"If you keep looking at microfinance from the point of view of idealism, it'll never work," says the director of an investment company. "But you can't see poor people as a paying concern," counters the lecturer in microfinance. The two experts clashed head on during a debate at Radio Netherlands Worldwide. The question: has microfinance become too much like big business?
Investor Marc Wesseling thinks there's no chance of microfinance becoming big business in its present form. "If commercial organisations can't make a profit from microfinance, it will never draw the big money. You've got to persuade companies to invest. Business is business. For a businessman, development in a particular area is never the main aim."
RNW debate on microcredit
Three microcredit experts joined a debate at Radio Netherlands Worldwide.
* Marc Wesseling, founder of Mango Capital in Haarlem, investor in stock exchange listed companies in Africa and the Middle East.
* Faisel Rahman, founder of Fair Finance, which provides financial services to people in less affluent east London.
* Klaas Molenaar, lecturer in microfinance at the InHolland University of Applied Sciences, and president of the European Microfinance Network.
The debate follows on from the launch event at the Peace Palace in The Hague for Radio Netherlands Worldwide's theme for 2010: Microfinance: who profits? RNW presenter Vanessa Mock chaired the discussions.
Fair finance
Faisel Rahman, founder of a microcredit organisation in London, nods in agreement. “Microfinance can be successful if we find a balance between commerce, sustainable development and fair finance. We have to put the focus back on the people this is about.”
At the moment the effect of microfinance is being hugely overestimated, says Mr Rahman. “It seems like microfinance is supposed to be the solution to everything, whether it’s the AIDS problem or unemployment.” Mr Molenaar adds, “We even think we can use it to solve the economic crisis in Europe, when the idea of microfinance is only to provide poor people with access to financial services.”
“Microfinance seems so wonderful,” says Mr Wesseling. “Companies like to show they’re involved in it.” But he says the sector can also attract the wrong sorts of investors. “In Africa I see organisations that call themselves microfinance companies but which only supply consumer credit to civil servants. The loans are mainly to buy expensive products. It’s clearly an abuse of the term microfinance.”
Faisel Rahman interrupts him. “People with jobs can also be excluded from financial services. If you grant them a loan, it’s also a kind of microfinance.”
Big Mercedes
Back to the question of whether idealism has made way for big business. Chair Vanessa Mock raises the point that there are also entrepreneurs who started small using microcredit, but who are now almost millionaires. Or microcredit organisations that also seem to put their money into ostentation. An earlier RNW video showed how the cars outside a microfinance organisation in Ghana are all big Mercedes.
Asked what car he drives, Faisel Rahman laughs. “I don’t have a car, I ride a bike,” he answers.
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This was an interesting and lively debate that seemed to question the very foundation that social business is built upon. An especially poignant comment was made by Faisel Rahman towards the end of the discussion. He states that microfinance institutions need to redirect their focus from profit to the people that they serve. Such a re-alignment of goals would result in smaller returns for investors but would enable microfinance institutions to lend at rates that would help their clients.
This statement assumes that, in their current state, microfinance institutions are much too focused on returns and that, as social businesses, they place a strong emphasis on the profitable side of doing business. In response, I would direct you to a recent paper authored by Kathleen Odell, a professor at the Dominican University’s Brennan School of business. Odell’s paper, titled Measuring the Impact of Microfinance, focuses on several significant microfinance impact assessments released between 2005 and 2010 (updating an earlier paper by Nathaniel Goldberg which reviews literature from before 2005). She examines the current body of research on the topic of microfinance and concludes that, although there are obstacles to determining the extent of the impact, microfinance does benefit microbusinesses.
Odell’s work lies at the heart of the current debate over the merits of microfinance. Her aggregation and assessment of the body of knowledge concerning microfinance enables advocates and critics alike to understand what we know and what we need to find out.
Sincerely,
Remy Olson
Grameen Foundation, Special Programs Coordinator
This is a great debate. I enjoyed it and wish Faisel rahman all the best in the future.
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