The Economics of Microsavings: High-yield loans as the lynchpin of deposit-driven microfinance

Financial Access Initiative, 6-13 February 2012

I have a confession to make.  When I began composing this blog, I approached it with a fairly simple hypothesis:  Microfinance institutions (MFIs) that engage in large-scale deposit taking must likewise grow their loan portfolios.  After all, deposits are a source of funding with high operational cost that must be appropriately offset by growing revenue, and only microfinance portfolios provide yields high enough to achieve that.  And because many poor families have a higher demand for savings services than for credit, the resulting over-liquidity could push MFIs into unsustainable portfolio growth, eventually leading to the very credit bubbles that microsavings advocates are trying to avoid.

It seems a reasonable enough hypothesis, and sufficiently controversial to be interesting.  Trouble is, it’s not true.  Reality turns out to be more complicated.   more →

Microfinance without the MFI? Zidisha tests the boundaries of microlending methodology

Financial Access Initiative, 5 July 2011

What does a microlending operation look like?  Well, it may be a bank or an NGO (and many others in between), it probably has some branches, branch managers, loan officers.  The funding of the MFI may come from deposits or from debt, whether from a local or foreign institution, including from online platforms such as Kiva.  There may be variations on these themes, but that pretty much describes microlending as we know it.

What if you took all that away – the branches, the loan officers, the institutional funders?  Could the lending still work?  Well, one model is that of Zidisha Microfinance, an online lending platform that connects lenders in (mostly) developed countries with borrowers in developing ones.  And, unlike Kiva, the connections are real – borrowers create their own online profiles, post their own loan applications, and make their own repayments.  They also post their own comments, as do the lenders.  There is no local MFI intermediary – it is literally the first true person-to-person (P2P) microfinance lending platform in the world. more →