Opportunity Fund, a nonprofit organization based in the US state of California that offers microloans and microsavings primarily to people in the San Francisco Bay area; ACCION International, a microfinance organization that provides lending and financial education to small businesses in twenty-three countries; and Kiva, a US-based online portal that allows individuals to make loans to microfinance institutions (MFIs) for on-lending to poor people in sixty countries, hosted the Microfinance USA Conference 2011 on May 23 and May 24 in New York City.
On the second day of the conference, a panel discussed the fine balance between mission, profit and impact in microfinance. The heated debate, moderated by Adam Davidson of Washington, District of Colombia-based National Public Radio, raised the issue of whether a triple bottom line consisting of social, economic and human value returns can really be maintained in the microfinance arena.
Speaking as proponents of the for-profit side, Carlos Danel, co-founder and chief executive of Compartamos Banco, a publicly traded microfinance institution in Mexico, and Errol Damelin, founder and chief executive at Wonga, a British online provider of short-term loans, both agreed that the triple bottom line can be maintained and that the core objective of a microfinance institution, to serve clients with products structured to meet their needs, ultimately drives both profit and a positive impact to society. Mr Danel defined social value loosely as growth and agreed with Ananya Roy, a professor at the Department of City and Regional Planning at the University of California-Berkeley, that the mission of microfinance has been stretched too thin to include anything from poverty alleviation and women’s empowerment to global warming and terrorism prevention.
As skeptics of the for-profit model, Eric Weaver, chief executive of Opportunity Fund, and Felix Salmon, a financial blogger at US-based media and financial data firm Thomson Reuters, warned that growth, as Mr Danel defined it, means serving as many people as possible and building more debt, an objective that should be taken with caution in light of the recent US financial crisis.
The panel also discussed the issue of whether the nonprofit microfinance model is sustainable. According to Mr Damelin, if an entity were not commercially viable, it would not be sustainable either. Professor Roy proposed a model involving government subsidy as a potential poverty solution whereby the poor receive subsidies to build equity, just as the rich currently do in the US in areas including home purchases.
At the end of the day, panel participants agreed that strong governance remains the key factor in ensuring customer protection, whether an organization is built with a nonprofit or for-profit structure. Furthermore, Professor Roy argued that financial services are not enough to help poor people escape poverty and should be supplemented by financial and business education.
Other major topics discussed at the conference included what the US can learn from the international microfinance arena, the need to match clients with the correct financial products and the use of randomized control trials (RCT) to identify successful microfinance models. Participants from the nonprofit and for-profit arenas seemed to agree on the following priorities: ensuring unbanked people gain access to financial services appropriate to their needs and implementing regulatory measures to protect the rights of clients.
By Julie Moksim, Research Associate
About Opportunity Fund: Opportunity Fund is a provider of microloans and microsavings that is based in the US state of California. Opportunity Fund’s mission is to improve the economic status of low-income individuals by providing them with the tools to earn, save and invest. The organization primarily serves people in the San Francisco Bay area by offering them access to loans to finance affordable homes, financial education, savings plans and incentives, microloans and loans to finance community facilities such as healthcare clinics and schools. As of 2010, Opportunity Fund reports total assets of USD 45 million.
About Kiva: Incorporated in 2005, Kiva is a US-based online portal allowing individuals to make loans to microfinance institutions (MFIs), which then use the money to make loans to people with low incomes. Kiva partners with microfinance institutions (MFIs) in 60 developing and rich countries. As of April 2011, Kiva reports that it has engaged 915,000 individual lenders, 81 percent of loans have been made to women entrepreneurs, the repayment rate on these loans is 98.7 percent and the average loan size is USD 382.
About ACCION: ACCION International is a private, US-based nonprofit organization with the mission of alleviating poverty by providing microenterprise loans, business training and other financial services to its clients. ACCION was founded in 1961 and issued its first microloan in 1973 in Brazil. ACCION’s partner microfinance institutions provide loans to men and women entrepreneurs in 23 countries in Latin America, Asia, Africa and the United States. As of 2009, ACCION’s network serves 3.3 million active clients and has an aggregated gross loan portfolio of USD 31.8 billion.
About Compartamos Banco: Compartamos Banco is a microfinance bank based in Mexico that was founded in 1990. It offers group and individual loans in rural and urban areas. Banco Compartamos provides loans to low-income people for business and home improvement purposes. It also offers voluntary savings and insurance products. The company made its initial public offering (IPO) in 2007 on the New York and Mexican stock exchanges in a transaction worth USD 467 million, and, as of December 2010, has a total loan portfolio of MXN 9.76 billion (the equivalent of USD 803 million).
Sources and Additional Resources:
Microfinance Event: Opportunity Fund, ACCION and Kiva Present Microfinance USA Conference 2011 in New York, May 23 – 24, http://www.microcapital.org/microfinance-event-opportunity-fund-accion-and-kiva-present-microfinance-usa-conference-2011-in-new-york-may-23-24/
MicroCapital’s Microfinance Universe Profile: Opportunity Fund
MicroCapital’s Microfinance Universe Profile: Kiva
MicroCapital’s Microfinance Universe Profile: ACCION
MicroCapital’s Microfinance Universe Profile: Compartamos Banco
Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/