Alex Counts: Flexibility is the mantra for microfinance institutions

Alex Counts, President & CEO, Grameen Foundation

MF Focus, July 20, 2009: Flexibility in microfinance/micro credit loans will help the sector tide over many new challenges, Grameen Foundation CEO Alex Counts has said in a recent interview to Microfinance Focus.
Terming multiple borrowing that is hitting hard the industry’s growth in recent years, Counts termed it as a dangerous trend that can be fixed by addressing the issue of under-lending first and secondly, dissuading loan officers from underestimating the risk in order to meet the target.
Citing an example from his experience in Bangladesh, he said a regional manager had overtaken all other regions in terms of  loans made, but it led finally to over-indebtedness of clients and even small-scale corruption. Though the manager was fired, it took about ten years for that region to come back, said the CEO of one of the largest MFIs Network in the world that comprises 46 microfinance partners in 25 countries. Terming such practices as the darker side of the microfinance institutions, he cautioned against short-term gain ignoring the larger goal of  serving the poor.On commercialization of microfinance institutions, a line should be drawn between the acceptable levels of profit and repayment capabilities of borrowers. “For the people who are below the poverty line, you should be thinking of it as fundamentally a break-even business. That’s the feeder for the profitable clients later on,” he said but quickly added that the extra profit should be re-channeled in the form of lower interest rates, better services, or stock options.
At the same time, he favoured the initial amount for the ultra poor to be small enough, say $25 plus financial literacy than extending $100 at one go for six months. This inculcates financial discipline among them and helps them succeed later on, he pointed out.
Another important yardstick for the MFIs is to see if people are improving their economic conditions or just treading water. In case they are just treading water, they might earn profit for a short time, but fail to sustain in the long run. Since the long-term focus of MFIs is to offer more financial and insurance products, they should aim at the economic stability of their borrowers and help turning them into better customers for the full range of products, he said.

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