Pierre Omidyar on microfinance, too

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Business Week have an interview with Pierre Omidyar, the brains behind eBay. He and his wife are donating $100m to Tuft's University to create a new fund for microfinance. Old news? Omidyar talks about consolidation and the difference between funds run for a social mission and funds run for profit. (He prefers the profit-driven funds.) I found the interview well worth a look:

If you want to reach global scale -- and we're talking about hundreds of millions of people who need this -- you can't do it with philanthropy capital. There's not enough charity capital out there. In order to reach 500 million people, you have to access the private capital markets. In order to access private capital, you have to provide competitive return on investment. In order to give competitive returns to investors, you've got to operate on a profitable basis and be thinking of yourself as a business.


By some estimates, there are 10,000 microfinance institutions (MFIs) in the world... What should be happening over time is that as the microfinance teams figure out how to most effectively pursue their mission and access capital to do it, those teams will attract more capital and thereby scale more rapidly, and you should see consolidation in the sector. Out of the 10,000, there are very tiny institutions that have maybe thousands of borrowers, and they're really driven primarily by their social mission. They're not really run as businesses. We're not going to get to 500 million borrowers 10,000 at a time with a separate organization and management team for each small block of customers.


The most effective microfinance programs seem to be in the developing world. The microfinance programs in more developed countries tend to have lower repayment rates. The more of a social safety net there is, the less impact these microfinance initiatives will have, and the less financial performance they will have.

The Financial Times also covers the story, and Pablo has already posted about the survey in The Economist. (Did he tell you that they liked my book?)

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