Money makes the world go round: Microfinance

Recent events at SKS Microfinance have re-triggered the debate about microfinance and “doing good”.  (Read India Knowledge@Wharton article “Capitalism vs. Altruism” here)

Why is it that we get upset when an SKS makes oodles of money but don’t bat an eyelid when Microsoft does? Or closer to home, when HLL makes money by selling shampoo sachets to the same poor households?

We can argue that business is business so we should hold SKS to the same standard as any other business.  But some people argue that any microfinance business is not “any other business”, but isn’t it?  What makes is special?

Let me play the devil’s advocate:

As long as it is a business funded by private investors, it should go by whatever objectives the investors want to achieve. Even if it is funded by grants, presumably the grant-giving agency should decide what it wants to achieve.  Only if we are putting in public funds (as in tax-payer funds), can we hold the business to the higher standard of providing “public goods” at the cost of lower profits.  We don’t demand or require that P&G and HLL provide low-cost products for the poor — if the market is big enough and attractive enough, they will; if not, then not.

The primary objective of all businesses is to make money off of their customers whether rich or poor (though they would never put it so starkly).  So, why should we hold  privately-funded microfinance institutions to a different standard?

This entry was posted in Financial lives of the poor, Microfinance and tagged , . Bookmark the permalink.

2 Responses to Money makes the world go round: Microfinance

  1. ulaar says:

    Hey Richa,
    Good topic/question. Here are a few analogies that offer clues on our reactions to SKS:
    1. Google “Do no evil” motto
    Nobody asked Brin/Page to put this into their manifesto but they did. By doing this, they raised the scrutiny bar on themselves (we are not like those “other monopolistic or unscrupulous companies”). This doesn’t mean they have an aversion to money (“greed” is not yet an outlawed term at the Googleplex). But the “no evil” mantra is the reason why they got so much flak for backing off from their earlier /highly commendable stance on China.
    2. Wikipedia: Whenever Jimmy Wales tries to profit from his wikipedia roots/accomplishments via for-profit entities like wikia, he’s criticized because, in people’s heads, once “non-profit” guy, always *should be* a non-profit guy.


  2. Richa says:

    Interesting. So you are saying that we should hold companies like Google (and SKS?) which claim to have some higher standards to different standards than the rest. But the thing to note is that Google did back off, because after all they are a profit-seeking company despite their self-proclaimed noble objectives.

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