A Microfinance Changing of the Guard

November 28, 2011

When news broke of Vikram Akula’s resignation as Chairman of SKS Microfinance, it smacked eerily of the same style of resignation from Grameen Bank founder Muhammad Yunus.

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Mr. Akula’s resignation comes at an interesting juncture for the publicly-young SKS.  After making a splash with their decision to go ahead with an IPO, they had an equal and opposite reaction for their practices in Andhra Pradesh.  The resulting effects have left SKS with a toxic portfolio and a battered image.  Losses in their latest financial reports have done nothing to alleviate these growing concerns.

Rumors of clashes with the SKS board started swirling, and Mr. P H Ravikumar, Interim non-Executive Chairman, confirmed as much in an interview with The Economic Times.  Mr. Ravikumar explains, “the board very clearly feels that we need to be a financial services inclusion company, of which microfinance will be a subset. That is an issue.” Read more »

Mobilizing Savings Through Insurance

May 19, 2011

Editor’s Note: Recently, I spoke with Mary Ellen Iskenderian, President and CEO of Women’s World Banking, one of the thought influencers and industry leaders in microfinance with a focus on female entrepreneurs and customers in 27 countries. As WWB notes, the organization not only provides women access to financial services but “also control over their assets.” This post is the among of several topical discussions centered on the many financial, cultural and societal issues facing women in developing markets. (Earlier posts can be found herehere and here.).

Rising Pyramid: Let’s talk about savings incentives and methods to encourage asset accumulation. What is your opinion of match-savings programs to encourage savings amongst the poor?

Another asset accumulation method, conditional cash transfers, has been successfully implemented (most notably in Brazil); is there the potential to couple conditional cash transfers with a savings program, in which the cumulative amount of cash transferred goes up as the frequency of withdrawls goes down?

Mary Ellen Iskenderian: I think this is some of the cutting edge stuff that people are talking about. There is huge value in both matched savings and in tying savings to conditional cash transfers. There is a conversation going on in the financial inclusion work that the UN is doing about making savings behavior one of the behaviors that is encouraged through the conditional cash transfers. The way it works is that if you save a certain amount, you will get a cash transfer, which is in effect a matched savings deposit. There is a lot of possibility here.

That being said, we’re not seeing a real dearth of savings amongst the very poor.  In the Women’s World Banking network we see households saving 15 to 20 percent of their monthly income.

The issue that we’re seeing is that the savings aren’t being mobilized. Savings tend to be held in order to prevent against that catastrophic illness or that crop failure that could just wipe them out. This leads us to an interesting question: If you could take care of that problem, through a much much smaller monthly insurance premium payment, what would happen to that other capital that is being saved? Read more »

How Can Social Entrepreneurs Influence Macro Issues?

March 14, 2011

Last year, I wrote on how social entrepreneurs are Using Micro to Solve Macro problems. “Micro-finance, micro-insurance, micro-work, and now micro-franchising are all tools enlisted by social entrepreneurs when faced with the lack of governmental infrastructure. The success or failure in the fight against poverty is reliant upon the success stories of the micro approach giving back to build the necessary infrastructure.”

Essentially, micro is the great answer in the short to near term. The real battle against the root of extreme poverty will be won when proper infrastructure is instilled in poorer nations and regions.

The next logical question is: can social entrepreneurs affect change at a macro level, or are they limited to a bottoms up approach to poverty eradication? Before we attempt to answer that, we need to define a couple of terms up front: Read more »

Why the Yunus Situation Should Be a Wakeup Call

March 7, 2011

March 2, 2011 was a day that rocked the microfinance world, and consequently should serve as a wakeup call to social entrepreneurs everywhere.

Last Wednesday marked the end of an era, when Nobel Peace Prize winner Muhammad Yunus was relieved of his duties as Managing Director at Grameen Bank. The controversy around the removal of Yunus has sparked some heated responses from others in the industry.

There are a lot of sources providing information on the accusations, denials, and dismissal surrounding Prof Muhammad Yunus, and much more will surely be revealed in the weeks and months to come. (To get a good variety of sources in one location, check out Vittana’s Blog.) What we do know, is that there is a large he-said she-said situation going on between the Yunus camp and Prime Minister Sheikh Hasina’s Bangladeshi government.

Now with accusations of government and media collusion, the accuracy and reliability of information coming from the local press has come into question. This media mess and attempts from both sides to discredit the other will only drag on with a less than desirable result on both ends.

Emotions are running high on both sides of the debate, and while the dust settles, there are already some critical lessons that the social entrepreneurship world can glean. Read more »

Mainstream Microfinance: Heed the Warning Signs

November 8, 2010

Back in August, I covered the IPO of SKS Microfinance in India with cautious optimism. Shortly after that, Bryan wrote a piece in September boldly titled “Misfortune at the Bottom of the Pyramid”, in which he referred to the IPO concerns as “one step away from being a loan shark business.” The central issue surrounding bringing microfinance into the mainstream of the financial world was that it has different returns/standards/customers than traditional financial products. How would the business model hold up in an industry where every percentage point or extra dollar counts? How would the treatment of customers change, if at all? SKS was the supposed to be the poster child for the success (or failure) of a microfinance organization into more traditional markets. According to the Economist, they’re off to a rough start. Read more »

Bringing regulation to microfinance

June 1, 2010

With microfinance starting to gain a stronger foothold in the financial world, there is a critical need for structure and regulation to ensure that a financial tool originally designed to assist those in need does not become a trap and a burden. As we have seen in the United States, looser regulation combined with poor communication and education has played a role in the mortgage mess and resulted in lots of folks losing their homes. With a ‘newer’ tool like microfinance and it’s specific dealings with those at the Bottom of the Pyramid, combined with the inherent lack of education regarding financial tools, there must be some structure to protect the intent of the financial instrument. Read more »

Micro-insurance: What is it and how does it work?

May 10, 2010

In a time where we see the word ‘micro’ attached to many aspects of social businesses that serve the Bottom of the Pyramid (‘micro-credit’ and ‘micro-enterprise’ come to mind right off the bat), insurance is a sector that is starting to garner major interest. Where micro-credit has already started to prove itself a worthy business model, micro-insurance seeks to do the same. Micro-insurance providers already range from large multi-national financial institutions to local organizations. The market for micro-insurance is starting to get some real recognition. LeapFrog, a global micro-insurer, recently publicized the closing of their $137M investment fund in Africa and Asia. In this time of proving a business model legitimate, I think its extremely important to pay attention to the growth, successes, and setbacks that micro-insurance will experience over the near future. Read more »

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