Sunday, November 12, 2006

Microfinance: for profit or not for profit?

The awarding of the 2006 Nobel Peace Prize to Muhammed Yunus put the microcredit/microfinance concept onto the front pages. Those of us who see global poverty as humanity's most-fundamental issue were thrilled to see the issue get such media attention, and you can count me among those who have long been excited by microcredit. Then the October 30 issue of The New Yorker made public a hot theoretical debate about whether microcredit works best in a non-profit or a for-profit form.

Grameen Bank, Yunus' organization, is a non-profit which initially used grants and soft loans for its work; now it is almost self-sustaining. (It's an example of an institution that is openly and unapologetically biased in favor of women, on the grounds that as Yunus says, women are more responsible about re-paying the loans and poor families benefit more when the women control the money; whether that practice would be legally sustainable in the western world is debatable.) Now a group of socially-minded entrepeneurs, who see Yunus as a well-meaning example of founder's syndrome, think that microfinance can reach truly global scale plausibly only as a for-profit sector.

They seem to think that more contributions could be pried loose from the western world's newly-wealthy entrepeneurs to for-profit microfinance funds than to non-profits, an idea which reflects an outdated view of the non-profit sector and which isn't supported by the current flood of huge contributions being made towards this movement. Perhaps more relevantly, they think that commercial enterprises can tap the capital markets for investment funds at a scale that dwarfs even the stunning scale of philanthropy in today's world.

Yunus and his supporters recoil from that in part on philosophical grounds, feeling that profit as a required payoff for helping the poor is vaguely immoral. More tangibly, they worry about mission drift: that commercial competitive pressure inevitably would mean that only the less-poor or the working poor would be considered reasonable risks for loans. One response is that adding working-class customers is simply a way to stay afloat so as to keep lending to the really poor, but that flies in the face of Yunus' core argument that the poor can be reliable borrowers even at high rates of interest.

Hmm, all good it necessarily an either/or choice? We have both non-profit and for-profit hospitals, ditto theaters, also some other important sectors -- is that diversity of structures and motivations not positive in some important ways?

Another thought is that this seems like a perfect fit for non-profits to leverage the foundation sector's increasing interest in mission-related investment, where part of a foundation's endowment can be invested at higher-than-normal risk or lower-than-normal return provided the investments have a mission purpose. Hopefully somebody is talking seriously about this with some of the multi-billion foundations like Gates, Ford, et al.


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Anonymous said...

Hola, Interesante, no va a continuar con este artнculo?

Anonymous said...

Actually Grameen Bank is a commercial bank, albeit not on a traditional model. Grameen Foundation and Grameen Fund (as well as other branches of Grameen) are nonprofits.

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