Impact Report is the only voluntary publication we have been issuing every year since 2020. Every time, it uses enormous internal resources of the holding company, which runs with a relatively small number of people. I am pleased to announce that we issued the version of this year.
We always try to be honest in this report, acknowledging the challenges we and the industry face. This year’s focus is overindebtedness.
Here is my foreword:
Thank you for opening our Impact Report for FY2024/03.
It has been ten years since Gojo started our journey in July 2014. Gojo has reached 2.4 million clients as of March 2024. One of the key discussions that we have had until today was, “Can for-profit microfinance companies really serve the clients?” Let me provide some more context.
The first-generation microfinance movement, born from an expansion of a grassroots-level financial inclusion movement with a primary aim of poverty alleviation, proved to be successful both in impact creation and profit making. This economic success led to a shift in funders — donors became less keen on giving grants to microfinance, and investors (originally more social-impact-oriented, and later more commercial-oriented) began to replace these donors. Now, it is difficult to see a donor willing to give grants to MFIs (microfinance institutions) except for the services related to climate change or technology.
Thirty years ago, when there were no shareholders whose interest were to make a profit by exploiting clients, it was easy for MFIs to work in the best interest of the clients. Many first-generation MFIs were owned mainly by founders and clients, and there was less tension between the company and its clients. However, because of the shift of the funders, commercial investors became major shareholders of new-generation MFIs.
Although the trend is for corporations to update their purposes in light of stakeholder capitalism, most countries’ corporate laws stipulate that companies belong to their shareholders. Therefore, the change in the shareholders’ nature indeed brought about a change in the companies. The transition of the shareholder base gradually started to cause side effects, which we saw more than a decade ago. One was an IPO (initial public offering) of a Mexican MFI Compartamos in 2007, which used to charge 80% interest to the clients to grow the business faster and make bigger profits. Another was the Indian microfinance crisis triggered by SKS Microfinance in 2008, an Indian MFI which made its second IPO as an MFI globally. I think it’s ironic that these two events happened right after the acquisition of the Nobel Peace Prize was awarded to Grameen Bank and Dr. Muhammad Yunus in 2006.
Since these incidents, driven by the commercialisation of microfinance, the sector has started to strengthen the establishment of standards of SPM (social performance management) with SPI (social performance indicator) audits and Client Protection Certification programs. The sector thought that it had learned from the past and was ready to achieve the double or triple bottom line in this new era of microfinance.
Cambodia is undergoing an unprecedented over-indebtedness situation driven by multiple factors: (1) a dollarized economy and pro-foreign investors regulation, which made the country an attractive investment destination, and (2) the exit of impact-oriented shareholders from major MFIs, sometimes lacking the concept of “responsible exit” and replaced by commercial shareholders. We have also heard many cases of aggressive collection by MFIs. We learned that when the over-indebtedness is systemic, what one company can do to mitigate the crisis is fairly limited. For example, even if we assess our clients’ solvency diligently, soon after their loan transaction with us, the other MFIs could approach our clients, pushing them into over-indebtedness. Fortunately, at Gojo Group, we have not seen serious violations of Client Protection Standards. Still, we have to be conscious that we may face more challenges to achieve the double bottom line of financial growth and social impact, especially as we prepare for our IPO. Nevertheless, we do all we can to prevent and resolve over-indebtedness among our clients.
It has been half a century since the birth of modern microfinance. Due to many events, many donors and impact-oriented investors have become less keen on financial inclusion, despite the sheer fact that millions of people around the world are still excluded. For this very reason, we have to carry on working to extend financial inclusion despite this challenging situation and thus keep having serious discussions internally to see what we can do.
In this report, we show you where we are in our efforts. I hope you will enjoy reading it.
https://gojo.co/wp-content/uploads/2024/08/Gojo_ImpactReport_Aug2024_E.pdf