorengel, Sean Foote, Dr. Lamia Karim

Tuesday, December 6th 2011

Panel Recap Written by SVMN Volunteer Elayna Yussen

SVMN packed the house last Tuesday evening with a diverse speaker panel including Maya Chorengel of Elevar Equity, Sean Foote of Labrador Ventures and faculty at UC Berkeley Haas School of Business, and Dr. Lamia Karim, Author, Anthropologist and Associate Director of Center for the Study of Women and Society at University of Oregon.  Dr. Ruth Shapiro moderated the panel.  While collectively, we may not have reached conclusive agreement regarding the assertion that Microfinance is dying, we did hear a wide range of interesting analogies to the Microfinance Industry – from the recent housing crisis to the French Revolution.

Following opening statements the moderator asked the panel for their thoughts on privatization within the industry.  Dr. Karim was skeptical of the benefits and stressed how careful we must be when working with very poor people.  This topic was close to home for Maya, whose firm was an early investor in SKS Finance.  She noted the benefits of transparency, getting professionals involved in organizational governance, and improving access to capital.  At the same time, she said privatization provides incentive to scale and realize profits to attract investors.  This, then, can create temptation for lenders to become unscrupulous, especially if industry regulation is lacking.  Sean agreed that not all lenders are ethical, but felt that the influx of capital to the market was overall, a positive.

Idealism is directly proportional to your distance from the problem.  – Sean Foote on the concept of Microfinance

“Most microfinance borrowers don’t need a business plan to get a loan – is this a fundamental problem?” Dr. Shapiro challenged the panel.  This question sparked interesting debate, noting that leading uses of microfinance loan funds include cash flow / smoothing, covering old debt, and health care.  Are these things not important for poor people too?  After all, lenders in the developed world offer many loans that do not dictate how the funds must be spent.  Sean conceded that the industry “oversold” their story of how microfinance loans primarily fund or expand small businesses for poor entrepreneurs in the developing world, but recognized the vast opportunity to make a difference with a multitude of products for this market.  Of key importance is to develop success measurement tools that accurately reflect improvements to borrowers lives, not just profit of the lender.

The panel concluded with industry best practices including: self-regulation, leveraging networks of people that have been brought together for microfinance loans to address other social or environmental challenges, MFIs holding themselves accountable to the standards of the banking industry.  Though the microfinance industry has grown and has recently come under fire for questionable lending practices, Sean reminded us that “Idealism is directly proportional to your distance from the problem.”