Comments on: The “on the one hand” and “on the other hand” of microfinance lending http://microfinance.cgap.org/2009/04/27/online-lending-platforms/ Advancing financial access for the world's poor. Tue, 07 Sep 2010 09:16:05 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: More Kiva Kibitzing | David Roodman's Microfinance Open Book Blog http://microfinance.cgap.org/2009/04/27/online-lending-platforms/comment-page-1/#comment-293 More Kiva Kibitzing | David Roodman's Microfinance Open Book Blog Tue, 06 Oct 2009 17:26:32 +0000 http://microfinance.cgap.org/?p=378#comment-293 [...] CGAP’s microfinance blog in April, Deborah Burand imagined the worst for the person-to-person microcredit industry Kiva has spawned. What if charlatans debase the [...] [...] CGAP’s microfinance blog in April, Deborah Burand imagined the worst for the person-to-person microcredit industry Kiva has spawned. What if charlatans debase the [...]

]]> By: V.Rengarajan http://microfinance.cgap.org/2009/04/27/online-lending-platforms/comment-page-1/#comment-109 V.Rengarajan Thu, 30 Apr 2009 08:18:43 +0000 http://microfinance.cgap.org/?p=378#comment-109 Dear all In the context of prevalence of unavoidable scandals (Nicolas) at provider (institutional) level ‘on the one hand’, and the significance of social values/ sensitivities (Ryan & Deborah) ultimately at client level ‘on the other hand’ in MF platform, it provokes me to raise a question “ Does MF sector warrant to go for ‘on line lending ‘ or feel it as an inescapable necessity in the process of attraction of capital? The rationale for the above inquiry In the first, as a by product of technology, on line lending helps the investors and the lenders (MFI) and there will be lack of transparency at all levels. It leads to more risk particularly in the regulation free environment in MFI arena.. (A lesson from the financial crisis in USA) Secondly if on line lending facilitates more attraction of capital to the providers without proportional to the actual demand from the target group (the poor) on the one hand, can we assume that all the capital so attracted, could be optimally or economically absorbed to create a tangible social impact eventually at client level ‘on the other hand’? Finally, in the context of the need for a gestation period for the candid process of positive social and economic change with the help of MF package (micro savings, micro credit, micro insurance, capacity building etc.,) at client level, does the MF environment warrant such a speedy transfer of micro credit only through on line to the providers? Otherwise will not result in increase in the level of indebtedness ultimately at the client level as the MFI/providers may likely rush to provide the capital (gained through on line) for realizing their due return without much botheration on social impact at their poor client level. As against the above portrayal in the MF arena, I am also equally in awe like Deborah little differently on the economic impact of power of on lending in the supply side (investors and the MFIs) ‘on the one hand’ and its social impact in the demand side ‘on the other hand’. Unfortunately, many occasions saw the said impact ‘on the one hand’ only and not yet ‘on the other hand’ equally Dear all
In the context of prevalence of unavoidable scandals (Nicolas) at provider (institutional) level ‘on the one hand’, and the significance of social values/ sensitivities (Ryan & Deborah) ultimately at client level ‘on the other hand’ in MF platform, it provokes me to raise a question “ Does MF sector warrant to go for ‘on line lending ‘ or feel it as an inescapable necessity in the process of attraction of capital?
The rationale for the above inquiry
In the first, as a by product of technology, on line lending helps the investors and the lenders (MFI) and there will be lack of transparency at all levels. It leads to more risk particularly in the regulation free environment in MFI arena.. (A lesson from the financial crisis in USA)
Secondly if on line lending facilitates more attraction of capital to the providers without proportional to the actual demand from the target group (the poor) on the one hand, can we assume that all the capital so attracted, could be optimally or economically absorbed to create a tangible social impact eventually at client level ‘on the other hand’?
Finally, in the context of the need for a gestation period for the candid process of positive social and economic change with the help of MF package (micro savings, micro credit, micro insurance, capacity building etc.,) at client level, does the MF environment warrant such a speedy transfer of micro credit only through on line to the providers? Otherwise will not result in increase in the level of indebtedness ultimately at the client level as the MFI/providers may likely rush to provide the capital (gained through on line) for realizing their due return without much botheration on social impact at their poor client level.
As against the above portrayal in the MF arena, I am also equally in awe like Deborah little differently on the economic impact of power of on lending in the supply side (investors and the MFIs) ‘on the one hand’ and its social impact in the demand side ‘on the other hand’. Unfortunately, many occasions saw the said impact ‘on the one hand’ only and not yet ‘on the other hand’ equally

]]> By: Deborah Burand http://microfinance.cgap.org/2009/04/27/online-lending-platforms/comment-page-1/#comment-108 Deborah Burand Wed, 29 Apr 2009 19:01:18 +0000 http://microfinance.cgap.org/?p=378#comment-108 Ryan and Nicholas make a terrific point that this is an issue that applies to microfinance providers as well as to those online lending and investment platforms that fund microfinance. Much work is being done now to help differentiate among providers of microfinance. Much less work has been done to differentiate among retail-oriented funders of microfinance - online or more traditional platforms. For those who believe, as I do, in the power of socially-motivated microfinance and see online platforms as a relatively untapped source of fuel to generate that power, there is much to do. We have a valuable opportunity to be proactive, rather than reactive, in shaping how online lending and investing platforms develop. Ryan and Nicholas make a terrific point that this is an issue that applies to microfinance providers as well as to those online lending and investment platforms that fund microfinance. Much work is being done now to help differentiate among providers of microfinance. Much less work has been done to differentiate among retail-oriented funders of microfinance - online or more traditional platforms.

For those who believe, as I do, in the power of socially-motivated microfinance and see online platforms as a relatively untapped source of fuel to generate that power, there is much to do. We have a valuable opportunity to be proactive, rather than reactive, in shaping how online lending and investing platforms develop.

]]> By: NIcolas Leupold http://microfinance.cgap.org/2009/04/27/online-lending-platforms/comment-page-1/#comment-106 NIcolas Leupold Wed, 29 Apr 2009 01:52:46 +0000 http://microfinance.cgap.org/?p=378#comment-106 This issue could not have had better timing. Transparency throughout the "value chain" of mainstream financial products and services is under severe questioning due to the crisis. Being MF a niche, the general concepts apply to it as well. It is a question of time a Maddoff or Ponzi scheme comes to light in a MFI or financing platform around the world. Credit rating agencies that analyse IMF´s just to avoid mishaps cannot do any better than S&P/Moody´s/Fitch did. Nevertheless, though scandals will not be avoided this should not stop the MF industry from creating new financing and distribution channels, governance procedures, efficiency metrics, etc. Every error or scandal should be taken good notice of, corrected, prosecuted and then move on. The net growth of honest money going to honest micro-entrepreneurs is what counts, not the headlines that will be forgotten in a week. Being stopped from lending by the errors that will inevitably happen will do more harm than a manageable PR issue. This issue could not have had better timing. Transparency throughout the “value chain” of mainstream financial products and services is under severe questioning due to the crisis. Being MF a niche, the general concepts apply to it as well. It is a question of time a Maddoff or Ponzi scheme comes to light in a MFI or financing platform around the world. Credit rating agencies that analyse IMF´s just to avoid mishaps cannot do any better than S&P/Moody´s/Fitch did.

Nevertheless, though scandals will not be avoided this should not stop the MF industry from creating new financing and distribution channels, governance procedures, efficiency metrics, etc.

Every error or scandal should be taken good notice of, corrected, prosecuted and then move on. The net growth of honest money going to honest micro-entrepreneurs is what counts, not the headlines that will be forgotten in a week. Being stopped from lending by the errors that will inevitably happen will do more harm than a manageable PR issue.

]]> By: Ryan http://microfinance.cgap.org/2009/04/27/online-lending-platforms/comment-page-1/#comment-105 Ryan Tue, 28 Apr 2009 14:20:51 +0000 http://microfinance.cgap.org/?p=378#comment-105 I wholeheartedly agree. Though I think the arguments apply to microfinance generally. Though there are internal standards (think of Grameen's "Stars") and some financial transparency initiatives, there is yet to be a regulatory regime. Undoubtedly some major MFI will turn out to be corrupt and all the great work of those operating squeaky clean will be tarnished as the whole industry takes a hit. Moreover, there is a need for distinguishing between those MFIs measuring social performance indicators and those that aren't. Microfinance seems to be bifurcating across that divide, and it's appropriate to market those two elements as distinct. I wholeheartedly agree. Though I think the arguments apply to microfinance generally. Though there are internal standards (think of Grameen’s “Stars”) and some financial transparency initiatives, there is yet to be a regulatory regime. Undoubtedly some major MFI will turn out to be corrupt and all the great work of those operating squeaky clean will be tarnished as the whole industry takes a hit.

Moreover, there is a need for distinguishing between those MFIs measuring social performance indicators and those that aren’t. Microfinance seems to be bifurcating across that divide, and it’s appropriate to market those two elements as distinct.

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