Mysterious microfinance firm re-emerges

Clay Holtzman, in his new blog Nonprofit Kingdom, notes that a year ago the Seattle microfinance firm Unitus closed its doors, laid off most of its staff and didn’t really tell anybody (including some major donors) why it did so.

Unitus, which had claimed its primary mission was to help poor people, also happened to have made a lot of money — having invested in an Indian company, SKS Microfinance, which had pursued this anti-poverty financing scheme as a for-profit venture.

Here’s a New York Times piece on the controversy about SKS making money while fighting poverty. Here’s what I wrote at the time Unitus closed its doors and a more recent post I did on the broader implications of all the weirdness. Here’s another post from last year that Clay cites as a good overview by Philanthropy Action.

Now, as Clay notes, Unitus has been resurrected as Unitus Labs. Here’s what Clay says:

Many wondered what the new mission would be, and why Unitus had to close so quickly. Unitus recently unveiled its reorganization plan, and while the charity will use a different approach to reduce poverty, its new business strategy appears very similar to the one that sparked an international controversy last year.

What’s still not clear, to me anyway, is what exactly happened — or will happen — to the profits made by some at Unitus when SKS decided to do its IPO. On the new Unitus Labs web site, they say the money will be “redeployed” to pursue “poverty reduction and economic development purposes.”

SKS hasn’t done so well lately (due in part to the Indian government’s smack-down on the microfinance industry) so maybe the Unitus gang didn’t get a chance to sell their shares in time to collect as big a windfall. Some had estimated Unitus made tens of millions. But the Unitus statement says they made a bit more than $5 million.

The Unitus story, Clay writes, is one of drama, controversy and innovation. It is also perhaps worth watching as a measure of where microfinance is headed, and if this scheme originally conceived of as a means to fight poverty can remain true to its purpose or will devolve into just another way for financiers to make money. Says Clay:

The Unitus story is a fascinating tale of innovation (popularizing equity investments in foreign microlenders), drama (the resignation of board members in protest over the decision to close down the charity) controversy (over lucrative investments in an Indian microlender), faith (most of the founders are members of the Church of Jesus Christ of Latter-day Saints) and now even a connection to the 2012 US Presidential race (Unitus co-founder Bob Gay is business partners with Jon Huntsman Sr., father of Jon Huntsman Jr., Republican candidate for US President).

Seattle is today widely regarded as a global epicenter for microfinance. There are a number of organizations, large established ones like Global Partnerships or small new outfits like Lumana, that demonstrate a diversity of approaches to getting these small loans out to poor people.

But are all approaches valid? If some for-profit approaches are okay, as a legitimate means to propel growth in the microfinance industry, at what point does profit-seeking become counter-productive to the goal of helping the poor?

Muhammad Yunus

The Nobel Prize winning economist and “father of microfinance” Muhammad Yunus recently lost a highly politicized battle with the Bangladesh government which succeeded in ousting him from managing his creation, the Grameen Bank. Prime Minister Sheikh Hasina accused Yunus of being a “blood sucker” to the poor.

Yunus had been warning, most forcibly over the last year or so, of the loss of focus in microfinance — of the rise of “loan sharks” taking over this scheme originally created as a means for empowering the poor to get themselves out of poverty. As his warnings grew louder, so did the attacks on his credibility.

Meanwhile, the credibility of microfinance itself is under fire. As this Christian Science Monitor article nicely summarizes, there are plenty of experts out there right now questioning whether or not microfinance does, in fact, do much to bring people up out of poverty.

I’m no expert, but it seems to me that asking if microfinance works to help poor people or not is about as meaningful as asking if health care works to prevent death and illness. Sometimes it does; sometimes it doesn’t — which was the overall point made recently at a Seattle forum featuring a leading expert on microfinance and some of our top lcoal microfinanciers.

I will be interested to see if Seattle’s burgeoning microfinance community has much to say about the rise of a new Unitus.

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Tom Paulson

Tom Paulson is founder and lead journalist at Humanosphere. Prior to operating this online news site, he reported on science,  medicine, health policy, aid and development for the Seattle Post-Intelligencer. Contact him at tom[at]humanosphere.org or follow him on Twitter @tompaulson.