Microfinance and Wall Street

Is microfinance compatible with large scale investing houses like Wall Street banks? A conversation with Susan Davis of BRAC and Rod Dubitsky of Credit Suisse discussed this question in a recent article in Forbes Magazine. The article highlighted two fundamental differences between an MFI and a commerical bank

Two key distinctions between MFIs and other commercial banks are: 1) MFIs generally lend to their clients for income generating purposes (so-called working capital loans), while commercial lenders typically lend to individuals who have collateral, or for consumption purposes; and 2) MFIs focus on those at the bottom of the economic pyramid, whereas traditional commercial lenders typically serve those far above the poverty line.

The article continues to discuss other differences between the two forms of lending, and also highlghted the potential pitfalls of positioning MFIs as profit maximizers, but balanced this concern with the need for MFIs for capital infusions in order to continue serving larger pools of clients.

As MFIs reach deeper into the for-profit capital pool, more and more of their investors will seek to maximize profits, potentially at the expense of the MFIs’ social mission. The challenge then for MFIs will be whether they are willing to make this sacrifice. Will those MFIs that reject the capital markets be able to satisfy the growing needs of their clients?

[Source: Microcapital.org]

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