What is the role of commercialization, commercial capital and commercial investors in delivering microfinance to poor people? Is it ethical to make money out of the poor? These were the central questions of a debate organized by the World Microfinance Forum Geneva between Muhammad Yunus, Founder of Grameen Bank, and Michael Chu, one of the visionaries behind Compartamos Banco. The context for this debate is nicely summarized in an article in The Economist of 26 June 2008 titled Doing good by doing very nicely indeed. The article explains how “for years Muhammad Yunus reigned as the public face of microfinance. It seemed only right when, in 2006, the Bangladeshi economist cum social entrepreneur and his Grameen Bank shared the Nobel peace prize for a micro-lending revolution that has helped millions to earn their own way out of poverty. Yet for the past year or so, microfinance has had another public face, one that troubles people like Mr Yunus. Compartamos Banco argues that the best way for microfinance to help the poor is for it to make a socking great profit.”
In effect, Compartamos Banco listed its shares for over $1 billion in April 2007. To Mr. Yunus and its other critics, the Mexican bank is no better than an old-fashioned loan shark, earning profits by charging poor borrowers a usurious interest rate. Compartamos disagrees and made its case for fighting poverty with profit in an 11-page “letter to our peers” in mid-2008.
Some excerpts from the debate (see full report in pdf, 12 pages):
Michael Chu:
- “To me the only valid perspective is not how we feel about earning a profit from the poor, but rather what is valid in the eyes of the poor.”
- “The only thing I know that can consistently and simultaneously provide massive scale, permanence, continuous efficacy and continuous efficiency, is business.”
- “I am afraid that politicians and regulators will fail to understand the need to create and maintain a legal framework that will accelerate the development of the market by promoting competition, transparency and solvency.”
Muhammad Yunus:
- “Grameen Bank is a profit-maximizing institution. We are not ashamed to make money On the contrary, we expect applause when we manage to give a 100% dividend to our shareholders.”
- “When microcredit organizations look for money, their focus should be on how to get local money. They should try to fix the legal framework so that they can become local microcredit banks that can take deposits and lend them to the poor Connecting microcredit institutions to the international capital market is no solution at all.”
- “The real question is: ‘do we take advantage of the poor?’, ‘do we treat poor people differently from the rich?’ If you try to make more profit on the poor than you make on the rich, it sounds a lot like you are taking advantage of the poor. I would like to be on the side that does not want to take advantage of the poor, that does not abuse poor people. I want to give them the best deal they can ever get, better than anywhere else. And from that perspective, I think Compartamos is on the wrong side.”
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