Selecting Great Microfinance Partners (Part 2)

By Guest Author, Robert Lowry, Unitus

As I discussed yesterday, Unitus focuses on two kinds of microfinance institutions (MFIs) for partnership: emerging microfinance institutions, which serve more than 2,500 clients and are in the early stages of growth; and commercial startups, which may not have a track record of growth but are well-capitalized and have a clear plan for expansion.

Within these parameters there are other important factors Unitus looks at when assessing an MFI as a candidate for partnership. These include:

• Poverty focus — The MFI is committed to serving a target market that is clearly defined as poor.

• Visionary management — The MFI’s leadership has a vision for growth and poverty alleviation. Management is capable of overseeing rapid expansion. A key factor is the CEO’s ability to build a strong senior management team.

• Growth and commitment to future growth — The MFI has at least 2,500 clients and is committed to large-scale and rapid growth.

• Basic systems and processes — The MFI has developed some internal systems and it has the basic capacity to grow.

• Methodology and microfinance expertise — The MFI has developed a basic microfinance product and has a track record of growth. The Selection Team looks for MFIs with client-focused methodologies and products.

• Commitment to sustainability and profitability — The MFI is on the path to full financial sustainability (we don’t require that MFIs be currently sustainable). Unitus does not support MFIs that plan to remain dependent on grant funding.

Commercial startup MFIs have some further requirements:

• Startup MFIs should have a for-profit culture and mindset and be willing to attract private investments and offer an equity investment opportunity immediately or in the near future.

• We typically look for higher growth rates from startups as they are in a better position to (1) capitalize and (2) build superior systems and a management team right from the start.

• Startup MFIs have leadership teams with proven business/commercial experience capable of managing the early growth stage. The Team looks for instances where managers have personally invested in their MFI.

• Startup MFIs have a well thought-out business plan and executable milestones for launching operations and driving early stage growth.

• Startup MFIs are willing to hire microfinance expertise and have a clear plan to adapt technology to local market conditions.

An additional consideration is geography. Unitus wants to be present in those countries with the greatest potential to support large-scale growth. The Selection Team ranks developing countries using a framework based on demand (including poverty and informal activity), supply (penetration, competition, quality of outreach, and financial market integration), regulation, and macroeconomic and political stability.

India, for example, is a great market for microfinance precisely because there is a large population of poor people, there’s still a huge need for financial services and the macroeconomic climate is quite stable.

As one can imagine, taking all of the above factors into account results in a selection process that is time-intensive and rigorous. Our Selection Team usually takes about six months to investigate a potential partner, and of hundreds of candidates only a handful are selected for partnership (Unitus has 16 partners chosen from over 500 MFIs under consideration). But the diligence is worth it. For Unitus—or any microfinance organization—the strength of our partners is the bedrock of our future growth. Only with capable, committed and visionary MFIs will the microfinance industry achieve the kind of broad-scale impact millions of people in poverty around the world are waiting desperately for.

This segment is part 2 in the series : Selecting Great Microfinance Partners
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