Impact Investing: Beyond Microfinance Business Model

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Financial Inclusion Dominates Impact Investing

The Grameen Model and History

  • 1974 — Dr. Muhammad Yunus, an economics professor and later a Nobel laurate, started to investigate poverty issues in his home country Bangladesh.
  • 1977 — Yunus started to make very small loans, totaling USD 27 (856 Bangladeshi taka) to 42 women in villages. To his surprise, everyone paid back. In the same year, he started his pilot project in Jobra village, working as a branch of Bangladesh Agricultural Bank.
  • 1983, Yunus started GrameenBank to replicate his experiment in Jobra. The business model evolved, with multiple products including savings and other non-loan products, but the main idea is still to provide microloans to group of poor women.
  • 1995, GrameenBank had become self-reliant and stopped taking donor money⁵. By that time, replications of the business model in Bangladesh and other countries have already taken place. GrameenBank also expanded to other social business sectors within Bangladesh.
  • 2006, GrameenBank and Dr. Yunus received Nobel Peace Prize. Impact investors invest in Grameen replicators in different countries.
  • 2007, Banco Compartamos (Mexico), a Grameen replicator, went IPO, giving IRR of 53 percent to their investors. Banco Compartamos then became poster boy of mission drift for overcharging their customers.
  • 2010, Grameen replicator SKS Microfinance (India, now called Bharat Financial Inclusion) went IPO that was oversubscribed 14x. Subsequently until 2012, there was a microfinance crisis in Andhra Pradesh, India, potentially triggered by race of Indian MFIs to follow SKS towards IPO. The SKS IPO pushed it to grow to a level that is really not possible, given its size, without becoming essentially an irresponsible lender.
  • 2015, Replicators Equitas and Ujjivan went public in Mumbai Stock Exchange with a much more positive reception. In Indonesia, BTPN Syariah went public in 2018. There are many other large MFIs that decide to stay private for the time being, including CARD (Philippines), MBK, Bina Ventura (Indonesia), and Arohan (India).

Impact Investors Just Could Not Create Another GrameenBank

Not All Hope Is Lost

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Adi Sudewa

Adi Sudewa

Venture Builder. In Medium to share perspectives on how industries are being transformed by digital technologies.