Sunday, February 8, 2009

MicroFinance - The double bottom Line

MFIs(Micro Finance Institutions) are businesses, they exist to make money; as do any other business.
One can not charity on borrowed/dreamt-up money. Or as the recent banking goof-ups(?) have told us, One cant enjoy luxury on dreamt-up money.

But for now, we are talking about MFIs, which take pride (and rightly so) in doing a social good - by lending loans to fulfill dreams, ambitions, needs.

So its only natural that they have two bottom lines, one that talks about the financial status and other, about the social.

This also in turn tells about the company's average loan balance as a % of per capital GDP of the society of operation. Essentially it talks about the the average lending as a % of average earning capacity of the locality.

A double bottom line undoubtedly helps MFIs attract soft lending and investments from socially responsible investors However,having a double bottom line also means that MFIs may also undertake less profitable activities if it fits the social good framework. After all, if it reflects positively on the bottom line, it is a good investment. These efforts can lead to a higher cost structure for the business, although in some cases, this may also be rewarded with higher yields.

PS- I was reading through the ways in which a valuation of MFI is conducted, and this seemed so different from the single minded bottom-line corporate culture that I had an insurmountable urge to write about it.

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