By Dr. Lynn Reaser
Last week, the Wall Street Journal (July 9, 2010) wrote about a possible clash in efforts to help the poor versus investment opportunities. SKS Microfinance Ltd. gained approval from the Securities Exchange Board of India to go forward with an IPO (initial public offering) for more than $250 million to raise money for microlending to help the poor.
Microlending, in which sums as small as $50 are lent to the poor to run various small businesses, was launched primarily by the efforts of Nobel Prize winner, Muhammad Yunus. Mr. Yunus opposes the proposed IPO, believing that altruism and a focus on profit opportunities cannot co-exist. He believes that government spending, grants, and other charitable contributions should continue to be the primary source of funding for helping the world’s poor finance their livelihoods.
The head of SKS, Vikram Akula, argues that the capital markets need to be tapped to raise the amount of money that will ultimately be needed to help the poor. The competition for charitable donations and the budget strains faced by many governments would seem to argue in his favor. Private investors will put their money somewhere. If their funds can help the poor, why should we object?
There is a risk that a “bubble” in microlending could and might already be under way. As in the case of the subprime market, poor people might be encouraged to take on debt above their ability to stay current or eventually pay back their loans. This, however, can take place either in a non-profit or profit environment. The key will be to ensure that educational programs are in place to help the poor understand the commitments they are making when they agree to loans and to have some regulatory structures in place to prevent abusive lending practices.
Capitalism and helping the poor can certainly be compatible and are not inconsistent. Information and integrity are the keys to making that relationship work.