Microfinance is a term that leaves many baffled. To some it means lending money to the poorest to create income (aka generate income) without collateral. To others, it is another term for profit.
Today, at the Clinton Global Initiative, I had the opportunity to listen to the leading voices in the micro finance world discuss the ethics, ethos, models (both existing / potential) and bare facts behind this often nontransparent process.
Vikram Akula, Founder and Chairperson of SKS Microfinance Ltd, presented a commercial (for profit) model that he said was created when a poor woman who had walked from a far away village asked him (while he worked for an NGO that could only focus on specific areas due to funding restraints) "Am I not poor too? Do I not deserve an end to poverty?" Whether you accept this as being the eureka moment that sparked his for profit or not....the fact remains that now in India, he runs a company that runs micro finance IPOs. He argues (and shows convincing statistics) that his commercial model will accelerate income generation.
Mary Ellen Iskenderian, President and CEO of Women's World Banking, presented a model that combined a for profit model with a non profit model. She stressed that in order to "empower poor (and women) there is a need to move beyond credit".
These views contrasted starkly with Muhammad Yunus, Founder and Managing Director of the Grameen Bank in Bangladesh and Noble Peace Prize Winner. " Yunus pioneered microcredit, the innovative banking program that provides poor people––mainly women––with small loans they use to launch businesses and lift their families out of poverty. In the past thirty years, microcredit has spread to every continent and benefited over 100 million families. But Yunus remained unsatisfied. Much more could be done, he believed, if the dynamics of capitalism could be applied to humanity’s greatest challenges. " He argues that the "money of the poor should not go to someone else. Profit should be kept by the poor". He isn't opposed to profit. But merely "who benefits" from the profit. He stresses that the Grameen Bank is for profit--not opposed to profit. The money is there....and banks need to be self reliant. The bank is there to facilitate the poor to be autonomous and the banks are created to be self generating.
A question that stuck with me was "Can we connect capital markets to investors without commercial capital?" Mary Ellen Iskenderian said no...as she couldn't see how their will be enough investment donors to make it feasible...or how the gap can be bridged without commercial capital. Akula stated that they are not like typical banks. Their investment rates are not what the market can bear but rather they take their profit from greater stakeholder value. Their bankers are not rewarded for size of loans (ensuring that the loans are repayable by the poor). He notes that this year, they had a 22% return on equity while their loan sizes remain the same. Yunus disagreed and stressed that "conventional business has its own logic, and other interests...and therefore gradually Akula's direction would change and that they are going in the wrong direction. Akula disagreed argued that "the key perspective is that of the borrower and if the customer is also doing well" (rather than merely investors).
The problem is that most people are not interested in "invest in us and you won't make a profit". They prefer "Invest in us, help and make a profit".
So, I pose this question to you...what do you think Micro-finance IPOs do overall (as there is no data on the most effective way to implement them). I look forward to hearing from you soon.
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