Two Must Read Posts on Microfinance

Two articles were published this week that should be on your reading list.

The first is a post by Asli Demirguc-Kunt, an economist at the World Bank who has been working with Jonathan Murdoch and Robert Cull to analyze the reams of data available at the MIX. Her post describes the tendency of microcredit providers (banks, credit unions, ngos, et al), to bifurcate into two categories: lower interest rate, larger average loan size  institutions reaching the poor and higher interest rate, smaller average loan size institutions reaching the poorest of the poor.The big takeaway from the article is that the two approaches, though different, are both necessary to scale microcredit and to reach the poorest of the poor. So why are interest rates higher on the smaller loans? Dollar for dollar the costs of servicing them are higher, and those costs are passed along to the borrower.

The second must read item is an article from Peg Ross who is the director of Grameen Foundation’s Human Capital Center. Peg previews work she and colleagues will be doing in May to establish a training plan for “the next generation of microfinance leaders,” in particular, the current mid-level managers of microfinance institutions. For a more thorough diagnosis of the challenge of cultivating leaders in the microfinance field, see Ross’ report, No Footsteps to Follow.