Wednesday, June 2, 2010

Does private equity help microfinance?

Dear Colleagues

Rachel Hamilton, Senior Industry Consultant at American Conference Institute posed the following question to the MicroFinance Club of New York: "Does private equity help microfinance?" My quick response was as follows:
As long as the only metrics in play are those related to money and profit, the chance that private equity will help microfinance is minimal. More likely is that the private equity aims will remove most of the "value" from the microfinance model that has been successful.

Money and profits are a very dangerous motivating force in poor fragile economic situations. In money accountancy it is possible to balance the books using a temporary suspense account ... but in real world poor economies the balancing factor is how fast the children die.

The argument that the market economy works well is ridiculous ... though it works a lot better than the communist Gosplan economic model. I find the idea that there are over 4 billion people poor and hungry at this point in history quite unacceptable ... and I would like to see the capital markets figuring out how to solve this problem in a sustainable way. In my view it can be done ... but the key missing element is a system of metrics that recognizes the value of progress out of poverty.

What am I missing?
Peter Burgess

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