Client Driven versus Profit Driven Microfinance

Microfinance’s Risky Lending is a Safe Bet, Kadita Tshibaka

Microfinance Meets the Market, Robert Cull, Asli Demirguc-Kunt, and Jonathan Morduch

Profit and Poverty: Why it Matters, Michael Chu

Microfinance’s Success Sets off a Debate in Mexico, Elisabeth Malkin

Suicides in India Revealing How Men Made a Mess of Microcredit, Yoomlin Lee and Ruth David

Doing Good By Doing Very Nicely Indeed, the Economist

Sacrificing Microcredit for Megaprofits, Muhammad Yunus

Get Smart: How to Protect the World’s Most Vulnerable Banking Clients, Elisabeth Rhyne and Asad Mahmood

What it Means to Really Stand for the Poor, Jacqueline Novogratz

Gamechangers Episode 4: Interview with Monica Brand, Blended Profit

Pay Close Attention to Language: Vikram Akula Edition, Tom Murphy

How Organizations Grow: Zidisha Microfinance Founder Julia Kurnia on Expanding their Reach, Dave Algoso

Discussion Questions:

  • Does profit guarantee sustainability, and does sustainability excuse making money off the poor?
  • What, realistically, are the effects of a profit orientation?  Are they inevitable?  Are they only found with profit-driven enterprises?  (eg scale, sustainability of the organization, sustained impact, size of impact, mission drift)
  •  How much return counts as exploitation?  How do we set that line (eg how do we set the boundary for acceptable interest rates?)
  • How do peer-to-peer lending models that promise a return to investors differ from IPOs?
  • How do co-op models fit in this discussion?
  •  Who should decide on the use of profits, if they’re being made?
  • Discuss group loans’ role in client-centered microfinance.
  • Is diversity in the industry good?  Or do some MFIs tarnish the image of microfinance?  Does too much diversity confuse the public?
  • Do clients have a market voice that will keep microfinance accountable, particularly with competition?
  • Should the industry be segmented into different tiers of clients?  Would this entail losing the cross-subsidies from the richer to the ultra-poor that allow microfinance to reach the poorest?
  • What should the role of the state and/or other regulators be?
  • Do profit-oriented MFIs necessarily have to decide between the interests of clients and investors? How do we align the interests of the two groups?
  • How do we structure a microfinance institution to remain client-centered?  How do we balance the incentives of different stakeholders (including different donor groups)?
  • Does growth have to be driven by profit?
  • Is extensive or intensive growth better for clients?
  • Does more capital flowing in justify a profit orientation?
  •  He mentions profit-driven MFIs transmit financial risks to the poor, but are there donor risks in the traditional model?  Which are bigger?
  •  How can other MFIs make dividends work, especially if they don’t have savings?
  •  How do we balance the reputation of microfinance against diversity in the industry?
  •  How structured should loans be, especially given the fungibility of money?
  •  How does the double bottom line work with for-profit MFIs?
  • Zidisha offers an alternative type of structuring interest and of linking lenders and borrowers.  How would this work at larger scales?  Is there potential for this to replace other forms of investing in microfinance?

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