Radical Changes on the Horizon for Microfinance

Microfinance is hot these days “because it works,” according to Elizabeth Littlefield, CEO of the Consultative Group to Assist the Poor. “Its bootstrap capitalism appeals to the Left, the Right, students, bankers, and retirees,” she said. “And it got even hotter after Muhammad Yunus and Grameen Bank won the Nobel Peace Prize.”

Littlefield was among keynote speakers at the Chicago Microfinance Conference May 25 at Gleacher Center. The event, organized by the student-led Emerging Markets Group, also featured a keynote by SKS Microfinance CEO Vikram Akula and a panel discussion on technology and distribution innovations for scalability.

Littlefield said CGAP has identified five sources most likely to radically change the business in the immediate future, she said. Among those are an expected shift in demographics to clients younger, more urban, and more connected to the rest of the world; the revolution of financial institutions through wireless technology; the rise of emerging markets—in particular, Brazil, Russia, India, and China; growth in new donors and investors; and an increase in the popularity of social activism, Littlefield said.

To serve clients who are technologically savvy, mobile, informed, and more urban, microfinance may have to challenge the trusting lending formula under which it was born, she said. With huge labor flows from the south to the north in the Middle East, microfinance must focus urgently on capturing remittances and promoting savings and cash management to build clients’ assets, Littlefield said.

Microfinance may also need to shift its focus from self-employment to jobs, she said. “Are all of these urban, mobile, savvy young people going to want to be micro-entrepreneurs?” Littlefield said. “Are they going to want to sell bananas and tomatoes on a little handkerchief on the side of the street like their mothers did? Or are they going to want jobs? I think they may want jobs. And the question is, can the world absorb that many self-employed micro-entrepreneurs?”

With new philanthropy has come a marked increase in social activism in the West, she said, much of it propelled by the Internet and some drawing the attention of rock and film stars. Web users can loan money to micro-entrepreneurs through Kiva. “That is an incredibly powerful way of harnessing this excitement of the man-on-the-street about microfinance,” Littlefield said. “Everybody has a view of microfinance. Grad students, retirees, and bankers are trying to find a way to get into the field. The popular press is covering it.”

Littlefield left the audience with a number of questions about the future of microfinance. Will technology free microfinance from cost constraints or further widen the world’s digital divide? Will regulators clamp down on microfinance because of security fears? What if China converts its 43,000 rural credit cooperatives into best-practice microfinance institutions, or instead gives away “nonreimbursable microfinance loans?” What if social investors and bankers turn against microfinance in a backlash against high interest? What if discrediting the Western aid structure, such as the World Bank, and the rise of wealthy emerging markets combine to kill microfinance’s “notion of development and conditionality”? she said.

�Phil Rockrohr