Microfinance at a 4th of July Picnic

<p>I took my 3 sons to the DC suburbs for the July 4th weekend.&nbsp; The highlight was the annual picnic in my parents&rsquo; neighborhood (pony rides, egg toss competition, blueberry bake-off).&nbsp; One of my parents&rsquo; friends, someone who has been around the international development scene for decades (including a stint at the World Bank), disturbed the patriotic revelry to give me her 2 contrarian cents on microfinance.<br /> <br /> &ldquo;I can&rsquo;t stand it,&rdquo; she started.&nbsp; &ldquo;Half the people I know say they&rsquo;re involved in microfinance.&nbsp; They&rsquo;re driving BMWs and working in finance and think they&rsquo;re changing the world.&rdquo;&nbsp;<br /> <br /> &ldquo;But they are!&rdquo;&nbsp; I insisted.&nbsp; Okay, maybe they&rsquo;re not changing the world yet, but achieving global financial access requires the energy and intellect of people who know about securitizing debt, swapping currency, re-insuring risk, and developing retail innovations.&nbsp; The unmet demand for finance stretches wide.&nbsp; In many parts of Africa, less than a quarter of the populations have bank accounts of any kind, even among the entrepreneurial class.&nbsp; In India, the millions of newly-banked citizens are outnumbered by the millions who remain unbanked.&nbsp; Thus, enter the bankers.&nbsp; Clear the way for the BMWs.&nbsp;&nbsp;<br /> <br /> It was too nice a day to talk shop at a picnic.&nbsp; So, what I didn&rsquo;t say is that recent <a href="http://library.financialaccess.org/pdf/G4_Microfinance_Meets_Market.pdf">international evidence</a> paints a far more complicated (and more interesting) picture.&nbsp; The evidence shows clearly that commercial microfinance is growing (thank you, bankers). But it is not, in general, reaching the poorest customers&mdash;especially outside of South Asia.&nbsp; Reaching the poorest customers is still the niche of NGOs and government banks.&nbsp; And it&rsquo;s a huge niche&mdash;so big that it shouldn&rsquo;t even be considered a niche at all.&nbsp; In fact, NGOs, Indian self-help groups, and government banks serve over three quarters of microfinance customers worldwide, despite the attention that commercial microfinance approaches have been getting in The Economist and other business publications.<br /> <br /> It&rsquo;s exciting to think about the power of unlocking the &ldquo;fortune at the <a href="http://www.wdi.umich.edu/ResearchInitiatives/BasePyramid/BoPPerspective/">bottom of the pyramid&rdquo;</a> through innovative for-profit businesses: the bankers have a role.&nbsp; But, in microfinance at least, if that was the only available strategy, there would be no hope of soon bringing finance to many of the world&rsquo;s poorest citizens.&nbsp; And lacking access to reliable finance is, as they say, no picnic.</p>