How Do You Measure Success for Microfinance?

That’s easy. Success is when The Economist calls, in its March 17, 2007 lead article entitled "Time to Take the Credit", for philanthropists to stop funding successful microfinance organizations because they are crowding out potential private sources based on "soft terms" with which private money cannot compete.

The Economist follows on to say "…aid money is better spent where commercial cash fears to tread – such as on the next generation of microfinance institutions." Evidently the universe of "impoverished microentrepreneurs" worldwide is 500 million, of which "only a fraction" have access to classic financial services.

In a longer article entitled "Small Loans and Big Ambitions" in the same issue, the Economist acknowledges that "some believe that microlenders have no business making money from the poor." (Note a previous PhilanthroMedia post on the topic.) But leaders that I talk to are desperate to see capital flow to successful efforts that are ready to go to scale. They acknowledge that only private capital represents a large enough pool to reach critical mass (except perhaps for government funds, which everyone understands are potentially big but by no means easy to get). In any event, this angle on the debate is far more productive (and sophisticated) than the rumor floating around the sector that "microfinance is overfunded," implying that there is some sort of shakeout coming.

But let’s take a moment to celebrate. According to the article, "there are now some 10,000 microfinance institutions lending an average of less than $300 to 40 million poor borrowers worldwide." And philanthropists are being asked to move on to other horizons to make room for private capital. That’s success in my book.

Carla E. Dearing