Microfinance Debated: Mission to Serve the Ultra Poor?

It is estimated that there is a $300 billion gap globally between what current financial institutions offer and what low-income people need. This is the space that microfinance institutions (MFIs) around the world seek to fill.

At the 2009 microfinance conference-sponsored by the Harris School of Public Policy Studies and the Booth School of Business-heated debate centered on how to fill that $300 billion gap when clients are poor, and many institutions are nonprofit. In fact, speakers debated more about which model of microfinance is most effective than how the field could unite to best serve those who fall within the "capital gap."

Ultimately the question of whom MFIs serve takes secondary importance to a bigger question: are developmental finance institutions successful in alleviating poverty?

Read on here.

The Global Financial Crisis: Counting the Social Costs

The World Bank estimates that because of the current global financial crisis 53 million people, who would otherwise have escaped poverty, will remain trapped. At a time when the world is questioning the foundations of finance and economics, one model that is bridging the gap between social responsibility and capitalism—microfinance—finds its mission suddenly harder to achieve.

Fortunately for the field, it has not been as integrated into banking and currency markets as the rest of the global financial system, though it is becoming more closely linked as the field grows. Its foundation in local markets, close-knit ties with the communities it serves, and a history of surviving past economic shocks positions it well to ride out the current turmoil. But the crisis may also hold many of the world’s poor in dire poverty, and microfinance can not reach them all.

One of the primary reasons for the field’s success—with or without a crisis—lies in working closely with the people it serves. The “double bottom line” for microfinance institutions (MFIs) means that one mark of success is its positive social impacts.

Read more here. Visit CGAP (link below) to learn more about development finance.

Developing India: Microfinance on the Ground in Asia and Africa

After backpacking around northern India for a week, I took an intra-country flight to the south and arrived in Chennai. The differences between northern and southern India are quite striking. As the scripts on street signs change so does the reason for my trip.

My purpose in Chennai is to help coordinate a microfinance conference for ShoreCap Exchange, the company with which I intern. The organizations encourage peer learning exchange between banks in order to increase access to financial services in underserved communities globally. During the last week of March, ShoreCap Exchange hosted 10 institutions at a branch management forum. Participants came from countries in Asia and Africa, including Cambodia, India, Pakistan, Afghanistan, Rwanda, the Gambia, Kenya, and Mongolia.

Microfinance is a relatively new movement in international development that straddles the public, private, and nonprofit sectors. Microfinance institutions (also known as MFIs) are funded with money from international donors (such as governmental aid programs), private funds, or nonprofits. Part of a larger trend towards “inclusive finance,” MFIs, alongside regulated banks, provide a variety of financial products at a reasonable cost to those who would not otherwise have access to them.

Read full article here.

From Chicago to Chennai: Policymaking on a Backpacker’s Budget

We must first learn from what has already been done—on the ground, not just in the classroom.

“International development” has long been an important topic in economics departments, including within the very notable University of Chicago’s under Milton Friedman. But while development theories battled in academia during the latter-half of the twentieth century, on-the-ground work in one very important area—the field of microfinance—was just beginning.

This spring break I took my grounding in University of Chicago economics training to the field to study microfinance in its biggest and most promising market: India.

Complete article here.