In the microfinance sector, many see organizations as having to choose between doing well and doing good. Doing well refers to the profitability of the enterprise which is sometimes seen as being in conflict with providing the clients with useful and affordable products. At Kleinfin we have discovered we can actually do well financially by doing good for our clients and produce a win-win scenario. This we believe is the future of microfinance.
Most of our clients operate very small informal family businesses. These businesses are usually profitable but without access to formal financial services which is typical of most developing economies. This unserved majority is the potential market for microfinance because larger financial institutions focus on bigger clients and hence small transactions are of little interest. These clients also have little valuable collateral to pledge. Kleinfin has created products that are accessible to many businesses that would not be able to meet the loan requirements of other institutions. Our risk management and client relationships have helped us improve performance as well as create niche markets with many happy clients.
The microfinance institutions that have the largest and longest-term impact are those that are financially sustainable. This means that they can cover all of their costs, including operational expenses, the cost of funds, and loan losses. According to Jay Rosengard, they should also be able to generate a modest surplus for reinvestment in new products, delivery systems, and technology. The emphasis on sustainability promotes economic efficiency, decreases dependency on external resources, and creates the principal positive incentive for investors to invest their capital and borrowers to repay their loans (continued access to capital). Sustainability gives confidence to our clients as well as our organization and this allows us to do well as well as have the resources to do good for a long time to come.