Great discussion going - glad I'm joining in.
I personally believe that Microfinance DOES need to make a profit because, unfortunately, profits are the only road to sustainability. There are many great non-profits and NGOs that do wonderful work but suddenly, that work comes to an end because their funding dries up. This would be a tragedy for the microfinance sector. So I dont think the issue is being profitable, but rather, how MUCH profit is necessary to stay afloat. The problems inherent in a profit motive, however, are that it is hard to remain dedicated to making only minimal profits if one sees the chance for making much more. Hence, high interest rates charged to borrowers.
But my understanding of the MFI crisis in Andhra Pradesh was that it was not due to high interest loans alone, but also because borrowers were over-indebted to many different institutions, not only one. This leads me to believe that there must be some government regulation / oversight into MFIs to ensure that MFIs cannot take borrowers who already have outstanding loans from other institutions. Correct?? Thoughts??
nita i agree with you based our own experience in uganda. the issue of profits sustaining mfis does not need debate. what you raise as how much profit is what needs to debated upon. once upon in uganda mfis (then ngos) were charging exploitative rates on their loans and using the groups to mobilize loan repayment without ever rewarding these groups for the wonderful job done to make the mfi report 100% recovery rates. the oversight role of government ought to look in to this too. in uganda the borrowers were in some instances borrowing to repay their loans. and when the road of borrowing to repay eventually closed as expected, some of these clients lost the little they had to the lending mfis.
once again lending rates that go through the roof must be debated by the industry. there is no need exploiting those who have no access to financial services just because they do not have access to financial services.