Venture Capital for MicroFinance: Chris Brookfield (Part 5)

Here the conversation directly addresses a common assumption that microfinance is not a profitable business model.

SM: I would like to get back on topic and drill down on the assumption on returns. Microfinance may charge 18-25% interest and even so does not get even close to the types of returns the venture capital funds are getting (only the top ones, though). CB: Where is your assumption in that statement? I have heard it from other people, but I don’t understand it. I see great return potential. I see institutions which are growing at 150% a year, the fastest growing consumer focused institutions in the world. It looks like some of the best growth rates I have ever seen, whether it is wireless of internet. In many ways the growth in microfinance looks better than the growth in the Internet.

In many ways the growth in the internet was negative cash flow, Amazon and Yahoo put up billions of dollars in negative cash flow before ever making a profit. The growth in microfinance is all happening, at worst, at cash flow neutral and most of it is happening at cash flow positive. There is astounding growth, enormous markets, and the financials of the early stage business look much better than the technology business. I don’t understand where a sentiment arises that there is an inherent nature of microfinance that it won’t return well. Certainly Sequoia thinks it is going to return well.

SM: That is exactly the point I am trying to get to in this conversation: your assumptions and Sequoia’s assumptions. I think the world believes, with very few exceptions, that Microfinance is a philanthropic exercise and not a professional financial exercise. That is exactly the point I am trying to get supporting evidence in favor or against, from people who are close to the problem. CB: I don’t have the data in front of me, but anyone who is interested can look at it. I have very little difficulty, when I sit down and talk with someone, convincing them that the growth rates and cost per customer addition are viable.

[to be continued]

[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 5 in the series : Venture Capital for MicroFinance: Chris Brookfield
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