A Giant Stumbles: Why did investors abandon Blue Orchard?

Microfinance Focus, 10 December 2012; microDinero (Spanish), 12 December 2012

Over the past 18 months, one of the microfinance sector’s largest and most prominent funds, Blue Orchard’s Dexia Micro-Credit Fund (recently renamed Blue Orchard Microfinance Fund), saw a major outflow of investor capital, with some $268 million or nearly 50% of the fund’s peak value having been redeemed.  The scale of these outflows is unprecedented in the sector.  For years, investment capital largely flowed one way:  in.  The exit doors were there, but rarely used.  That is no longer the case.  The pioneer of the microfinance investment industry has now crossed another milestone in the industry’s development.

Like Dexia, many microfinance funds (commonly referred to as Microfinance Investment Vehicles or MIVs) are subject to unscheduled redemptions.  For those funds, their investors, as well as others in the sector, BlueOrchard’s experience holds important lessons, and it is those lessons that this article hopes to convey. more →

From Responsible Lending to Responsible Profit

Financial Access Initiative, 16 November 2012

If there’s one issue that’s most difficult for microfinance practitioners to explain to the lay public, it’s high interest rates.  As Elisabeth Rhyne describes it, at some point the numbers get so high that people become outraged and stop listening altogether.  Most recently, the issue was put back in the public eye through Hugh Sinclair’s Confessions of a Microfinance Heretic and the media coverage it has spurred.

With few exceptions, his critique that microfinance investors are investing in MFIs charging exorbitant interest rates has gone largely unanswered. That’s not a tenable position for the long-term.  For a socially responsible fund, the case ought to be simple – if you have investments that you’d rather not have to publicly support and explain, then either those investments don’t belong in your portfolio or you should learn how to explain those investments.

Rates in excess of 100% (in APR terms) are not unknown in microfinance.  more →

Rethinking Multiple Borrowing

Financial Access Initiative, 14 September 2011; MicrofinanceFocus, 15 September 2011

Some time ago, I had a conversation with a microfinance investor.  What is the greatest challenge facing the sector? – I asked.  His answer:  multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.

Of course, multiple borrowing is present in all of these cases.  But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance.  And despite press articles to the contrary, it is neither a result of heavy market penetration, nor even saturation. No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years. more →