Microcredit providers currently make available an estimated $50+ Billion dollars to entrepreneurial borrowers around the world. That’s twice as much money at work in microfinance as in 2006, when CBF Foundation first considered making microfinance investments available to endowment investment clients. As the dollar volume in microcredit increases so do the questions and concerns about abusive practices in the industry.
Phil Smith has been a helpful resource to CBF Foundation all along its journey into microfinance. In his second book, The Poor Will Be Glad, reviewed on the CBF blog, he discusses the growth of the industry and the increase in complexity and concerns inherent to that growth. His observations can be summarized as:
As microfinance becomes more widespread there have, predictably, been anecdotal instances of abuse and mismanagement. These are the exception to the rule and do not constitute any good reason for abandoning what is still a great strategy for alleviating poverty when it is well executed.
In an email interview for this article Phil, still an active investor and observer of the microfinance industry, expanded his response to the recent questions about abuse in the industry:
As microfinance becomes more widespread there have, predictably, been anecdotal instances of abuse and mismanagement. These are the exception to the rule and do not constitute any good reason for what is still a great strategy for alleviating poverty when it is well executed.
Savings for poor people is maybe more valuable than microcredit. However, in most countries you have to register as a for-profit organization to be able to accept savings. Both credit and savings are very valuable when used correctly, and harmful when not. By the way, the Gates Foundation has a very large initiative to figure out how to help poor people save, but even they have found it to be a difficult task. It is possible that saving through cell phone companies may eventually be the best idea.
While Phil’s industry overview is an invaluable perspective it is even more comforting that CBF Foundation has a trusted partner in Developing World Markets (DWM), manager of the fund made available to CBFF endowment management clients. Simone Balch, Vice President with DWM, has provided a description of their due diligence process for insuring that all CBF Foundation investments are with reputable lenders who use reputable. That description can be accessed on the CBF Foundation website at this link.
Like every other endeavor involving lots money, the microfinance industry has had to address important issues to be sure they are using the best practices possible. Don’t let the anecdotal difficulties distract you or your church from the fact that investing your endowment dollars in microfinance is still a prudent way to do as much good with the principal of your endowment as you do with the proceeds!