Saturday, April 5, 2008

Microfinance - Nonprofit or For-Profit?

Microfinance nonprofits have been doing terrific work helping people living in poverty develop businesses to become self-supporting.  Using small loans, made without collateral, microfinance organizations help people living in areas traditional banks avoid.  Microfinance nonprofits are active across the world, but at least one, the Mexican organization Compartamos, has become a profitable private bank. 

The New York Times reports that Compartamos ("let's share" in Spanish), which became a for-profit in 2000 and issued an IPO about a year ago, has healthy profits and is currently serving a million borrowers.  The founders argue that by going public they can tap into investor money as well as donor money, and that donor money simply isn't adequate to meet the demand for the loans.  Others who have worked in microfinance for years worry that private microfinance banks will manage the business to benefit the investors, not the borrowers.  Nonprofit groups, in contrast, are more likely to use profits to help the borrowers with their other needs.  For example, Pro Mujer, a microfinance group with brances in Latin American countries, uses profits to provide breast cancer screening, advice on dealing with domestic violance, and financial education.  Compartamos must keep an eye on the bottom line - satisfying its investors. 

Sam Daley-Harris, director of the Microcredit Summit Campaign, a nonprofit microfinance organization, worries about the effect on microfinance organizations in general.  He sees a risk that the concept of microfinance will become more about what's good for the investors and the institutions and less about the goal of ending poverty.  He expressed concern about "mission drift."

For more about the IPO, issued April 20, 2007, see a discussion on microfinance.com.

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http://lawprofessors.typepad.com/nonprofit/2008/04/microfinance--.html

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