The Growth Challenge For Microfinance

Microfinancing today faces a huge challenge. Whenmicrofinancing just began, it involved a very simple model of getting low-endloans in the double and triple digit figures to people at the bottom of thepyramid. After three decades of rapid growth, these same institutionshavebecome a lot more complex and the market more crowded.

According to reports, there are over 1200 microfinanceinstitutions (MFIs) with over 64 million borrowers and 33.5 million savers, andthe numbers continue to grow at 25% year on year. Even the big banks, seeingthe opportunity at the bottom of the pyramid, are now extending their presenceto microfinance, where once only philanthropies thrived. This has set off ascramble between the existing players and the newcomers.

The tug of war is most recently playing out inmicrofinance's human resources departments. As a greater number of for-profitmicrofinance institutions enter the market, more established MFIs worry thatbanks are poaching their best employees. At the same time, traditional MFIsneed to attract banking talent at the managerial level to tackle the moresophisticated financial services they must offer to survive. This naturallycreates a conflict and the biggest fight is over the most critical resource,people. In a MFI, the field officers are the lynchpin holding the institutionsand customers together.

If banks are going into retail microfinance, they usuallyend up poaching field officers from the MFIs, as they bring in criticalexpertise for on the ground operations. MFIs, already facing a talent crunchdue to their non-corporate nature, are feeling the strain. At the top levels,the flow reverses as the MFIs seek expertise in expanding their portfolio ofservices, such as portfolio management and risk management. Industry veteransworry that the new influx of banking talent and the increasing focus on bankingservices could jeopardize microfinance's original mission to help the poor.

In many countries, microfinance institutions aretransitioning from their status as non-governmental organizations to regulatedfinancial institutions in order to make their business model more sustainable.By becoming regulated, an MFI can accept deposits, reducing its dependence ondonations and increasing its access to much needed capital. Growing moresophisticated allows MFIs to keep serving customers who have become successfulin business and now have financial needs beyond the micro-loan. ATM access,credit, insurance, home and business expansion loans are just some of theservices growing MFI clients look for. If the MFI can offer these, they canretain their more successful customers and use their growing wealth to fundothers in a chain. This is where the retention of field staff is critical, ascustomers will often follow the employee to their new bank.

Bank employees transitioning to MFIs on the other hand needto change their outlook and unlearn a lot of their past. Microfinance is verymission-driven, and a bank-like approach does not often gel with that. This isa sore point for a significant number of bankers who make the move. Theadvantage is that they bring a lot of business focus to the structure, moreoften than not adding efficiencies and skills that are not part of the structureat charitable institutions. The field is a great place for those who understandthe double bottom line involved, the monetary as well as the social benefitsthat result.