For Profit vs. Non Profit Microfinance; How are the poor affected?

Brian R. WeinbergCollege of Arts and Sciences Spanish Department, College of Business Administration FIREL Department, and Honors College Mentor: Dr. Gloria Cox - Dean of the Honors CollegeMentor: Dr. Michael McPherson - College of Arts and Sciences Economics Department

Understanding Poverty

“2.8 billion of the world’s 6 billion people live on less than $2 per day.

1.2 billion live on less than $1 per day (Anon. 2000/2001,3).”

The Global Village

What is Microfinance?

“Microfinance is banking to the poor (Dr. Muhammad Yunus).”

“Microfinance is the supply of loans, savings, and other financial services to the poor (Kiva).”

97% repayment rate2006 Nobel Peace Prize recipient Dr. Muhammad Yunus

Two Approaches of Microfinance For Profit Approach

Higher interest rates to meet costs (up to 50%) Stand alone entity (can raise capital easier to

reach more people) No research that says people cannot pay these

rates (mission drift) Non Profit Approach

Lower interest rates (20%) Offer more services than credit (education,

health) Tendency to be dependent on donors

Signing for a Microfinance loan

My theory and hypothesis

Much research is done on determining which method is better. Both approaches are effective within their own scope and setting.

What are the advantages and disadvantages between the two approaches?

How are the poor affected with each approach?

Thesis Methodology

Create 2 case studies of each microfinance approach using institutions within Mexico (Compartamos & AlSol).

Isolate as many variables as possible (age, size, average loan, number of borrowers, country).

Compare and Contrast these case studies in order to draw conclusions.

How will I collect my data?

Industry leader interviews Institution website Existing research Annual reports Personal visit to Mexico

Plans for the future

Meet with my mentors to discuss drafts. Scholars Day Presentation (April 3,

2008). Complete thesis by April 15, 2008.

Acknowledgements

Dr. Susan Eve, Associate Dean of Honors College

Dr. Gloria Cox, Mentor/Dean of Honors College

Dr. McPherson College of Arts and Sciences Economics Department

HNRS Thesis Proposal 3500 class!

References

“Attacking Poverty: Opportunity, Empowerment, & Security.” World Bank’s World Development Report (2000/2001): 1-12. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/0,,contentMDK:20194762~pagePK:148956~piPK:216618~theSitePK:336992,00.html (accessed October 12, 2007). 

Flynn, Patrice. “Microfinance: The Newest Financial Technology of the Washington Consensus.” Challenge 50:2 (Spring 2007): 110-21. http://www.econlit/microfinance_washingtonconsensus.com (accessed September 18, 2007).

Hermes, Neils and Robert Lensink.“The Empirics of Micro-finance: What do we know?” The Economic Journal 117:517 (Spring 2007): F1-F9. http://dq4wu5nl3d.search.serialssolutions.com/?genre=article&isbn=&issn=00130133&title=Economic+Journal&volume=117&issue=517&date=20070201&atitle=The+Empirics+of+Microfinance%3a+What+Do+We+Know%3f&aulast=Hermes%2c+Niels&spage=F1&sid=EBSCO:EconLit&pid=<authors>Hermes%2c+Niels</authors><ui>0913382</ui><date>20070201</date><db>EconLit</db (accessed September 18, 2007).

Kiva Organization Web site. http://www.kiva.org/.

Murdoch, Jonathan. “The Microfinance Promise.” Journal of Economic Literature

37 ( December 1999): 1569-1614.

Murdoch, Jonathan. “The Microfinance Schism.” World Development

28 (2000): 617-629.  

The Chiapas Project Web site. http://www.chiapas-project.org 

Yunus, Muhammad. Banker to the Poor. New York, NY: PublicAffairs, 2003.