Wednesday, March 3, 2010

Microfinance ... investing amid the downturn?

Dear Colleagues

I just received this ... it is a good example of money metrics taking over from the essential value constructs that are critical for a successful society. The report referred to is at

Dear Colleague,

CGAP and JP Morgan recently published a joint paper titled "All Eyes on Asset Quality: Microfinance Global Valuation Survey 2010," of which I am one of the authors. It looks at the growth of private equity investments in MFIs amid one of the most turbulent periods for microfinance in at least a decade.

The findings are surprising -- both the pace and depth of the near-simultaneous decline in portfolio performance of MFIs around the world and consequent impact on their profitability have no precedent on a global level. Yet the equity market appears to have continued along the same growth trend as before, with no sign of having been in any way affected by any of this. The paper also devotes a short section to a particularly active microfinance equity market in India, suggesting that many of the transactions there show significant overvaluation, despite the fact that Indian MFIs have largely continue to show excellent portfolio performance. Finally, it looks at a sample of publicly-traded low-income finance institutions (LIFIs) operating in developing countries, which appear to have weathered the economic downturn significantly better than MFIs.

I believe you'll find this an interesting read.


My response was fairly blunt ... although I know the writer fairly well:

How you, CGAP, JP Morgan et al can write about microfinance performance for some 40 pages of text and a whole lot of graphs, and in so doing totally ignore the social impact of microfinance is mind-boggling ... and deeply disturbing.

It was certainly an interesting read, but symptomatic of the dysfunctional financial focus of the capital markets on money metrics that cause real economy disaster over and over again.

I am not sure how I want to "handle" this report and what it has to say ... or more important what it fails to say. What I do know is that the prevailing metrics and the analysis done around them is a formula for a continuum of catastrophe!

Community Analytics (CA)

I really do not know the best way to "raise hell" ... but I do know that bankers are about as dangerous a human sub-specie as any part of the human race. When I was involved with corporate management, making sure the bankers would not make us do "stupid" things was a full-time job ... and as my work moved to international socio-economic development the obscenely bad allocation of resources has me angry and very determined that things have to change.

Community Analytics (CA) is a powerful way of starting to get the analysis better and then the decisions. Bankers who make valueless but profitable decisions need to be held to account ... and punished!

Peter Burgess

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