With the current global economic crisis going on, people are asking many questions about how microfinance will handle the situation, and to what degree MFIs will be affected. As I was thinking about this, I asked myself “am I making the right decisions when I lend?”  I am always interested in learning about new lending platforms and usually just give each one of them a fair trial and then determine which ones I like based on user experience.  I realized that most of my decisions on who to lend to are based on how easy it is to lend and how intrigued I am by the entrepreneurs story.  However, although this makes things fun for me, it is not always the most effective solution.  To piggyback on Drew’s post discussing interest rates,  I have found some interesting posts that lenders can consider when making decisions:

-Ryan Calkins, over at SeaMo, recently made a post entitled “Nine Questions to Ask Every Microfinance Institution” which discusses some questions that the Grameen Bank has come up with to determine which MFIs are good investments.

-David Roodman discusses interests rates and lending in his blog post “When is lending just?”

I was reading a good article on livemint.com called “Big Microfinance Firms Taking Over Clients of Smaller Players,” and in it Vikram Akula, the founder and CEO of SKS Microfinance, discusses how smaller MFIs are having a hard time getting funding, so SKS is helping out a lot of their recipients:

“Banks are lending only to large MFIs. We are in a strong position. We are holding discussions with MFIs who are facing strain and helping them by taking over their clients,”

Since there are so many small MFIs out there who are having trouble finding funding, why do MFIs run out of people to loan to?  It has happened multiple times that I have gone to microfinance lending platforms and have not been able to loan money.  If these small MFIs in India are having trouble getting money for their recipients, why don’t they reach out to these organizations?  The article also mentions that there is a demand for 55 billion dollars while India currently only provides about 5 billion in microfinance loans.  If the people are out there, wouldn’t it just be a matter of connecting them to the right organizations?  It seems like there are plenty of lenders ready to donate to individual recipients, but not so many who are willing to donate to MFIs. What if there was a microfinance lending platform that was similar to Kiva and Microplace, but instead of donating money to individual recipients, you could donate to different MFIs?  Lenders could give loans to MFIs, who would in turn give loans to entrepreneurs.  The loans would have to be for a longer term than normal since they would most likely be bigger loans.  The model could be either non-profit or provide a return, depending on the business model, and it could help smaller MFIs who are having a harder time coping with the current economic crisis.  Of course there would be pros and cons to lending platform, but I think that if they were weighed out, the pros would win.

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