Wednesday, February 16, 2005

Going to the Barricades

From the July 2003 issue of the MicroBanking Bulletin, David Richardson’s paper Going to the Barricades for Microsavings Mobilization: A View of the Real Costs from the Trenches was recommended by attendees at an asset building conference recently held in the Vancouver suburb of Coquitlam.

In The MicroBanking Bulletin: Focus on Efficiency, Richardson wrote 'Unorthodox Microfinance: The Seven Doctrines of Success' and argues for a radical reform of the orthodox approach of using financial services to achieve poverty alleviation. According to Richardson, many credit unions are skeptical of conventional Microfinance lore and are now focusing on commercial viability rather than on outreach.

The author offers seven doctrines for achieving poverty alleviation targets:
  • The Doctrine of Open Door Massification:
    Serving a wider range of economic groups leads to better outreach.

  • The Doctrine of Micro-savings:
    Micro-saving benefits an MFI with less dependence on external funding and abundant liquidity for lending.

  • Portfolio diversification:
    Diversifying into work, housing, health, education, transport and security products. The MFI avoids risk of economic downturns in a single sector.

  • Efficiency:
    Better productivity helps MFIs compete with downsizing commercial banks. Larger loans should contribute more to payment of fixed costs. Salary and incentive structures for staff should be re-evaluated.

  • Financial discipline:
    Better management of delinquency, loan-loss reserves, loan charge-offs, and reserves of capital and liquidity.

  • Self governance:
    Empowerment, matched by checks and balances of economic incentives, financial discipline and systematic vigilance.

  • Assimilation:
    Poor people should be assimilated into the mainstream economy by providing them with access to comparable financial products and services.

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