I recently had the good fortune to attend the 2008 Asia Pacific Regional Microcredit Summit (APRMS) on behalf of Kiva. Besides having the opportunity to share the Kiva story with other industry professionals and to meet with potential MFI partners, it was also a great learning experience as some of the latest developments occurring in the field were shared with the 800+ conference attendees during plenary sessions & individual workshops. And from what I heard, it’s definitely an interesting time to be involved in the microfinance field.
For one thing, there are some incredible initiatives being started aimed at helping the poor beyond simple credit services. Probably the most interesting one to me was the whole concept of micro-insurance. Currently, the poor who receive microloans are at risk for from many factors beyond their control such as illness, death or natural disasters. In developed countries, individuals typically mitigate these risks through the purchase of insurance. However, this type of security has not been available to the poor because it thought it was too difficult & costly to assess. Fortunately, there are several organizations now focusing on this issue and several countries – including the Philippines & Indonesia – are testing different types of insurance products for the poor (hence the name “micro-insurance”) that seem very promising.
The one insurance initiative that seemed particularly innovative was a weather-indexed insurance product that covers flooding & hurricane damage. These events can easily wipe out the crops of poor farmers whose entire income largely depends on their crop yield. Until now, there was little financial protection for these poor farmers as the cost to assess the damages & manage claims was too high. However, one particularly innovative organization (in my humble opinion) is seeking to leverage the Internet to address this issue – much like Kiva through our site.
The organization – Micro Insurance Agency – uses publicly available meteorological data & to map either how far a poor farmer was from a hurricane or how much flooding occurred in the area. Using this data, the organization then pays the farmer an amount based on a formula-driven sliding scale – even if the specific farmer did not experience damage. By offering insurance through this manner, the organization avoids the high costs of actually sending officers into the field (which would make microinsurance prohibitively expensive) while offering poor farmers the first ever natural disaster insurance. While it is not an exact science, the organization has conducted the necessary actuarial studies & is actively piloting the program across the world. More information is available at their website: www.microinsuranceagency.com. Again, this initiative was but one talked about the 2008 APRMS – many more presented including how MFIs could provide business development services to the poor, how MFIs could better assess their impact on helping the poor, etc., etc. Truly inspiring!
Yet at the same time all of these new innovations are occurring in the microfinance field, I also think that there is a subtle shift that is also occurring that the industry will continue to debate in the coming years. When microfinance started, its focus largely was on helping the poor out of poverty. Now, with the demonstrated strength of the microfinance sector and client repayments rate remaining well in the 95%+ range, a large number of commercial investors are entering the field now that microfinance is also beginning to look like an attractive asset class. Many of these players were present at APRMS 2008. My personal views toward this trend are mixed.
Having attended business school, part of me wholeheartedly applauds these new entrants. If microfinance is to reach all of the poor wanting credit, hundreds of billions of dollars will have to flow to the industry & the only conceivable way for this to happen (at least in my view) is through the capital markets. So these new investors are definitely address a pressing need within our field & can help an MFI dramatically increase the number of poor reached. One MFI in India was able to grow from serving 40,000 poor clients to 1.2 million clients in a matter of years after gaining access to commercial capital!
Yet, at the same time, the rate at which commercial capital has flowed into the industry is somewhat startling. The number of microfinance investment funds has dramatically increased with large multinational banks such as Citi & Deustche Bank also getting involved. My reservations about commercial capital entering the microfinance space are the fact that at the end of the day, it is commercial. Investors want a financial return on their investment. And where does the return come from? Ultimately, it will come from the poor receiving the microloans. Now, I am a firm believer of base-of-the-pyramid business principles – in fact, I think that creating businesses that serve the poor ultimately will be much more effective in delivering needed services to them.
But in the context of microfinance, where financial literacy & interest rate transparency is still lacking, do we face the risk of mission drift in our sector as the commercial players become pronounced? I do not profess to have an answer nor a completely formed opinion at this point. Again, I see both the benefits & potential pitfalls of commercial capital and firmly believe the role of this type of capital will continually be debated not just myself but by microfinance professionals in the years to come.
On a more personal note, at the conference, I had the good fortune to meet & have my picture taken with one of my heroes – Professor Muhammad Yunus! For those unfamiliar with the name, Professor Yunus essentially created the microfinance movement in Bangladesh and was the recipient of the 2006 Nobel Peace Prize.
At the session where I had this photo taken, Professor Yunus was treated almost like a rock star – there was a line of people waiting just to shake his hand & have their photo taken with him. And to think that it all started with a small loan to a group of poor Bangladeshi women. Here is another picture of Professor Yunus with the other Kiva staff in attendance (starting from the left, Brooke Estin, Professor Yunus, me, Rico Munoz).
Darren Miao
Microfinance Partnership Manager – Asia Pacific
