The case for big banks

Yet as money floods in,Alkua has tales of brewing conflict.Consider the time a bank chairman asked if SKS could raise its interest rates.Akula said yes(in most markets it has a monopoly),but that SKS wouldn't do so because it would be exploitative.The banker scoffed that Akula didn't understand economics.Akula shot back that the banker didn't understand customers,who would turn on SKS if they felt abused.We're maintaining a loyal customer base that will stay with us as they get out of poverty.



As long as investors have a long-term view,Akula argues,the social and financial missions of microfinanace intertwine.We're not giving away money here,we expect a return,say Gary Hattem,a managing director of Deutsche Bank,which runs four microfinance funds.But we do keep our eye on the social-impact side of this.It's very humbling when you go to places where the people coming to borrow smell like the cows they're raising.



Yet the pressure to turn a profit often forces microfinance to change their business models in ways that depart from the industry's orginal purposes.As Al Amana,Morocco's largest outfit,has shifted from grants to commercial funding,it's average loan size has roughly tripled,smaller loans to the most desperate borrowers are costlier to service.One consequence of commercialization is that a lower percentage of loans go to women because they tend to take out smaller sums,according to a recent study by Women's World banking.



As a growing number of microfinance firms go public,qualms about putting the financial interests of shareholders above the needs of clients have mounted.Already he flood of new money has come under criticism from longtime microfinance advocates for focusing too much on the largest firms operating in the most profitable countries.According to CGAP,75% of cross-border funds go to Latin America and Eastern Europe,the world's most developed microfinance markets the low hanging fruit.That could leave out the poorest of the world's poor,who are predominantly in Asia and Africa.Says Alex Counts,CEO of the nonprofit Grameen Foundation,which helps develop microfinance institution,you might need to invent the microfinance industry all ovr again.



Segmenting the industry,though,might not be so bad if it allows more of the poor to get access to credit.Let multinational corporations take the top microfinance institutions to the next level,and leave the bottom of the pyramid to development groups and regional banks.That's what Ecoback is doing in Africa.The Togo-based company,with operations in 22 countries,has for years acted as a banker to microfinance groups,taking deposits and writing loans.Over that time,Ecobank has grow hip to the business model and last year launched a microfinance institution of its own,in Nigeria and then in Ghana.Senegal and Cameroon are next.This empowers the bottom of the African market,says Ecobank microfinance head Rotimi Nihinlolamand, is a good opporitunity to grow our business.


Yet marking loans to poor people,while an important tool,is hardly a poverty cure-all.Proverty right,the rule of law,these things mater too.You cannot overidealize what microfinance alone can do.Most outfits started with lending simply because local laws prohibited nonbanks from offering deposit accounts.When people do have the option to save instead of borrow,saving is often what they prefer.



With marketing savvy introduced into the equation,poverty-alleviation experts are concerned that people will be talked into loans they wouldn't otherwise wnat.Most genuinely poor people are not happy with carrying debt,the danger of all this new money is that microcredit institutions will feel compelled to go out and generatemore borrowers.But the new money is also expanding the scope of microfinance beyond small loanmarking.As institution compete for customers,they are rolling out other services.In Mexico,Citigroup has written more than 1 million life-insurance policies in conjunction with compartamos, and in India it offers customers savings accounts and ATM access in partnership with microfinancier BASIX.Not everyone will be an entrepreneur,but most of us have to save for something.Microfinanciers around the world are racing to offer the first real micromortagages.That we are now talking about creating financial systems that include the majority of people in developing countries is a real departure form what has existed for centuries.