Box I.1 A Market This Big Needs Many Types of Providers Back in 1982, when Citi made its first loan to a nongovernmental organization (NGO), the microfinance world was much simpler. There were the few global networks, and we were still using the term “microcredit.” It was a much more focused, smaller community. The industry has grown tremendously since then. From a few mil lion clients in the 1980s, microfi nance now reaches more than 190 million families. We have seen tremendous growth in the size of microfinance organizations and the scale of their operations, but we are also seeing that there is a price for growing too fast—in any industry. You can grow only so fast before burning out the staff, or you cannot bring on well-trained new staff to keep up with your growth. Most of this growth has come from organizations offering only one or two credit products. The demand, the need, and perhaps the model lent itself to consistent growth because it stayed very focused. However, fast growth of organizations using similar models and strategies in the same locations has led, in some cases, to multiple loans to the same borrower and a breakdown of lending disci pline. We see these issues in Andhra Pradesh in India where institutions’ client-base overlaps are putting a lot of pressure on repayments. How do you provide financial access to the vast majority of the population? It will take more than NGOs and commercial banks—we need cooperatives, credit unions, and postal savings banks. We need cell phone companies that can make loan payments. We see opportunities for many different services and types of providers. In most of the countries where we work, anywhere from 60 to 80 per cent of the
opulation is unbanked. This is too big a segp ment to cover with just one or two approaches and institutional forms. We have the ultrapoor and displaced people at one end of the scale, and the very economically active people who might even be employed on the other end. Their needs are different. I get concerned with some of the ar guments that take place in microfinance today. It seems like there is an underlying assumption that there is only one type of microfinance client and that client should be served by only one type of institution—when the opposite is true. There are many different client segments in micro finance, and MFIs would do better to focus on each segment to develop the best business models to serve those clients. In the next few years, the innovation needs to be in designing products that fit who clients are and what they want to become; we get there by get ting to know the clients, their needs, their cash flows and their aspirations much better. Within this microfinance ecosystem, we need some institutions to work with the very difficult-to-reach and vulnerable communities, delivering social output of a very high calibre, and they cannot then be devoted just to achieving scale and even full sus tainability. Their objective may never be to become a finance company, yet they may use financial tools as one of the enablers toward progress out of poverty along with health and education training. Even as one part of microfinance becomes more commercial, we have to keep thinking about the many vulnerable, underserved, compli cated communities that mainstream microfinance may not yet be able to reach.
Source: Bob Annibale of Citibank, writing in Reed (2011). Reprinted with permission.
Introduction
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