CFO.com Magazine’s generalist article on microfinance reports microfinance institutions (MFIs) "maintaining an astonishing 100% payback rate."
Astonishing indeed.
What CFO would actually believe a "100% payback rate”? Unless a MFI is very small and very young, then "100% payback" is simply not realistic. Even well-run MFIs that only make “solidarity loans" ("peer-lending", not to individuals) cannot plausibly make this claim over time. Read red flag, not badge of honor.
Why do MFIs report "100% payback" when this number is so obviously cooked?
So many MFIs practice misleading reporting because donor agencies expect to see these impossible repayment rates. Back in the early days of microfinance, when that first grant officer with an advanced degree in sociology approved a high-profile donation to a 100% perfect MFI, the standard was set, and the vicious cycle began. MFIs that truthfully reported delinquency and default rates of 1-5% were pushed to the bottom of the grant application pile. MFIs soon learned what it takes to compete for donor funds. Yes, your tax and charitable dollars at work encouraging cooked books around the world.
How do MFIs hide delinquency? Most frequently, MFIs just write off bad loans, then only report "delinquency" or "repayment rate" without reporting write-offs/defaults. Another frequent tactic: to simply not categorize a loan as delinquent, leaving bad loans on the books for months or years. The fact that most MFIs receive grants facilitates the obscuring of income statements missing revenue from non-performing or written-off loans.
The fact that CFO.com Magazine reports "100% payback rate" without the skepticism proudly displayed by CFOs demonstrates the entrenchment of misinformation in microfinance. How do we undo this? Invest in professionally managed microfinance investment funds that offer you a return, thus enforcing accountability down the line. Please see our ROI QuickList for information on these funds.
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