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.