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| Volume 5, Issue 1: July, 2007 | ||||
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E-news Main Page In This Issue Compartamos IPO: Microfinance Doing Good, or the Undoing of Microfinance?SAVE THE DATE! The Asia/Pacific Region Microcredit Summit 2008 Archived Issues Vol 5 Iss 1 Jul '07 E-News Information |
Remarks by Damian Von Stauffenberg, Executive Director, MicroRateThe Compartamos share sale is a watershed - but not for the obvious reasons. That investors got $450 million for shares that cost them $6 million will soon be forgotten. True, an unpleasant odor is attached to excessive profits made by those doing business with the poor. But that will dissipate. It is a watershed because microfinance has lost its innocence. Pre-Compartamos, microfinance was associated in the public’s mind with charity; nobody questioned that this was a cause worth giving to because it helped the poor to help themselves. Compartamos has exposed a different reality – a reality of large, unbelievably profitable microfinance institutions; of international investment bankers and Wall Street investors jostling for a share of those profits; of unappetizingly high interest rates. To mourn this loss of innocence would be wrong. In reality, microfinance had outgrown donations long ago. To attract the money they need, MFIs have to play by the rules of the market. Those rules often have messy results. Where there is little competition, as in Mexico, huge profits can be made. Under those same rules, badly run institutions can fail and investors can (and will!) lose money. The challenge of the post-Compartamos world is to recognize this reality. Over-eager investors will have to re-discover that it’s dangerous to project past profits into the future; they will also find that, to get their money, fanged animals will don the sheep’s clothing of microfinance. Networks that have made a roaring business out of raising donations will have to justify why they need donations in the first place. To attract investors Microfinance Funds will have to present facts and figures instead of pictures of poor women in bowler hats. In short, microfinance will have to become much more transparent. And that is altogether a good thing! Next supportive comment: Steven Funk |