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Microfinance
by mstandaert on December 7, 2006
Yunus will be awarded a Nobel Peace Prize for his work this Sunday in Stockholm. The honor is proof that small-scale lending to "the bottom of the pyramid"--or so-called "microfinance"--has become the hottest idea for solving poverty to hit the development community in decades. But following Yunus's vision is the best way to doom a promising movement to failure.
The problem isn't Grameen's size or its borrowers, but its philosophy: Yunus is firmly anti-profit. "Maybe banks can make a profit from [loaning money to the poor]. ... But this is what loan sharks do," Yunus said after his Nobel win was announced in October. "We have enough enterprises generating money for profit. I would rather think that the rich can set up social enterprises." Yunus even objects to the term "microfinance," preferring the profit-neutral "microcredit."
This principled allergy to profiting from the poor may be part of the reason why Grameen still depends on NGO grants and its founder's incredible charisma to stay afloat. Indeed, Grameen is glorified philanthropy, not banking. If small-scale financial services are to be a long-term solution to the problem of poverty, they need to embrace profit.
Some interesting points in the article. What are your thoughts?
In other microfinance news:
*ACCION Partners with Ecobank to Expand Microfinance In West and Central Africa, at Social Funds.
*Indian entrepreneurs Vikram Akula, founder of SKS Microfinance, and Sameer Sawarkar of Neurosynaptic Comm were awarded the 2006 Global Indus Technovators award for their grassroots effort in India.
*New Microfinance Technology to Aid Poor in Central America, at BusinessWire.
Permalink: Will Yunus doom microfinance?
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Vote for Will Yunus doom microfinance?:
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Rating: 6.50 out of 2 vote(s) cast.
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Response from:
Gary Bourgeault (managersrealm.com)
(12/10/06 3:00am)
Response from:
Shakspeare's Fool
(12/15/06 1:26am)
In his Nobel Peace Prize Lecture, Muhammad Yunus said, "Financially, [the Grameen Bank] is self-reliant and has not taken donor money since 1995."
His concept of social entrepreneurship is corporate in form and entirely voluntary in its mission of using companies organized as capitalist businesses to maximize social benefits rather than maximize profits.
Is that socialist?
Not as I see it.
Many microfinance organizations take donations. This is both to subsidize start up costs so they can get more quickly to the size needed to be profitable and because in many countries it is not legal to operate microlending in any way anyone has (yet) figured out that can make a profit.
His concept of social entrepreneurship is corporate in form and entirely voluntary in its mission of using companies organized as capitalist businesses to maximize social benefits rather than maximize profits.
Is that socialist?
Not as I see it.
Many microfinance organizations take donations. This is both to subsidize start up costs so they can get more quickly to the size needed to be profitable and because in many countries it is not legal to operate microlending in any way anyone has (yet) figured out that can make a profit.
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Socialism was proven dead in the 1980s. It's too bad he has to take this opportunity to pretend it still works.
Micro financing is a great service in many of these countries, to have someone turn away from the profit aspect of it, would relegate those that are growing and learning business, from benefitting and increasing their value to the community. This is just dumb.