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...focusing too much on the largest firms operating in the most profitable countries. According to CGAP, 75% of cross-border funds go to Latin America and Eastern Europe, the world's most developed microfinance markets--the low-hanging fruit. That could leave out the poorest of the world's poor, who are predominantly in Asia and Africa. Says Alex Counts, CEO of the nonprofit Grameen Foundation, which helps develop microfinance institutions: "You might need to invent the microfinance industry all over again...
Segmenting the industry, though, might not be so bad if it allows more of the poor to get access to credit. Let multinational corporations take the top microfinance institutions to the next level, and leave the bottom of the pyramid to development groups and regional banks. That's what Ecobank is doing in Africa. The Togo-based company, with operations in 22 countries, has for years acted as a banker to microfinance groups, taking deposits and writing loans. Over that time, Ecobank has grown hip to the business model and last year launched a microfinance institution...
...making loans to poor people, while an important tool, is hardly a poverty cure-all. Property rights, the rule of law--these things matter too. "You cannot overidealize what microfinance alone can do," says Clara Akerman, president of the microfinance group WWB Colombia. Most outfits started with lending simply because local laws prohibited nonbanks from offering deposit accounts. When people do have the option to save instead of borrow, saving is often what they prefer...
With marketing savvy introduced into the equation, poverty-alleviation experts are concerned that people will be talked into loans they wouldn't otherwise want. "Most genuinely poor people are not happy with carrying debt," says international-development expert Thomas Dichter. "The danger of all this new money is that microcredit institutions will feel compelled to go out and generate more borrowers...
Part of those financial systems, though, are consumer loans, and that is a sticking point for microfinance purists. There is nothing inherently wrong with buying TVs and microwaves on credit, but as lending to poor people has gone mainstream, certain markets, like Mexico, have been flooded with loans that have nothing to do with providing capital to aspiring entrepreneurs--just racking up household debt. That's especially worrisome, since most developing countries don't have strong consumer-protection laws. "Everyone has realized you can make money," says Damian von Stauffenberg, principal of MicroRate, which evaluates microfinance firms. "Before...