Mads Kjaer of MYC4 commenting on the Grameen Bank being taken over by the Bangladeshi government, and ousted Nobel laureate and micro finance pioneer Muhammed Yunus:
Microfinance of 20 years ago is completely different from what we have today. Actually, what Yunus started was micro-credit and now we have microfinance (that offers a whole range of other financial products & services). Microfinance has grown to such a level that it cannot go unnoticed by governments. And that’s why in the last decade, there has been a wave of regulation and licensing of MFIs and the industry has evolved from donor and government programs to commercial ventures primarily driven by the private sector.
Microfinance Institutions are currently holding a lot of financial resources in both credit and savings and if not properly managed and controlled, they can be cause a risk to the financial sector. Microfinance has therefore evolved as an industry and moving forward we should see professionalism and proper ownership and governance structures in place.
The case of Yunus could have had a political angle to it but the fact the government could not give him exemption to remain a director being over-age, is a manifestation that microfinance has outgrown its “founding fathers” and emerging as a professional industry.
History often repeats itself; in our western culture we seem to forget that we also used to have thousands of small savings-credit and cooperative institutions/banks that over time were merged, acquired, and grew to large financial institutions of today like Chase.
In microfinance, crowd-sourced ventures have aimed at connecting first world capital with developing world opportunity – and with some success.
Mads Kjaer and Tim Vang co-founded MYC4 which works to connect online investors with entrepreneurs in Africa. MYC4 was founded using a Dutch auction method for retailing loans to small and mid-sized businesses in developing countries – a crowd-sourced for-profit micro finance company with an initial presence in Africa.
Since they started five years back, over $20M has been invested in over 10,000 loans. These funds have come from over 19,000 investors/lenders. The biggest challenge facing MYC4 at the moment is lack of adequate liquidity to fund all the loan requests. This year alone, over $1M worth of loan requests has not funded. At the moment, MYC4 requires an increase of investors/lenders with a short term year end funding gap of $1M in new liquidity to fund growth.
Says Mads, “Africa is no longer a basket case but a business case. For decades, highly subsidized credit and grants have not helped African businesses grow but has often created a dependency syndrome.
“What we are learning now is that small businesses that are looking for capital to grow can pay market rates of interest. Their major concern is reliable and continuous access to rightly priced capital. Through the Dutch Action on MYC4, businesses have an upside of receiving cheaper funds than they were initially willing and able to pay. We have seen to type of investors/lenders; social and for profit and the Dutch auction accommodates both.
“The on-going transformation in microfinance means grants and subsidies are a thing of the past and commercial sources of funding will continue to be the major source of funding.”