The future of microfinance

June 25, 2012 │ New York

Leaders from several top microfinance institutions gathered to discuss the sector’s issues and potential solutions on a panel jointly hosted by Deutsche Bank’s Corporate Banking & Securities (CB&S) Women’s Network and CSR Americas. Speaking on the theme “The evolution of microfinance: An effective poverty alleviation tool or exploitation of the poor?”, the consensus from participants was that, despite industry problems, microfinance still has the ability to positively affect millions of lives.

Panelists for the evening were Laura Foose, Director of the Social Performance Task Force, Asad Mahmood, Managing Director of Deutsche Bank’s Global Social Investment Funds, Rosario Perez, President and CEO of Pro Mujer, and Elisabeth Rhyne, Managing Director of the Center for Financial Inclusion at Accion International.

Rhyne explained that the concept of microfinance began two decades ago as a way to provide financial services for low income people. Modest loans from specialized financial institutions – microfinance – offer a way for people in developing countries to fund small business ventures. “Microfinance helps people take advantage of opportunities and protects against vulnerability,” she said.

Today there are an estimated 200 million microfinance clients worldwide. Due to the sector’s expansive growth, there has been considerable concern over client exploitation and high interest rates. The panelists acknowledged these problems as substantial, but also pointed out various client protection measures being taken to address these issues.

The importance of effective client-vendor communication and the promise of mobile technologies as an efficient communication tool also emerged as central topics. However, panelists also cautioned that the microfinance’s greatest strength lies with the strong relationships that vendors directly build with their clients – something that cannot easily be replaced by technology.

“There needs to be a deep relationship with clients,” Perez said. “We need to understand the need of clients and offer them the products they need.” Perez asserted that understanding the clients’ goals was crucial to sustainable growth in the sector. She explained that the sector would have to expand beyond financial services to providing insurance, healthcare and, most importantly, business skills training in order to fully support client needs.

Mahmood spoke about Deutsche Bank’s pioneering role in the development of innovative funding structures for microfinance, as well as its leadership in focusing the industry on customer needs and client protection principles. “Deutsche Bank is committed to working with organizations that are customer-focused, transparent, and demonstrate good governance and reasonable interest rates,” he said. Currently, the Bank manages more than $126 million in loans to 37 microfinance institutes worldwide.

The panel wrapped up with questions from the audience on topics including regulation, microfinance in the US and the greatest opportunities in the sector.

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