By Adrian Merryman, Chief Executive Officer, VisionFund Cambodia
50 years ago, the microfinance industry was born based on the belief that if
those living in poverty were given access to loans, they could help themselves
permanently out of poverty.
early pioneers would likely be amazed at the way the industry has developed and
the hundreds of millions who have benefitted from microfinance services. And
while they also might be gratified by the efficiency and effectiveness of many
of today’s industry leaders, they would also be dismayed by the focus on
profitability at the expense of serving those on the bottom of the economic
days, there is a clear dichotomy between mission-driven and profit-driven
microfinance organisations. To understand this difference, we need to look back
at the history of the industry, and consider how a sector that began as the
brainchild of a development mind-set, became part of the finance industry.
microfinance organisations grew throughout the 1980s and into the 1990s, it
became clear that finance expertise was needed if efforts were to truly grow
and scale. Innovations we began to see in this era, such as group lending, came
from the banking industry and were key to the growth of the industry and its
line with the nature of the banking industry, improvement was a focus, but so
was making profit. This meant that in the mid 2000s mission-driven and
profit-driven microfinance began to emerge as two separate approaches to the
same solution. People would speak about the notion of ‘doing well by doing
good’ – investing in activities that help the poor, but also making money.
are two key factors to making a profit in microfinance: lending larger amounts
of money, and maximising the number of clients per loan officer. If we consider
for a moment the difference between urban and rural lending; urban clients
typically need higher value loans because the operating costs of their
businesses and livelihoods tend to be more expensive in cities. On top of this,
loan officers can serve more clients in urban areas because of their proximity,
and so providing urban microfinance makes more economic sense than providing
I was the CEO of VisionFund Tanzania, we would, on average, lose $30 for every
rural loan we distributed, while an urban loan resulted in an average profit of
$41. VisionFund has become a rarity because we remain fully mission-driven. We
are focused on serving rural populations and targeting those as far down the
economic ladder as we can. This means we need to expand sustainably, and
continue innovating in order to minimise costs and stay efficient.
am not saying that profit-driven organisations don’t make a difference, or that
their models aren’t to be admired. Any initiative that helps poor people toward
a better life is worth celebrating. However, let’s not forget the 70 per cent
of the world’s poor who live rurally, those people that may be deemed as ‘too
expensive’ to help, who may be harder to reach, and whose requirements could be
more complicated than their city-dwelling counterparts.
Stay tuned later this
month to read part two of this blog series: using
technology to sustainably serve rural clients.