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.
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.
I’m sorry to reveal a bias here, but all these attacks and critiques of the Bangladeshi economist and Nobel Peace Prize-winning pioneer of microfinance, Muhammad Yunus, appear to be so obviously opportunistic (if not an outright smear campaign), I can’t figure out why smart people just keep piling on.
The subtext of the question is the implication that, like those sub-prime mortgage loans in the U.S. that turned out to be a catastrophic house of cards, some approaches to microfinance are starting to also look like another way for financial whizzes to make money off poor people.
The struggle for the image, if not the soul, of microfinance continues.
Overview: Microfinance was created to help the poor by Muhammad Yunus, who won the Nobel Peace Prize for the scheme. Since then, many others have adopted it and some have changed the approach to become more profit-oriented — arguing that this will lead to more investment in microfinance funds and thus more money for the poor.
Not surprisingly, you gotta be careful mixing the profit motive with helping poor people. Yunus is not happy with this trend. Others think it’s a needed change. Continue reading →
The short answer is that microfinance is a set of financial services such as small loans for the poor aimed at helping people get themselves out of poverty.
Sounds fairly straightforward, right? In reality, there’s a fight for the soul of microfinance going on and some of that battle has been playing out here at home.
There has been an explosion of “profit-maximizing” microfinance organizations lately which some say threatens to undermine the credibility of this anti-poverty scheme — if not its fundamental social purpose. But the proponents of profit-driven, commercial microfinance say it is the only way to really grow these services, to reach the many millions more in need of help.
For those of you, like me, who weren’t able to make it to the Clinton Global Initiative in New York City last month, I wanted to draw your attention to a great debate about microfinance.
Below is a video — “Profiting from the Poor?” — in which Nobel Peace Prize-winner Muhammad Yunus, the pioneer of microfinance, challenges his former protege and the founder of SKS Microfinance, Vikram Akula.
As described in the above post, SKS, one of the world’s largest microfinance organizations, in 2005 changed from being a non-profit to operating as a for-profit, and recently went public with an IPO, seeking shareholders. Vikram argues that this is the best way to expand access to microfinance worldwide.
Yunus thinks too much focus on shareholder profit risks “mission shift” — turning microfinance from an anti-poverty scheme into just another profit-oriented “loan-sharking” scheme preying upon the poor.
If you want to enrich shareholders rather than put the surplus back toward funding the poor, Yunus says don’t call it “microfinance.”