logos wrote:As a discerning bank and financial institution customer, I am happy with the return of the funds I had deposited in some MFis, even though I feel slightly exploited because I get only one third of the gross returns those guys make, and the risks are higher than with more traditional investments.
did you research which companies your supplier invests with? is it small micro finance mfi or a larger company specializing in mfe's. i'm not sure if i should be saying this or not but - it looks like the smaller ngo's are doing the good job of supporting people the banks won't touch directly. From what i've been reading it may well be the larger organizations that are to blame for the govs announcement - the ones that provide for sme's.
i think one has to be warey of what the companies performances are like - and not just on returns
here's some stuff i've been reading today on checks that may help if an investor is so inclined.
first Yunis
Some people, including Mohammed Yunus, are worried about the growing commercialization of microfinance, including the entry of profit-motivated owners and managers. They are concerned, reasonably enough, about possible “mission drift,” especially in the form of interest rates rising to (or staying at) excessive levels. In his book and in many presentations, Professor Yunus offers a straightforward formula for judging MFIs and their objectives:
• If you’re a real microlender who cares about the poor, then your interest margin (the difference between the rate you charge when lending to your clients and the rate you have to pay when you borrow from your funding sources) should be no more than 10%. That’s the “green zone” where true microlenders operate.
• If your interest margin is 10-15%, a big warning sign is flashing because you’re in the yellow zone.
• Anything above 15% is the red zone, where you’ve left true microcredit behind and joined the loan sharks.
but when you look at the evidence, this appealingly direct formula turns out to be pretty far off the mark.
To begin with the conceptual problem, the formula doesn’t allow enough room for legitimate differences in administrative costs among MFIs. For an MFI that makes especially small loans or serves a sparse rural clientele, administrative costs will inevitably be a higher percentage of loan portfolio, and the lion’s share of the interest rate spread goes to cover those costs. Application of the proposed formula could actually discourage outreach by such MFIs to poorer clients.
But concepts aside, how does the formula match up against actual MFI experience? It turns out that this formula would place most of the world’s MFIs in the red zone—the average interest rate spread for MIX MFIs in 2008 was over 20%. But to be fair to Prof. Yunus, that shouldn’t end the discussion. After all, maybe plenty of the MFIs in the MIX are charging their borrowers rates that are way too high.
then how about this;
A simple three step test is
Submitted by Dr S Santhanam on Mon, 2012-09-10 14:20
A simple three step test is enough to show the real colour of an MFI- stept-1: Before the micro-finance programme, look at the assets/ wealth of the promotors of an MFI and their clients. Step-2: After a reasonable period after introduction of the micro-finance programme, repeat the exercise. Step-3(a): If the assets/ wealth of promotors of MFI have grown more than that of its clients- then it is wrong (may be loot also)and needs correction at MFI level. Step-3(b): If the assets/ wealth of promotors of MFI and that of its clients have moved up in the same proportion, then it is the most ideal situation and it should be allowed to continue. Step-3(c): If the assets / wealth of promotors of MFI have gone lower than that of its clients, then, it needs serious correction at MFI level either by increasing its interest rates/ reducing its cost of operations.
https://www.cgap.org/blog/how-tell-good-mfis-bad-mfis