Review of BlueOrchard Presentation in Brussels

Last Thursday (23 November 2006) our class was invited to attend a lecture on campus by Jean-Philippe De Schrevel, founder and Managing Director of BlueOrchard Finance. According to their website, BlueOrchard specializes "in the management of Microfinance investment products." Basically, their mission is to set up and manage Microfinance "mutual funds."

I was curious to see what Mr. de Schrevel would have to say about the social component of his firm's activities. What was more important to his firm . . . financial profits and returns or alleviating global poverty?

It should come as no surprise -- or should it? -- that it was profits. Generally speaking , I understand completely and I have no problem with companies seeking financial returns at the hands of the world's financially disenfranchised. After all, it can be argued that the poor can benefit in the process (e.g. more opportunities, cheaper capital, empowerment).

What I don't like is when companies like BlueOrchard "play the poverty alleviation card" as a means of securing the funds of socially-driven investors.

Mr. de Schrevel was quite proud of his company's track record of making 384 investments in Microfinance institutions (MFIs) without one single default. Is this really something to be proud of? It is obvious that BlueOrchard is only investing in top-tier, elite MFIs. They aren't really pushing the envelope, are they?

Again, nothing really too wrong with that.

As Professor Marc Labie mentioned in class on numerous occasions: "A bank is a bank is a bank."

What do Microfinance Students Look Like?

Now you know.

European Microfinance Program, Class of 2007.

Taken 11-14-06 by Olumayowa Ajetunmobi

Microfinance - The Dark Side?

In the last several weeks, Microfinance has received tremendous exposure in the popular press -- primarily because of the awarding of the Nobel Peace Prize to Muhumamed Yunus (founder of the Grameen Bank).

The vast majority of the press has been glowing. Consider this tidbit from a piece in the Tehran Times.

"The Grameen Bank pioneered the concept of microcredit, which has lifted millions of people out of poverty around the world."
Tehran Times, October 16, 2006

Pretty strong language. In most cases, it could be argued that the popular press has parrotted facts and figures that have been provided to them by the Grameen Bank "publicity machine" in writing their reverential diatribes.

It is always instructive to seek out differing and/or opposing points of view when evaluating an issue. Critics (or skeptics) of the Microfinance movement exist and have surfaced in recent weeks to let it be known that not everyone believes Microfinance is the panacea that most make it out to be.

As your loyal objective correspondent , I summarize some of the criticisms here:

1) Very few scientifically rigorous studies have been made of Microfinance. More specifically, assertions that more than 90% of the people who receive microcredit are poor, that most of them succeed in businesses started with these loans, and that they repay the loans at 24% annual interest or higher, have not been backed up with quantitative data.

2) Microfinance works much better for the moderately poor than the "very poor."

3) Microfinance serves not to lift people out of poverty, but assists those near or slightly above the poverty line. (A significant number of Microfinance institutions only lend to people with existing businesses.)

4) Microfinance loans are as often as not used for consumption as investment in entrepreneurial business.

5) Microlenders are more or less impossible to run on a sustainable basis if they are to stick to the mission of lending to the poorest.

6) Grameen Bank has been in business for 30 years and Bangladesh is still one of the poorest countries on earth.

7) The interest rates charged by Microfinance institutions are usurious (2% monthly and up) and Microfinance institutions live "off the backs of the poor." It is the intermediaries -- commercial banks and loan facilitators -- that gain the most from the spread between the cost of funds for the intermediaries and the loan interest charged by them.

8) The poor get trapped in a vicious circle of debt because of the progressive nature of Microfinance loans. They often resort to borrowing from local "moneylenders" (loan sharks in Western parlance) to make repayments.

(Micro)food for thought, I guess.

Referenced Articles:

The Guardian

The Indian Catholic

Forbes

Salon

Microcredit Summit 2006 About to Begin

Canada (my home and native land!) is host to the Global Microcredit Summit November 12 - 15, 2006.

This thing is a BIG deal in the Microfinance community.

In 1997, at the first Microcredit Summit, 3000 Microfinance "players" from all over the world came together to launch a global campaign to reach 100 million of the world's poorest families with Microfinancial services by the end of 2005.

It is now time to assess the progress that has been made on this lofty goal, hence the reason for the 2006 Global Microcredit Summit.

The organizers have published a report entitled "State of the Microcredit Summit Campaign Report 2006." Generally speaking, it's a good read, although -- at least in this writer's opinion -- it is somewhat reverential. Basically, the goal of 100 million was not attained. Positively speaking, the goal might be reached in the beginning of 2007.

The original Microcredit Summit campaign website is located at www.microcreditsummit.org. You can read previous reports, subscribe to a campaign newsletter, and access news stories. Of special note: there is a section that contains a significant portion of the "papers" or reports that will be presented at the 2006 Summit. It's an excellent resource for those looking to learn more about current Microfinance issues. Highly recommended!