Private Sector & IFI, IADB discussion on role reversal

May 2007
Washington, DC , United States, May, 10 2007 - A group of eleven microfinance professionals, representing both public development institutions (International Financial Institutions- IFIs) and private microfinance funds, gathered informally on May 10th at the Inter-American Development Bank’s offices to discuss the current issues of some IFIs using taxpayer’s dollars to invest in top-tier microfinance institutions (MFIs) at below-market rates.

Attendees were invited by five leading private microfinance investment funds in response to the recent report published by MicroRate, a microfinance rating agency in Arlington, Virginia.  The paper, titled, “Role Reversal: Are Public Development Institutions Crowding out Private Investment in Microfinance?” argues that, “Development institutions (IFIs) are concentrating their loans in the strongest MFIs leaving private lenders to look for opportunities among smaller, riskier borrowers.”  The paper claims that in periodic cases, IFIs are acting against their mandate to enter markets prohibitively risky for the private sector, resulting in an inefficient microfinance market. 

This meeting, one of several reactions to the “Role Reversal” article, brought together leaders from both sides to discuss the issue at hand and explore opportunities for collaboration to arrive at an orderly, efficient, and competitive market.   

Participants predominantly focused on aligning their interests to generate common goals.  Spokesmen from public and private sectors alike agreed the microfinance industry currently suffers from a lack of transparency which causes market inefficiencies and negatively affects all parties in the community.

The conversation centered on where the business of both sectors is most needed and could be best utilized.  IFIs are advantageously positioned to seed the next generation of MFIs, help expand MFI product offerings such as savings, insurance and housing, take structured finance positions particularly first loss and guarantees, and improving infrastructure.    

Thursday’s meeting was an introductory dialogue raising issues common to the investor market.  Acknowledging the need to continue what started as a productive discussion, participants agreed to form a task force to address:

1)       How transparency of information can improve market order

2)       How to improve the flow of information between different types of investors

3)       How to establish a useful set of standardized data

This gathering stands out as a positive first step among public and private sector actors and sets a precedent for collaboration through open communication channels in the future.  Among those present were Jeroen J.L. Blüm of FMO, Gil Crawford of MicroVest, Sandy Darville and Tomas Miller of IDB/MIF, Paul DiLeo of Gray Ghost Microfinance Funds, David Constantijn Kruijff of IFC, Jack Lowe of Blue Orchard, Klaus Tischhauser of responsAbility, Brad Swanson of Developing World Markets, and Javier Escorriola of Norfund. It was moderated by Sam Moss of Gray Matters Capital.



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