Microfinance – Profiteering, Bubbles and Poverty Alleviation

David Roodman, of the Center for Global Development, has written a post offering his thoughts on the microfinance ownership/business model debate between Muhammud Yunus, founder of the famed Bangladesh based Grameen Bank, and Vikram Akula founder of India based SKS Microfinance, which took place at the New York based Clinton Global Initiative Conference last month. 

The gist of the Yunus-Akula disagreement is that Yunus is critical of SKS’s business model.  He described its IPO as “Pushing microfinance in the loansharking direction. It’s not mission drift. It’s endangering the whole mission.”

Akula advocates that the best way to scale up operations is by going to the money markets. Yunus says that in doing so, one is giving ownership of the institution to people other than the customers, hence raising the possibility that the owners will not act in the best interests of this group.  

He says that Grameen, unlike SKS, is owned by its borrowers, and hence profit goes back to them. It is comprised of local savings – something Akula points out that SKS cannot do because the Indian government does not allow it.

Dissecting Social Enterprise

Credit: Tanveer Islam/Wikimedia Commons

Contrary to popular belief, saving the world doesn’t have to be at odds with making a buck. Particularly after Muhammad Yunus started the Grameen Bank in 1983, there are more and more examples, in the US and beyond, offering support for the idea that achieving social aims can be good for business.

The what

The concepts of social enterprise, social capitalism and social entrepreneurship all function by adopting market-driven strategies or business models in order achieve a social aim. While profit is often an important concern, the predominant aim remains pursuing a social goal. Non-profits and for-profits can both function as social enterprises. 

The why

Particularly after the economic downturn, non-profits have seen donations and grants decline. Social enterprise is important because it fosters self-sufficiency and the ability to scale operations to an extent that functioning as a charity would never allow.