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.
I wrote about this “struggle for the soul of microfinance” playing out most explosively in India right now, but with global and local reverberations.
Seattle-based Unitus’ abrupt closure/reorganization after profiting on its investments in India’s big for-profit mega-microfinance firm SKS has raised questions and concerns. Here’s one board member’s explanation back then. Outgoing CEO Ed Bland recently told me more details about the distribution of the profits and the reorganization will be forthcoming later this month at the conclusion of an independent audit.
Meanwhile, at least the image of microfinance as a means to help the poor seems to be suffering lately.
The BBC this week published an article reporting that microcredit loans in Bangladesh can become “death traps” for the poor.
Here’s a blame-game article in the Huffington Post, written by microfinancier Elisabeth Rhyne, responding to the fuss in India over for-profit SKS Microfinance. Says Rhyne:
“When a story on microfinance appears in major media outlets, the effect on the public image of the sector can be dramatic. That’s why last Friday’s article in the Wall Street Journal, “India’s Major Crisis in Microlending,” requires a response.”
Rhyne then delves into the details of the microfinance industry in India and finds plenty of blame to spread around, attributing the turmoil in India to the microfinance organizations for failing to manage growth properly, to the commercial banking sector for fighting over turf and to the Indian government. She seems to be making the case that the flap in India is due to how the Indians do microfinance.
The Center for Global Development’s David Roodman also goes into great detail about a number of factors that he thinks contributed to the crisis in Andhra Pradesh. Roodman’s analysis is comprehensive and well-informed, but he acknowledges that what’s going on there in India remains “murky.”
“What is beyond doubt is that the Indian microcredit industry, the largest in the world, is in serious peril; and that this crisis is sure to seed discussion worldwide about whether and how microfinance institutions (MFIs) can commercialize responsibly.”