Wednesday, February 29, 2012

Troubles with For-Profit Microfinance

Social Enterprise enthusiasts sometimespoint to Muhammad Yunus' founding of the Grameen Bank as the start of the movement, or at least as an important catalyst.  Micro-loans were seen as a means of harnessing market forces to make sustainable improvements in the lives of the very poor.  Because micro-loans, if administered correctly, could not only produce socially beneficial outcomes but turn a profit, it should not have been surprising that for-profit actors moved into that territory.  (And this should not have been particularly controversial among Social Enterprise aficionados, who tend to be comfortable blurring the lines between sectors.) One of the most promintent (and controversial) for-profit actorswas SKS Microfinance. 

Now the New York Times reports that the founder of SKS, Vikram Akula, is admitting that there are serious problems with the for-profit approach to micro-lending.  One of those problems is that in order to turn a tidy profit the companies must be extremely aggressive about collecting loan payments, and that an uncomfortably large number of borrowers in India committed suicide when they could not make their payments.

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