DOES MICROFINANCE HAVE A REPUTATION CHALLENGE?
However the strapline of a recent report into microfinance by Responsibility.org highlights the opportunity: “growth driven by vast market potential.”
" The dream of microfinance appeared to have turned into a nightmare, but scroll forward a few years and it's all good times."
Tom Cropper, Freelance social enterprise journalist based in the UK
It says the industry should expand by between 15 per cent and 20 per cent in 2016 with Asia providing the biggest fuel for expansion. That's good news. After a rocky few years, microfinance appears to be back on track.
The idea of microfinance originated with Bangladeshi Muhammad Yunus and Grameen bank which started providing small loans to poor individuals. Since then Yunus has garnered a Nobel prize and microfinance has been lauded for alleviating poverty, especially among women.
But in 2010, the industry hit a well-publicised rock. A series of farmer suicides in the Andhra Pradesh region of India were linked to micro loans and in particular the aggressive practices of collectors.
Investigations found microfinance providers operating in much the same way as loan sharks, demanding interest rates as high as 200 per cent APR and inflicting serious penalties on late payers.
The industry was in crisis. Profits fell. Investors fled. Both its major tenets had come into question. Not only had it failed some of its poorest clients but irresponsible lending and bad debts saw business take a major step back.
Even Yunus came under fire. The Bangladesh government launched a series of attempts to oust him from power after a Norwegian documentary made allegations of financial impropriety. These were eventually dismissed but the government was not deterred. They eventually got their wish, by citing he had passed the minimum retirement age.
The dream of microfinance appeared to have turned into a nightmare. However, scroll forward a few years and we see the world's major microfinance institution enjoying good times. SKS Microfinance, one of the largest in Bangladesh recently posted a 37 per cent increase in profits for the second quarter of 2015.
Europe has seen its inaugural Microfinance Day in Belgium as Marianne Thyssen, European Commissioner for Employment, Social Affairs, Skills and Labour Mobility promoted it as a key tool for generating jobs. Figures released at the event suggested microfinance had impacted on 250,000 jobs in Europe.
IS IT WORKING?
In Cambodia, microfinance is flourishing and has grown by 127 per cent between 2013 and 2014. All seems good. In a country in which financial inclusion is minimal to say the least, the ability of MFI's to offer access to capital to small lenders is providing critically important. But there're still problems.