This morning I went to a panel discussion titled “Microfinance: Business or Charity?” at the Council on Foreign Relations. A woman from ACCION International asked me if I normally cover the topic. I said that I cover business and economics more generally. To which she said: “And now we’re in business and economics.” Which I guess kind of answers the business-vs.-charity question.
There were three speakers on the panel: Bob Annibale, global director of microfinance at Citigroup, Elizabeth Littlefield, CEO of the World Bank’s Consultative Group to Assist the Poor, and Maria Otero, CEO of ACCION. Turns out, I interviewed all three of those people for a story I just wrote about how a flood of money from profit-minded investors is changing the face of microfinance. NGOs are still a huge part of the picture, but most microfinance institutions wanting to scale up know that tapping a big boy like Citi is the way to go. In case you missed the hyperlink the first time, you can read my piece here.
One thing Littlefield kept coming back to, which I wish I’d had more room to cover in my article, is how important local savings can be as a source of funding for microfinance institutions—which I’ll start calling “MFIs.” Most MFIs started out as lenders simply because local law prohibited them from accepting deposits for savings accounts. When MFIs do let people save, that’s often what they prefer. For example, Kenya-based Equity Bank has four times as many savers as borrowers and Bank Rakyat Indonesia has nine times as many, according to the Microfinance Information Exchange. The MFIs can then use those savings to fund their lending. As Littlefield said, “There’s a tendency to assume the money must come from elsewhere, but most poor people are net savers.” It’s just that their savings are in goats (her words). A little help from the outside is fine, but what’s really valuable is building domestic financial systems that are self-sustaining. Seems very sensible.
After the panel, I followed Bob Annibale back to Citigroup headquarters where we sat down for a chat. One of the things I asked him about was this creepy parallel between what’s happening in microfinance and what happened in subprime: lots of money from sophisticated investors being thrown into loans for poor people. As you might guess, he was able to draw some distinctions between the two situations. Here’s the conversation: