This year’s winner of the Nobel Peace Prize, Mohammed Yunus, is known as the godfather of micro credit, i.e. the practice of giving small loans to the world’s poorest people to help them set up businesses so they can support themselves and their families. Yunus founded the Grameen Bank to carry out his goal of some day eradicating poverty entirely. Yunus was not making profits off the Grameen Bank’s success, and since then there have been many organizations (NGOs) – carrying out the same task, throughout Latin America, Africa and Asia.
The Grameen Bank alone has distributed more than $5.3 billion to almost seven million borrowers – 96% of them women. Interest rates can be as high as 20%, and Grameen claims to recover 98% of its loans. Any profits made are reinvested in the community.
However, other entrepreneurs are now arguing that it would be more efficient if, instead of NGOs, which rely on grants for survival, there was instead a regular banking system that could cater to the world’s poor. Investors could invest their money in these banks for a certain rate of return. This would mean that the poor people to whom the loans are being paid out would in fact be helping Western businessmen make a profit. Citibank is an example of a company wishing to establish a for-profit micro-credit system in developing countries which would benefit private investors.
The proponents of this method argue that these banks would be able to gather much more capital, to reach out to a much broader potential target population – i.e. achieve “scale” – and, ultimately, have a much more profound impact than the non-profit organizations.
Many prominent philanthropists are engaged in this debate, including Pierre Omidyar, the developer of eBay, who recently devoted $100 million to the development of the for-profit microfinance industry; the Michael and Susan Dell foundation (of Dell computers), which possesses a $1.2 billion fund that has started investing in micro finance institutions in India; Google.org, a philanthropic organization with about a billion dollars to invest in health, environmental, and poverty issues worldwide; and the Bill and Melinda Gates Foundation.
There’s no required reading involved, but here’s a link if you’re interested in getting more information.
http://www.newyorker.com/fact/content/articles/061030fa_fact1 .
Questions:
Do you think that private actors (for profit) should be engaged in poverty alleviation practices like micro-financing or should we leave development work in the hands of NGOs and international actors e.g. the UN, IMF, World Bank?
Should investors be allowed to make profit off of the world’s poor since certain models of micro-credit have successfully drawn people out of poverty?
