The Big Two Business Schools in Chicago have made an inspired play to claim the annual microfinance conference mantle in the U.S. The ambitious students covered all the bases in the second annual one day event. Hats off!
The Players Plenary even focused on the "dirty little secrets" of microfinance, achieving a rare level of candor for a large microfinance conference, choice examples of open secrets were:
1. Usurious Interest Rates: Private and public charity dollars are re-lent to people who make less than $2 a day at rates of 40-100% annually, for more on this topic, please see past blog here. Moreover, these same charitable agencies as well as profit-seeking firms mis-represent the real interest rate charged, for more on this topic, see past blog here. (For a more technical explanation of microfinance interest rates, see past blogs here and here.) Sadly, no one at the conference actually admitted to committing usury funded by taxpayers and tithers, although one gentleman did almost face the crowd, then shied away at the last moment.
2. Misrepresentation of Repayment Rates: Microfinance is over-sold, claiming "98-100% Repayment Rates," for more on this topic see past blog here. It is refreshing to hear insiders publicly acknowledge that these figures are often wildly overstated.
3. Very Low Default Actually Means Bad Risk Management: Monica Brand of ACCION woke up the crowd by asserting that the star performing micro-banks with (verified) 99% plus repayment rates are not taking enough risk. For instance, she politely questioned micro-financiers for turning up their noses at consumer finance.
4. No Yield Curve in the Developing World: The fact that insuring against foreign currency risk is Next to Impossible when your inventory is micro-loans in Madagascar depresses even the most cherry and optimistic micro-financier, see past blog here and whitepaper here. Grant-makers committed to not distorting competitive markets could instead toss into a pot to solve this ferocious issue.
Probably the Only Elephant in the Room Left Standing by the end of the great day was the biggest one of all. Microfinance may soon be the property of banks, not governments and charities. If these founders want more than just a legacy in microfinance, then they will quickly adopt "social enterprise" strategies to claim a seat at the table.
Otherwise, a consensus emerged that perfecting the conference would require getting micro-bank customers in the conference hall. Given the high cost of travel to Chicago, video-conferencing may be the trick for next year, so please mark your calendar now because Chicago is golden in late April.
