Doing Well? by Doing Good?

“If you think microfinance is the exclusive domain of do-gooders seeking a free-market cure to global poverty, think again. While much of the money flowing into loans for the working poor is indeed ponied up by people with high-minded goals, these days it’s coming increasingly from those with a sharp eye for the bottom line--raising new questions over how to balance the altruistic mission of microfinance with the pursuit of profits.

“The high interest paid on microloans makes the operations surprisingly profitable. So hedge funds, venture capital firms, and other big investors are angling to get into the business. ‘This is not a charitable activity, says Scott Budde, a managing director at U.S. pension colossus TIAA-CREF, which aims to invest $100 million in such outfits. We're looking to produce competitive returns.’

“There’s no shortage of demand for microloans. Consultancy McKinsey & Co. estimates that as many as half of the globes 3 billion poor people may be eligible for loans--typically just a few hundred dollars at interest rates that average 31% a year...

“The rush of money into microfinance has raised questions about the hefty profits some microlenders earn...

“Some say rates, and returns, may fall with competition. Sky-high returns are a temporary phenomenon, says Matthew J. Bannick, who heads Omidyar Network, backed by eBay Inc. founder Pierre M. Omidyar. Bannick figures even investors who only want to do well for themselves will do good by helping microlenders reach more people. ‘Is it better to serve 100 million poor people and break even, he asks, or to serve 2 billion poor people and make a modest profit?’"

(“Microfinance Draws Mega Players; Hedge funds, VCs, and other big investors are seeing the huge profit potential in tiny loans.” By Keith Epstein, with Geri Smith in Mexico City, Nandini Lakshman in Hyderabad. Business Week: July 09, 2007. , Iss. 4042; pg. 96)

SO... why aren't risks discussed? Risks to whom? Of course, the maxim is not: "High risk, high return." Sensibly, we may say, "High risk, high expected return."

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