To Profit or Not To Profit, That Is The Microfinance Question

"Muhammad Yunus always has said that credit is a human right," Labarthe said, his voice tinged with sarcasm. "Well, I don't believe that. Opportunity is a human right, education--but credit is for the one that has an opportunity to make something productive with that."--Carlos Labarthe, co-CEO of Compartamos.

Microfinance and microcredit are all the rage among do-gooders right now. On October 13th Muhammad Yunus won the Nobel Peace Prize for his work with the Grameen Bank, which provides credit to the rural poor of Bangladesh. On October 31st, FRONTLINE World aired a story about Kiva.org, a nonprofit facilitating peer-to-peer loans over the Internet, and The New Yorker's October 30th issue featured, "Millions for Millions," by Connie Bruck which explores the different, and often contrasting, philosophies around the commercialization of microfinance, focusing in particular on Muhammad Yunus and Pierre Omidyar, the founder of eBay and the Omidyar Network:

"For Yunus's allies, it demonstrates how the emphasis on profit can blind lenders to social values; the other side worries that rates lowered for political rather than economic reasons probably aren't sustainable."

As Jacqueline Norris of the Acumen Fund blog writes in, "A Place for Profits in Microfinance?" the debate is complex:

"[M]ost microfinance organizations actually charge high interest rates to cover high transaction costs, and, once specific volumes are met, tend to be very profitable organizations. Other companies – certainly many of those supported by Acumen Fund – take years of subsidy before they move to break-even and financial sustainability."

Bruck was clearly not impressed with Omidyar who she reports:

"Omidyar told me that in the two years or so since he became involved in microfinance he had not visited a microfinance institution or met a borrower. Just the opposite of Yunus's entry into microfinance: Yunus left theory behind to listen to the poor, and Omidyar seems to rely largely on theory."

In response to the portrayal of Omidyar in the article, Gayle Roberts of the Fundraising for Nonprofits blog posted that:

As a result of The New Yorker magazine's recent feature on Microfinance and the article review on Where Most is Needed, I took Omidyar Network off one of my client's prospects lists, as it had become clear they are just not a good fit."

I have mixed feelings when reading an article like this one. On the one hand, it is great to see a topic like microfinance as a lead story in a high profile magazine, on the other hand, the tone of the piece and the title on the cover wrap, "Battle of the Do-Gooders," makes me worry that revealing the dark side of do-good endeavors will become the new topic du jour of the media (i.e. USA Today reported on October 31st about a conflict over funding between Angelina Jolie and Cambodian Vision in Development). It would be nice to have a positive focus on positive news for just a bit longer. . . . either way, as Tess Thompson of the Arch Words blog, notes about the article,

"[T]he underlying question--What is the best way to help lift poor people out of poverty?--is well worth debating."

Photo credit: Money Money Money by Whatknot/Jack.

microfinance
Omidyar
Yunus
New Yorker