Horizon: That Financial Crisis shows that... ` The story of Compartamos in Mexico is more evidence of the need for a broader framework of performance metrics. The Compartamos organization has had rapid growth while also earning high margins ... a performance pattern that capital market analysts instantly translate into spectacular market valuations. When Compartamos chose to do IPO (Initial Public Offering) investors massively oversubscribed the offering. There is good news and bad news. The good news is that investors can be attracted to microfinance ... the bad news is that they might be only interested in the purely financial metrics. Compartamos has been valued on purely financial metrics and these will most likely conflict Compartamos in the future as it has to face the choice of social good or financial performance. The problem here is that the prevailing metrics used for the analysis of MFIs (microfinance institutions) are almost totally related to financial performance ... with the same short time horizon that has failed for every other sector. Activities that cost today but produce value tomorrow are of little interest to people looking only at financial returns.
pects of mainstream or capital market banking now also have microbanking on the radar ... and might well help to improve capital access for microfinance.
“The story of Compartamos in Mexico is more evidence of the need for a broader framework of performance metrics.”
One of the things that is striking about microfinance events is that there is a solid core of people who have been associated with the microfinance sector for a long time and appreciate that it has proven to be a very effective way of improving opportunity” for people who have been marginalized forever and helping them to be a little step up the socioeconomic ladder. Many want to retain the good aspects of microfinance while at the same time attracting more capital into the sector. This is a balancing act that presently depends on the goodwill ... or professionalism ... of people involved.
------------------ // -----------------In the last few weeks there have been Microfinance events almost every day within easy reach of New York. This is very encouraging, because five years ago microfinance was practically unknown and similar events attracted few attendees. University Microfinance Clubs have been established and the level of sophistication and knowledge of the club organizers and members is improving. Students are getting more and more opportunities to “intern” with microfinance organizations. But again ... there is good news and bad news. The good news is that more and more people are learning about microfinance, and the bad news is that a little knowledge can be a dangerous thing. Because the “quant” oriented accounting and MBA students are learning financial metrics without much of the social metrics, their orientation may well help push microfinance in the profit maximizing direction ... and at the moment those students who have an appreciation of non-quant values have very inadequate metrics to help them. This needs to change. In addition to the clubs that are driven by student groups at Universities, there are other clubs that are organized by professionals ... mainly young ... and usually with some affinity. Some of the big mainstream banks have microfinance clubs and their staffs are getting an opportunity to learn something of microfinance. This is an important development because people with exposure to various as-
However, there needs to be something more than goodwill and professionalism that secures the future of microfinance so that the populations at the bottom of the pyramid (BOP) are served. There needs to be performance metrics and independent score-keeping. These events are interesting ... but there is a lot missing. Most notably there is little that really communicates the huge social value of microfinance. Dr. Yunus tells that story of using $27 to get microfinance started and helping many women with this very small amount ... he tells stories of very poor people whose children are able to get educated and become doctors. Everyone who has worked at a microfinance branch in a village ... or who has spent time trying to understand the socio-economics of a village (as I have done) understands that money used in the way it is used in microfinance has the potential to do incredible good. An emergency microfinance loan of $10 ... that gets paid back in two weeks in the amount of $20 is a ridiculously high rate of interest ... but if the money was used to keep a child from dying, then the return on this money is way more than the interest. ------------------ // -----------------There are some interesting possibilities for paradigm change in accounting and broader performance metrics. Several different approaches may come together. There are new technologies that make it possible to collect and
Microfinance Focus [ April 2009 ] 14
Published on Apr 18, 2009