Last week I posted a piece about the career benefits of utilizing outside the box finance jobs, to distinguish yourself from your peers. This week I wanted to provide a follow-up to some questions that were posed in the comments, hopefully being able to provide more insight into the microfinance field. Admittedly information about career benefits after a stint in microfinance are essentially non-existent. However, there were many interesting articles involving the life changing effects seeing the benefits of microfinance, that were able to spark a few ideas.
First let me begin by stating the benefits of having microfinance on your MBA application have not been formally addressed. Tufts University's Fletcher School would appear to be have programs geared towards this line of work in which a background in microfinance would benefit. Although, proficiency in a second language is required.
Which brings me to the second issue, proficiency in a second language. Careers that begin in microfinance appear to continue down this line of work; international development. Having proficiency in a second language is highly sought after if not required, granted they are often in obscure languages that would not be beneficial outside of this career path. However, if you are proficient in Chinese, Arabic or Russian I do believe this would translate well into a financial career after your time in microfinance.
During my research I have found an alternative that might prove more useful, developing your own microcredit company. The difference most people fail to understand, microfinance institutions are essentially banks in which all financial transactions are being supplied for those living in poverty. Microcredit deals strictly in providing micro-loans to those who would not otherwise be offered the opportunity.
I understand running your own small business is not the same as interning at an investment bank but this post's intention is to provide ideas that would set you apart from your peers. What I found appealing about most microcredit institutions are that they are run like Kickstater. Additionally, they are for run for a profit; yet small but nonetheless a profit. There are two distinct classes of microcredit philosophies, providing loans to those trying to start a small business or providing loans to those who need help paying tuition in poverty strict countries. As added bonus this style organization can be run from your computer; meaning you do not have to move to a third world country.
Overall, there are options that would set you apart, but you still have to go above on beyond to truly standout. For those interested here are a few websites to get your started:
Micro-finance as a means to "stand out" is DOA...and so 2006-2007. It is generally recognized that micro-finance is based on the false neo-liberal assumption that all poor are entrepreneurs. I invite all readers to look into the micro-finance outcomes in Bangladesh to get a real view of how damaging micro-finance can be.
I do appreciate and understand what you are trying to achieve which is to stand out from your peers. I would say, forget trying to jet set all over the world...there is a tremendous amount of people that can be helped domestically in any country.
One thing to note though is that when you read about economists and "official" explanation on how micro-finance works, you'll notice that there is a definitive emphasis on entrepreneurship. If you're talking about micro-finance based solely on entrepreneurship then yes it does not work well. But if you go through the loans on Kiva which is far more representative of real micro-finance (since they have actual examples) these days then you'll notice most of it has a focus on expansion of pre-existing businesses. It's mostly just... more livestock; getting a bike so I can deliver more to the market; buying more stock so I can sell more; fixing my broken car.
The Western world's involvement with microfinance these days is not really providing seed money for start-ups, it's more just providing equity for small local banks that deal in poor countries. The investments nowadays aren't bad stuff to be fair, though probably FAR better than what showed up in '06-'07. It's just that, you're empowering these small banks to give out more loans with the hopes that more people are helped.
I think subsidizing a bank to write debt notes is a mistake. For micro-finance banks to stay viable and to be 100 percent financially sustainable they have to widen the economic spectrum from only the poor but the middle income plus the poor. Basically, the costs of infrastructure, personnel and marketing are covered by the returns of higher income borrowers, so that the true marginal cost of providing lending to the poorer is not prohibitive.
I am however in favor of providing flexible capital i.e. capital ranging from debt to equity to start-up entrepreneurs.
(Not being a dick, I'm curious)
Do you think public finance investment banking would serve as a useful background for this line of work?
My thinking is that the experience with infrastructure/municipal development is transferable to the projects one would be undertaking in this field. Is there any truth to this?
Public Finance banking can be useful from the standpoint of figuring out how to structure and underwrite a deal, but so can CRE finance and M&A finance.
i want to help a small/micro business succeed in a developing country (preferably a country which I will be living in or traveling through in the next few years, ie Laos, Honduras, Bolivia) , what is the best way that I can help?
It truly depends on the region/nation in which you want to help. As I am sure you are aware business practices differ between regions, nations and cultures, even at the small/micro level. With that being said, the best way to help would be to gain their trust so they will believe in the business education you will provide. Aside from money, business knowledge is the second most scarce resource within the developing world; in my opinion. The Last Hunger Season is an excellent introduction into the lives of the poor, their understanding of farming techniques and how we are able to teach them to garner greater yields, store their crops to sell later at a higher profit etc... Understanding the nation you are going to provide help in, the business you want to help and how the developed world we address this business model will provide a formidable start. Of course you can provide money for expansion but if they do not have or even know the basics then your money will be going to waste.
Sorry for the long comment. All due respect to the people commenting and that have done some research on here, but most seem to be a little uneducated on microfinance and where the world of "inclusive finance" has been moving. It is generally accepted in practice that mf is not a panacea for poverty as many academics originally posed it to be.
Most institutions are moving to strictly for profit models, and many impact investors interested in the double bottom line (financial and social returns) are in the space making sure it is sustainable. It is actually a fascinating industry with the social commitment many professionals have and the way it has progressed after the bubble popped in 2009 (microfinance saw huge investment in early 2000s and is now seeing a big pull back and investment is questionable right now).
Imagine if you didnt have a checking account, credit card or anywhere to receive your direct deposit. It would fucking suck, right? But having it doesn't make you richer... Loans might make some people richer, but it makes most people's lives better. There have been some abuses (AP in India), but its more the exception rather than the rule for the industry.
I appreciate your comments and you are absolutely correct. Microfinance did not become the fix-all most academics thought it would become. However, it was and still is a step in the right direction. As with anything changes need to made and the entire process needs to be redone, i.e., profitability and the social aspect in which those associated with mircofinance believe in.
How do you make money loaning cash to poor people? Are these things really just charities?
They charge higher interest rates, 20-30% per loan. You do have to make a lot of loans to earn a substantial profit. Although, I do not think the primary motivator of these institutions are to make money.
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