|
|
|
|
 |
|
UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 17 / October 2005 |
|
  
|
Editor's Note — Private Sector Investment in Microfinance
Microfinance will not succeed without the full engagement of the private sector. Period. Say what you want about retaining the social mission of microfinance, the fact remains that there is not enough donor funding in the world to subsidise the provision of financial services to the estimated three billion people that require them, nor should aid be used to support financial sectors once they are functioning well. Some of the uninformed may cry that profiting from poor people is wrong, but why? Poor people don't want charity; why is it always assumed that hand-outs are all they merit? With every hard-won chance they get, poor people demonstrate that they will happily pay for quality services…so, why shouldn't they, when the alternative to expensive financial services is no financial services? This month's Featured Guest is Diana Taylor, New York State Banking Superintendent. An advocate for bringing banks into poor communities both in New York and around the world, Ms. Taylor says that the very presence of bank branches in a given area drives economic development, and firmly believes that the only way to expand outreach sustainably is through engaging the private sector. Mark Napier, CEO of FinMark Trust in South Africa, makes the case that government has a critical role to play in engaging the private sector - but not through regulation. Napier suggests that sub-Saharan African countries follow South Africa's lead to create financial access charters, which give the private sector ownership over plans to increase access to financial services. India's ICICI is one major bank that is already proving that microfinance is good business. ICICI was quick to recognize the microfinance market as a profitable investment, and eagerly seized the opportunity to expand its business while improving the lives of poor people. In just four years, ICICI's microfinance portfolio outstanding has grown from US$4.5 million to US$227 million - a rapidly growing market indeed. In terms of investors, European Investment Bank (EIB) President, Philippe Maystadt says that his institution does not see microfinance in isolation from the rest of the formal financial sector, and that it considers the microfinance sector to be extremely important because of its potential size. Marilou van Golstein Brouwers, Managing Director International Funds at Triodos Bank NV, and Advisor to the International Year of Microcredit, looks at the continuing role of MFIs as innovators and pioneers, while she considers the end goal of private investors such as Triodos is to be replaced by local capital. Looking at the perspective of the microfinance institution (MFI), global microfinance network Women's World Banking has developed a risk management tool intended to help MFIs properly manage risk to ensure sound operations, and to attract private investors, while María Otero, President & CEO of the ACCION International network, looks at how the private sector will become involved, predicting that commercial banks will enter the market in "a big way". The Consultative Group to Assist the Poor (CGAP) has recently studied the different ways in which commercial banks have successfully entered the market, and found a variety of models and approaches ranging from direct service delivery to outsourcing retail operations and providing commercial loans to MFIs. Two recent conferences focused on our topic. More than 80 representatives of Indian MFIs, commercial banks, the Reserve Bank of India and the National Bank for Rural and Agricultural Development examined the question of "Banking the Missing Middle" in New Delhi last month, while public, institutional and private investors, fund managers, bankers and other financial types were joined by UN Secretary-General Kofi Annan just last week to look at "Investing Private Capital in Micro and Small Business Finance". A creative example of partnership between the microfinance industry and non-financial private sector entities is provided by the Global Village Energy Partnership, which is connecting energy providers with MFIs to provide access to affordable, clean energy for enterprise. And finally, this month's discussion question revealed that microfinance stakeholders expect the increasing engagement of the private sector to have a significant and positive impact on the industry, though some expressed concern about losing focus on the social mission of microfinance. Microfinance has always prided itself on being an innovative poverty alleviation tool which avoids the pitfalls of run-of-the-mill donor aid. Now it's time to step back and let microfinance run its full course. Ultimately, it is the entrance of the private sector that will be critical in building inclusive financial sectors to provide access to financial services on a truly mass scale.
Vanessa Ward
|
