No money, no microfinance: Big companies cutting microfinance spend
Published by Jerry Ostradicky, | 19 Jul 2008 at 01:58 pm
I recently came across some interesting articles related to Morgan Stanley and microfinance. Last year, Morgan Stanley announced that it was creating a group dedicated to serving MFIs with financial needs, which at the time, sounded like a great breakthrough in the banking world. Morgan Stanely boasts on their website:
We are the leading investment bank in this field, having executed two groundbreaking transactions in the capital markets. We are also the first investment bank to establish a dedicated Microfinance Institutions Group, based in London and New York. This group covers microfinance in the same ways Morgan Stanley covers any other financial market, providing institutional services that range from corporate advice to debt and equity products, derivatives, and foreign exchange.
However, I was recently reading an article by Megan Barnett and Daniel Sorid in Portfolio.com - Morgan Stanley’s Incredibly Shrinking Microfinance Group which really caught my interest. Now that some banks are not doing well, they are cutting costs, which is understandable. But where to cut costs? The article talks about how Morgan Stanley’s microfinance group went from a 20 person team to just a few people — and the two executives are no longer with the firm. Does this mean the end of the microfinance group and Morgan Stanley? Shortly after the article was posted, Morgan Stanley added:
Morgan Stanley remains committed to Microfinance and continues to pursue opportunities in the space. We are constantly evaluating business conditions to ensure we are right-sized for the current market environment and we continue to utilize employees across the Firm for this initiative.
The Morgan Stanley comment caught me by suprise, so I searched around a bit, and I couldn’t really find anything about Morgan Stanley and microfinance within the last few months and, even before that, the news was sparse. I think that ultimately this leads back to Drew’s post from week ago on who is benefiting from microfinance. I agree with Drew that we definitely need both kinds of donors, people looking for a profit, and people with a passion to help others. In Morgan Stanley’s case, I don’t think they should turn their backs on microfinance so quickly. Although the financial markets are going through tough times, there is plenty of benefit to be had for a big company that sticks with microfinance.
I am really interested to see if Morgan Stanley backs up their argument and brings something innovative and unique to the table. If they can bounce back and make things happen, it could really open the gates for others major companies to do the same.
Michael Van Patten on 19 Jul 2008 at 3:45 pm #
The fact that Morgan Stanley has reduced its Microfinance effort is not suprising, as it is not part of their core business, and in this challenging environment for the financial services industry every major investment banking firm is looking to reduce costs in marginal businesses, and unfortunately the Microfinance sector falls into that category.
I again reiterate what I said in my last comment on this blog, until the Microfinance sector can as an industry realize that the kind of growth needed to change lives on a large scale will only come when it can rely less on the NGO’s and other non-profits and foundations for the bulk of their financial support and attract institutional investor sponsorship from more mainstream investors.
This will only come when investors see real rates of return in the form of interest paid on debt, or equity participation in MFI’s, that is commensurate with the percieved risk and illiquidity of the asset class. More financial standardization and access to information and historical data needs to be available in order for real institutional support to occur. This is what I am trying to do with my own company, AXess ATS. http://www.axessats.com
thanks
Mike
Big Corporations Diving Deeper Into Microfinance | myKRO on 04 Aug 2008 at 11:37 pm #
[…] few weeks ago I discussed an article about how Morgan Stanely was pulling its microfinance funding after trying to make a big push into the sector. Although Mogan Stanley defended that claim, I was […]