Archive for January, 2011

Philanthropy Lesson #010: Business and Charity aren’t Black and White (Microfinance)

January 19, 2011

It is one of society’s great fallacies that business and charity are viewed by some as polar opposites. This perspective (as ubiquitous as it is incorrect) is based on the premise that one is either out to make a profit or selflessly doing social good. The rise of microfinance institutions represented a significant step in the blurring of this diametric, and served to slowly introduce to the world the idea that you don’t have to employ traditional charity models to do social good. As these ideas become more pervasive and widespread, we find that individuals and institutions start to appear standing between the capitalist and the charity worker (the diametric personified). The image then comes to represent a scale in which an organisation balances input, impact and output according to how they prioritise profit and social good.

If we continue with the image of a sliding scale, the rolling out of microfinance structures was revolutionary in its moderateness – it sits somewhere in the middle of the scale, employing business models for social benefit. Muhammad Yunus, who established the now widely-replicated Grameen Bank in 1983, remains a key proponent of this model, and is often credited with the generation and subsequent success of the structure. Yunus’ microfinance is one that is strictly not-for-profit. Part of the beauty of microfinance was that it broke the diametric, but of course this did not preclude the possibility of some breaking it down further.  As the microfinance model became more successful, some organisations shifted on the scale to start operating a limited for-profit microfinance model, much to the consternation of its originators.

Yunus’ condemnation of the approaches of Mexico’s Compartamos and India’s SKS Microfinance institutions is based on the belief that profit-making is intrinsically incompatible with the alleviation of poverty. In making this argument, Yunus adds another dimension to our scale, which, arguably, is a distinctively normative one. Matthew Bishop, responsible for the most audible rebuttals of Yunus’ article, focuses his attention on this added dimension, claiming:  ‘even in the most optimistic scenario for philanthropy, it seems inconceivable to us [philanthrocapitalists] that there will be enough charitable capital to meet the demand for microfinance from the world’s poor any time soon’. The implication here is that in order for microfinance industry to survive, it needs to attract private investors who will look for profit margins. Bishop suggests that this is a sacrifice worth making for greater social justice. This was also the view taken by SKS’ founder Vikram Akula in a Forbes India interview in 2009, notably before the crisis in microcredit occurred.

This debate comes just as a group of philanthropists gathered at the Institute to prepare for their developing world module of The Philanthropy Workshop, which will take place in India in March. The afternoon comprised of an afternoon’s learning around microcredit in India, but in actual fact the links between TPW and strategic philanthropy and the Yunus and Bishop discussion are more pervasive than the day’s learnings. Ultimately the lessons that must be learnt through these linkages are about the placement of an individual, organization or approach on that sliding scale we started with, where the balance of profit and social impact  are the determinates of that positioning.