Last night I was guest speaker for Sean Foote's MBA series of classes on Micro-finance at the Haas School of Business at UC Berkeley. Sean wanted me to speak to his class about some of the difficulties one encounters when operating a micro-finance institution overseas. What are the obstacles that need to be overcome to operate a financially sustainable organization while fulfilling a social need for loan capital.
Obstacle #1: LOAN CAPITAL. How do you amass enough funds to be able to grant loans? As a private company, Prisma had to first search for EQUITY capital from a few interested and social investors. Once enough initial capital was found, the second step was to leverage the capital to borrow more funds (DEBT) from local banks and/or international funds to grow our loan portfolio. The last tool would be SAVINGS, but we are not yet big enough to apply for a bank or finance company charter that allows only these regulated entities to capture savings from clients.
Obstacle #2: TRANSPARENCY. To put one's operations and finances to the test. From the very beginning, we have adhered to annual third party audits and CAMEL examinations to show our current and future creditors that we are financially sound and run according to international financial standards for a banking entity. Our loan portfolios are clean, we are on top of delinquency, we have enough liquidity, and earn a profit. Management has put in place operating and loan policies/procedures. Very few micro-finance companies subject themselves to ratings during the first few years of operations.
Obstacle #3: PERSONNEL. When operating in an overseas environment, finding top executives, middle managers, and hourly employees is a never ending task. It's fairly easy to find qualified personnel in the major cities. In outlying areas, very difficult - especially good middle managers for branch offices in rural areas. If you can't find them in the field, you end up having to train suitable candidates in the head office and then send them out to the field - a very costly endeavor.
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