Portfolio’s is a book not to be missed by serious microfinance people. It documents why microcredit is secondary and supporting cash flow management is primary to poor people’s finances. To find out more, you can read more in the review of the book I made together with Kristine Pors in Udvikling (page 21) or listen to two of the authors in this podcast.

Last week, the Danish microfinance sector got its own organisation for knowledge sharing. It’s called the Danish Forum for Microfinance. See more at Ulandsnyt:

Nyt netværk: Dansk Forum for Mikrofinans | U-landsnyt.dk.

Last week, two Danish sociology students, Anders Ludvig Sevelsted and Lasse Folke Henriksen, defended their thesis on what you could call a sociology of global microfinance. By looking at the role of professional economists in global microfinance, they show (among other things) that economics as an academic discipline anchored in the North/West has played a profound role in the development of microfinance globally, not least the focus on financial sustainability and the decision of the World Bank to endorse and promote microfinance through CGAP. I had the pleasure of serving as a secondary adviser, and am glad to see that besides the conclusions in the thesis, the work also prove by its example that there is a great unfulfilled need for sociologists in microfinance.

If they read this post, they perhaps want to answer a couple of questions :- )

1) Given the conclusions in your thesis, what should microfinance practitioners do differently?

2) What other questions have you come across that would be interesting for sociologists to look at in microfinance?

While working with DanChurchAid, I have done a few introductory presentations on microfinance. One of them is here:

The rest are at this website.

I will soon start doing more work on microfinance, and perhaps that’s a good reason to post more on this blog. Of the things I will most likely be doing are working with Village Savings and Loans Associations and attending the European Microfinance Week.

It’s surprisingly simple what they’ve done recently in Norway to boost their microfinance activities with 117m USD: Norfund invests 53m USD and provides expertise in how to invest in developing countries, Norad provides 1,6m USD and technincal expertise in microfinance and – the real surprise – four commercial companies invest another 53m USD and chip in with their experience in managing money. This is a genuine Public Private Partnership (PPP).

And PPP’s are hot. Everybody (in the public sectors I know of) wants them, but few know what it is. The result has been a number of PPPs that look more like ordinary procurement of services or grants for ventures that real partnerships, at least in Denmark, whereas the true partnerships have been rare.

Creating one of the world’s largest microfinance funds as a PPP is pretty cool, then. Some questions arise: Will the private and publics involved be able to complement each other and gain from it? Will the Norwegian Microfinance Initiative be able to invest its massive pool of funds without crowding out real private investors? Will the interplay between capacity development and investment work to make the institutions capable of absorbing such an amount of capital, when it is acknowledged that “growth of the microfinance sector is constrained by the limited ability of MFIs to absorb large capital inflows”?

Let’s hope Danish actors will be as innovative.

Today, I was interviewed by the Danish Radio on microfinance, where I gave my opinion on the Compartamos case. If you understand Danish, you can hear the interview online.

This coming spring, I will be co-teaching a class on microfinance at Department of Political Science, University of Copenhagen. If you know any students in the city who might be interested, please let them know! Find more info in this PDF.

A mechanism that can lower the risk of investing in microfinance in developing countries. This is what the Dutch Development Finance Company has launch today, together with a series of partners, among other the Danish sister of FMO, called IFU (Investeringsfonden for Udviklingslandene). It might seem boring to some, but it will most likely make a very big difference to a lot of poor people in developing countries.

This fund will drastically improve the options for investors in microfinance and thus bring capital to institutions that have until now been out of reach for investors because of country risks.

It is well know that microfinance in itself is not a very risky investment. Unless for the small MFIs, microfinance is low risk because it does not depend on global market, or other volatile financial factors. But investing in microfinance as been risky because of the country risk associated with such investments. Until now. The problem has so far been to find someone with enough capital to diversify the risk enough, and none of the investment banks or financial institutions, who for example hedge Euro and Dollar risk as easy as paying a bill – the rate is around 1% p.a. – have not been willing to enter the market because the returns are so low.

The technical details of the fund have not been published, and the performance will of course be seen only in the future. But the beginning looks very promising.

Two things have kept me busy lately: Handling in my thesis, finally. And – just a few days after – taking on my first assignment in Northern Thailand as a Summer Fellow with Common Interest, a small microfinance institution. That’s exciting. Common Interest gives loan only, and is aimed at making their practices as virtual as possible, which makes the work interesting and challenging at the same time.

The primary constraint for bringing financial services to the world’s poor is not capital, best practices or knowledge, I was once told by a World Bank staff in the Bank’s shiny air-conditioned lobby far away from dirt roads and monsoon rain. It is institutional capacity on the ground. Even though that might not as much be the case in well-educated and well-functioning Thailand, I now understand why. Institutions are difficult to build up. Competencies are hard to come by. And there are so many nitty-gritty details about banking in rural areas, so many regulatory issues and so many procedures that need to work before the money gets out there and back again that I’m amazed when it works. Even in Thailand. I am working on the Management Information System, which involves suggesting performance measures and strategic targets. Fun, for sure and a pleasure to put some of the thesis knowledge to work.

It’s likely that I’ll not get much procrastination time in the future to blog along, so thank you for listening until now. Feel free to write me, still, and take care.

Last week, eBay announced, or at least declared, that they had bought MicroPlace, an online peer-to-peer market place for microfinance investments. MicroCapital is worried that more risky capital in microfinance will make the quality of the institutions go down. Are they right? That depends on where and how the funds go. If the funds are placed without regard to institutional performance and are targeted toward the same large and secure MFIs, which get most of the funds in microfinance today, then it’s probably not a good idea. But if MicroPlace can figure out a way of reaching the small and medium-sized MFIs, and at the same time doing it on the basis of reliable information about their performance, then the critique is probably not as justified. As I describe below, they will most likely focus on the large MFIs, just like the others. I have drafted a suggestion for doing things differently in a business plan on another market for capital in microfinance: Interest for Change. So far, that’s just an idea, so bold comments are very welcome.

More on the eBay/Microplace story below.

The news has been circulated widely in the microfinance community, but mostly just with repetition of the original quote from Auctionbytes, which in itself was interesting enough: It wasn’t actually an announcement, just a side comment in a “town hall” event. Today, however, MicroCapital, a blog on the commercial investment in microfinance, gave et a serious critique of eBays involvement and MicroPlace. He writes:

Given the high stakes involved and the prevailing problems of usury, the introduction of MicroPlace is worrying as it means lowering the bar to capital participation. A mass-market online forum for offering microcredit will open the door to anyone. It is already difficult enough for ‘sophisticated’ dollars to make the most effective and efficient investments in microfinance, so what happens if ‘unsophisticated’ capital joins in? The inevitable price distortions which will be driven by a mix of people bidding up prices when they don’t care about commercial returns and those who are trying to make a sustainable and profitable investment can only inhibit progress towards a serious market, which the risk-based credit model of microfinance has made over recent years.

What exactly will MicroPlace be doing? That’s difficult to figure out. They will offer investment to privates in securities issued by microfinance institutions, according to their website. Or by Calvert, one of Americas largest social investors, says Symbiotics, a microfinance investment mediator.

MicroCapital is worried that the influx of capital will create the same kind of disbursement pressure, which is know from donors, where the performance measure is to get rid of funds quickly. This certainly “lowers the bar.” But a recent report from MicroRate, the leading microrating agency, showed that while there might be an abundance of capital with the large MFIs, there is probably scarcity with the small and medium-sized MFIs. The only two actors currently lending to this group of MFIs is Kiva.org and Fond International de Garantie (FIG). FIG still has limited funds available. And investments on Kiva are based on the stories of the individual borrowers, not the institutions. Furthermore, their transaction costs are still relatively high; they estimate it to be $4.38USD per business for the MFI in an article in the MicroBanking Bulletin #13. On this basis, I drafted an alternative model: Interest for Change. That is just an idea is underlined by the fact that I have considered neither regulatory challenges nor the foreign exchange risk problem. As mentioned, comments are welcome.