Does micro finance need Bill Gates?

For those working in the area of micro finance, progress has been perceptible. But for others it may seem like a sudden revolution. From a situation where no one in the mainstream financial sector or the Press had any interest or inclination to appreciate the benefits of the experimentation that they thought micro finance was, it is suddenly emerging as a Big Idea.

The fact that micro finance can be a sustainable way to influencing the livelihoods of the millions of the global poor, whether in rural or urban areas, seems to have influenced many of the world's super rich to direct some of their philanthropic funds in this direction.

Of course, one may argue that much of the funding of NGOs and livelihood intervention programmes has always been given by philanthropic trusts. But this time around, with the Bill and Melinda Gates Foundation, the Michael and Susan Dell Foundation, the Omidyar Tufts University fund, Khosla Ventures-all promising more and more money to micro finance-the nature of funding seems to have altered considerably.

The new donors are not content with plain philanthropy. Since the business of micro finance can be sustainable and profitable, they feel for micro finance philanthropy should form only the risk capital.

Thus, they are putting in a lot of effort to ensure that this risk capital is leveraged well and used efficiently to maximise benefits.

Only last month a few members of the micro finance industry of India were invited to attend, along with others from across the globe, a two-day meeting at the Bill and Melinda Gates Foundation headquarters in Seattle.

Among the issues discussed were: scale-how a larger number can be reached; Sustainability-how to ensure that subsidies get restricted to innovations, capacity building and sectoral infrastructure; impact-how to measure it and how to enhance it; capital markets-how to attract more mainstream debt and equity; regulation and transparency-what can be done to build a more supportive regulatory environment? (The Andhra Pradesh situation was a major, though not the only, case in point discussed.)

It was on the second day that Bill Gates and Melinda Gates joined the discussions. While an understanding of what the poor people do which enables them to repay the loan, what happens in the case of droughts or illnesses, what is the interest rate and why, is what the Gates aimed for, they were reportedly keen on knowing about what can be done to influence policy to create a more conducive atmosphere for micro finance.

There were a few suggestions, which included asking central banks of each country to report what percentage of its citizens have access to safe, liquid and reasonably priced savings bank accounts.

Whatever be the fate of such suggestions, it is a fact that after a year of deliberations and field visits in India, Kenya and elsewhere the BMGF has committed itself to a new programme titled "enhancing financial services to the poor".

While no numbers are known, expectations are that commitments from the BMGF may exceed the highest private capital allocation (so far) of $100 million that Pierre Omidyar (founder of eBay) made to set up the Microfinace Fund in partnership with his alma
mater, Tufts University.

Quite coincidentally, a few days after I received a mail describing the BMGF meeting in Seattle, I was in Bangladesh. Thanks to an introduction by ICICI Bank, I managed to get an appointment with Muhammad Yunus, the man who started it all. In the half an hour that Yunus spoke to me (while we were being photographed from all angles, rather
disconcertingly), we discussed mainly what he thought of the Indian situation. Yunus, who was au fait with the latest in AP, talked of how he had told Manmohan Singh about creating a conducive environment for micro finance.

We talked about the sudden increase in the funding of existing and start-up micro finance institutions by global venture funds, done primarily by philanthropic trusts.

Yunus made his displeasure clear about such interventions, stating that it is only a mental block on the part of the Indian government and its central bank which keeps it from providing equity capital from institutions like NABARD and SIDBI (primarily because he feels they were not set up with micro finance as their primary agenda).

"There is enough money locally, only the policies need to enable tapping it," he said. The fact that the Indian government does not allow micro finance institutions to accept deposits also stands in the way of their self-sufficiency. Thanks to its deposits, Grameen Bank has had no donor funding since 1998.

Yunus also felt that those providing foreign equity were in it for profit maximisation and such a Silicon Valley-type entrepreneurial orientation may go against the grain of micro financing.

But in this he may be biased because most of the funding being done out of the Silicon Valley is structured for the profits to go back to boosting the fund and not to the donors.

And for the Indian micro finance industry, a framework of the Silicon Valley-type sustainable orientation might just be what (the many of the NGO-dominated and slothful) micro finance organisations need.