Muhammad Yunus speaks to NYU

Here are some high level points from his talk last night. My own observations are preceded by initials, while comments he said are left alone. I kept them in this order as this was the original chronology of how they developed:

• (VG) Power of one man: it is impossible to not be in awe when you listen to what he has done.
• (VG) Amazing brand image: While they may not be concerned with profit, there is no question that Grameen is very focused on building and maintining a strong brand identity that in itself is opening doors and creating opportunities.
• Low tech + high tech: much of what Grameen does is marry high tech with existing/traditional products. The prime example is Grameen Danone which uses a dietary staple of Bangladeshi children to transmit nutrition.
• “I wondered what I was doing” – his question when he realized he does not own a single share in any of his companies. (VG) This unyielding desire to create is found in any successful entrepreneur. For them money is only one part of what drives them.
• “Human beings have multiple dimensions as should businesses”
• “You don’t need fancy packaging in a social business because you are making something you need”
• “Why should people pay for something they will throw away” — his response to make the the packaging to Danon Yogurt not only bio-degradable (currently happening) but edible and nutritious as well! (Danon is working on it).
• Poverty museums — one day we will take our children to these to show them what the world was like when people still existed in poverty
• “Technology is like water it takes the shape of whatever you put it in” — it is not the technology that is critical but it is being use for

Op-Ed: Should SKS Microfinance go Public?

A recent article on www.sramanamitra.com postulates that SKS Microfinance, which offers “several microfinance options to the poor in India for a variety of businesses from agriculture and livestock purchase to basket weaving and photography,” and has to date “provided over $550 million in microcredit,” will most likely follow Compartamos’ model and go public. According to CEO Vikram Akula and CFO S. Dilliraj, plans for growth in the upcoming years include the following:

By the end of 2008, SKS plans to add 770 new branches to its existing 696 branches to increase its members from the present 1.8 million to 4.2 million and the gross disbursement from Rs 1,200 crore to Rs 5,000 crore. Their aim is to reach 5 million families by 2010.

However, for MFIs like SKS Microfinance, the question of going public is taking place against a fractious backdrop, as debates brew furiously between microfinance gurus such as the founder of the Grameen Bank, Muhammad Yunus, and co-founders of Compartamos, Carlos Danel and Carlos Labarthe, who have been vilified by critics as “pawnbrokers” due to a recent public offering of their former NGO.

According to a recent article from the NY Times entitled, “Microfinance’s Success Sets Off a Debate in Mexico,” at the crux of the debate lies the extent to which MFIs should contribute interest income towards profits (rather than cycling profits back into the organization for the benefit of their borrowers), and to what extent accountability to investors, rather than the borrowers themselves, impacts the fundamental premise of microfinance – poverty alleviation:

Microfinance started in the 1970s with a focus on using this breakthrough to help end poverty,” said Sam Daley-Harris, director of the Microcredit Summit Campaign, a nonprofit endeavor that promotes microfinance for families earning less than $1 a day. “Now it is in great danger of being how well the investors and the microfinance institutions are doing and not about ending poverty.” He said the situation posed the danger of “mission drift.”

Even though both sides agree on the need for the sustainable infusion of capital (consider this in the following context – “Deutsche Bank estimates the global demand for microfinance loans at about $250 million, 10 times the amount that has been lent out”), the question comes down to this: at what cost? Critics argue that the model adopted by Compartamos comes at a grossly high cost for its borrowers, skewing the mission of MFIs in favour of the investors rather than the interests of the borrowers themselves, which, in the case of Compartamos, has resulted in disproportionately high interest rates (read more after the break):

Op-Ed: Microeffect of Microfinance

A recent article in the New Yorker echoed sentiments expressed by many venture capitalists that have begun to shift their focus on the developing world and BoP markets that microfinance, while an amazing concept for enable entrepreneurs, cannot in itself lift countries out of poverty. James Surowiecki writes:

Microloans are often used to “smooth consumption”—tiding a borrower over in times of crisis. They’re also, as Karol Boudreaux and Tyler Cowen point out in a recent paper, often used for non-business expenses, such as a child’s education. It’s less common to find them used to fund major business expansions or to hire new employees … [I]t’s also because most microbusinesses aren’t looking to take on more workers. The vast majority have only one paid employee: the owner.

I agree with this opinion, particularly because I think that the current obsession with the ‘globalizationally’ sexy structure of microfinance tends to ignore the need for the creation of domestic consumption demand in struggling nations to jumpstart development.