From NextBillion: Will Microfinance Still Exist 10 Years From Now? Thoughts from European Microfinance Week
NextBillion's post from Paul DiLeo, Grassroots Capital Management:
Last week, I moderated the closing plenary of European Microfinance Week, exploring the question of where microfinance – and MFIs – would be in five or 10 years. Panelists came from different organizations with varying perspectives of the industry:
- John Alex is group head, social initiatives at Equitas, a 10-year-old Indian MFI that has grown exceptionally rapidly to become one of the largest in the world – and that converted to a bank after a very successful IPO last year;
- Renée Chao Béroff is general manager at Pamiga, a network of 14 MFIs in rural Africa that complements microfinance with green energy, job training and women's empowerment to comprehensively address poverty;
- Tim Ogden is managing director of the Financial Access Initiative, a research consortium focused on financial access and poverty.
Without putting words in the mouths of any of the participants, here are my takeaways from the discussion:
DOES MICROFINANCE STILL HAVE A ROLE?
The week to that point had been filled with energetic discussions of the latest initiatives in housing, support for refugees, and women's opportunity and empowerment, among other topics. But in the background lurked some uncertainty and unease: Where in the ferment of aggressively downscaling commercial banks, disruptive and well-funded fintechs, and profit prioritizing "impact investors" would MFIs find their place going forward? Was the space that MFIs had created and mapped over 30 years of experimentation and innovation now attracting more dynamic and better-resourced interlopers, leaving little space for MFIs?
Despite their diverse vantage points, the panelists seemed to agree that, in fact, MFIs retain the space that they have always sought to occupy, because none of the newer entrants genuinely wishes to occupy it: specifically, innovating to do the hard work of lifting poor families from poverty – a task that conventional banks, fintechs and profit-hungry investors might pay lip service to, at most.
INNOVATING TO ADDRESS POVERTY
The panel also agreed that innovating in pursuit of this core objective, rather than either stagnating with traditional products and structures or trying to emulate fintechs or mainstream banks, is how MFIs will continue to play an essential and unique role. Stepping away from this defining commitment to improving the lives of the poor would abandon 30 years and many billions spent building an unrivaled platform for impacting poverty. There were no illusions that microfinance had not disappointed to date in its impact on poverty, but this was seen in context: Eliminating poverty is hard and will require continuous innovation and openness to new products, business models and strategies. This will likely require new thinking about how microfinance can combine with other services to the poor to form an "ecosystem" of support rather than being seen as an end in itself.
Read the full blog here