I think their views are more consistent than might first appear, because they are talking about two different things.
- Michael is taking about how microfinance can become part of mainstream, conventional business, financed by conventional capital, and correctly points out that this is more likely to provide financial services to more of the 550 million lacking them than any alternatives. He believes that these conventional businesses should be restrained only by regulation and otherwise will do the most good by maximizing profit and, in this way, ultimately will generate the competition that will progressively improve quality and lower price. He further believes that there is no role for “social capital” in microfinance operations or products that have demonstrated commercial viability. Rather social capital should be directed to new “disruptive innovation” which in this context presumably means those innovations that promise to further ameliorate the conditions facing the poor and otherwise disadvantaged. Michael’s focus, then, was entirely on the mainstream, conventional segment of the MF industry and only in passing gave a nod to that segment devoted to continuously pushing the envelope in beneficially impacting the poor.
- Chuck is talking specifically about that segment: those MFIs and interventions that do not aspire to expand access to financial services per se, but rather aim to beneficially impact the poor and disadvantaged. I can’t speak for him, obviously, but my understanding is that he is not focused on trying to legislate or regulate against money lending, new or old, although I suspect he would think such regulation would be desirable. Rather he was focused on those of us –investors and practitioners – who claim to be motivated by social objectives; the very segment that Michael did not focus on. Chuck is asking how that socially motivated segment should behave and define its success.
What the discussion reveals is that we are still confusing ourselves by avoiding very clear distinctions in roles and continuing to treat very different goals and motivations as all somehow monolithic. It seems clear from Michael’s remarks that social investors have no place in Compartamos or MiBanco. He also has what given the experience of the past 10 years is a somewhat naïve faith in the ability and indeed desire of regulators to restrain the excesses of conventional markets. In any case, he lets conventional investors off the hook, whatever the regulatory capabilities or lack thereof, but agrees that social investors must meet higher standards. Chuck for his part acknowledges that he is not an investor, and may be excessively sanguine about the adequacy of available social capital to enable the industry to continue to play its “disruptive” role in introducing and commercializing new interventions for the benefit of the poor and disadvantaged.
It seems it would be helpful to further develop the distinctions that Michael and Chuck sketched out so that scarce social capital can get to where it is best utilized and most needed, and so that we do not alienate social investors by misdirecting their capital to conventional activities that are reluctant to part with their outdated social labeling.
We strongly believe that there is a need to recognize there are trade-offs, and priorities between social impact and financial returns must be set. Otherwise, the resulting lack of precision creates an illusion that we are all talking about the same thing when we may in fact have very different requirements and priorities. In addition to actively leading the debate on balanced returns, we are working on solutions that will better align investor and MFI expectations to enhance performance and maximize social impact. Check back here in the coming months for more details.
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