Bankable Frontier Weblog

The Economist Intelligence Unit recently released a report on the challenges facing financial service businesses in the next five years to 2010. The report was based on the results of interviews with 577 financial services executives completed earlier this year; and essentially provides a mainstream ‘consensus forecast’ of the major challenges and trends facing the sector globally. 

Buried in the report is an intriguing text box on “Grameen’s Village People”. This box describes in glowing terms the growth of the Grameen Bank model of microfinance over the past thirty years. The insertion of this reference, the relevance of which to the main report is only tangentially explained, shows on the one hand how far microfinance has come: it is at least mentioned in an impeccably mainstream report on the future of financial services, targeted at senior industry executives.

“Grameen’s Village People” Meet ( Source: news.bbc.co.uk/1/ hi/business/1869113.stm)

However, it also shows how far microfinance has to go: though the authors know that they cannot ignore it, they are not sure yet how to integrate it into the main report. Hence, it dangles tantalizing as a text box, an appendage to the main themes. The reason for inclusion at all is derived from one of the more surprising findings of the report, at least for me. This is not that financial industry executives are worried about increasing competition, shrinking margins or increasing regulatory burdens in developed markets: these are all not new, but continue as long run forces shaping the financial sector. Rather, it is that ‘capitalizing on the growth opportunities in emerging markets’ was the second highest ranked management challenge for creating long term value (flanked by the hardy annuals—swift adaptability to change and speed of innovation). In the mind of the report’s authors, microfinance is about tapping into growth markets beyond the limited middle class of emerging economies.

Admittedly, the report only mentions explicitly the so-called ‘BRIC’ (Brazil, Russia, India, China i.e. large) emerging markets, which no self-respecting global player can ignore, especially China. Beyond the fleeting reference to Grameen Bank and its imitators, the report makes no suggestions about how major financial service players could or should tap into these new growth markets. However, the inference is that, mainly because of competitive pressures in home markets, they are coming.

There has in fact been a wide range of experience of commercial bank ‘downscaling’ to serve poorer customers, using a range of approaches, many of which are quite different from the much publicized original Grameen approach. One useful reference on this subject is the recently published Small Customers, Big Market: Commercial Banks in Microfinance by Malcolm Harper and Sukhwinder Singh Arora.

According to the publisher’s blurb, “It illustrates, through the experience of particular banks, why banks have become involved and how they have made a success of their involvement. The eighteen case studies all show that banks can earn good profits at the same time as serving the needs of people who previously lacked access to financial services.”  Interestingly too, for those interested in non-BRIC markets, this book covers cases in 14 other emerging markets—from Benin to Zimbabwe.

Maybe the consequence of experiences such as these will be that a future EIU financial services report will be able to integrate microfinance into the body of the report. Then we could speak indeed of microfinance moving ‘from margin to mainstream’.