This post is the second in a special blog series on the Microfinance Institution, SKS and it's IPO launch in partnership with CGAP. Over the coming weeks we’ll be featuring a variety of voices on the issues raised by the IPO. We welcome your participation in this discussion through comments.
This is the first time that I have knowingly contributed to a ‘blog’; hence I am not familiar with medium’s etiquette. Am I to oppose, to concur, or to add? I’ll try to do all three.
Steve Rasmussen poses a number of important questions; they are mostly about the future, and about clients, which is surely where our focus should be.
I shall not comment on the rights or wrongs, legal or ethical, of the ways in which the shareholdings of the SKS clients’ Mutual Benefit Trusts were handled; Professor Sriram has already covered that issue, very well.
I shall start by making some general assertions which I believe to be true, or perhaps at least to be provoking, which may be more useful than being true.
First, the impact of microfinance, for good or for ill, is exaggerated. It is no more than second-rate retail banking for people who cannot afford the relatively decent services which all the readers of this ‘blog’ enjoy. Our banks serve us, more or less effectively, but they are much less important to us than our schools, our health care, our employment, our security, our communications… Let’s not fall into the trap of believing that microfinance, or the institutions which provide it, or still less the parasites which surround it, academics, commentators, consultants, researchers and so on, are so very important.
Second, the number of people who are still un-served by microfinance is also exaggerated. The figure of 150 million people omits the sixty odd million members of self-help groups in India, whose groups are served by commercial banks, the millions who have individual accounts with banks of all kinds, particularly cooperatives and credit unions, and the many more who are rather well-served by informal but often very sophisticated traditional institutions.
And every human being does not need financial services. Most households do, and there are not three billion un-banked households.
Third, the commercialisation of microfinance is a ‘done deal.’ To misuse a sentence from Abraham Lincoln, “the world will little note nor long remember what we say here.” When BASIX was started in Hyderabad our mission said we hoped to “access mainstream capital.” Now microfinance is a mainstream business, it’s been “Wal-Martised,” whether we like it or not, Compartamos and now SKS have shown the way, and soon many more will follow. The clock cannot be put back.
So, let’s look at microfinance, and SKS, through the same lens as we look at any other business. We don’t expect Wal-Mart or their peers not to rip off the poor because they want to help them. We hope that antitrust laws, other regulations, public opinion, and above all competition will stop them. Generally, albeit imperfectly, it works.
Mr. Sam Walton and his family have made vast sums of money by successfully satisfying the needs of millions of people, particularly not-so-wealthy people, and we don’t seem to grudge them their riches. If a donor had subsidised Wal-Mart’s entry into some apparently unattractive market; rather as DFID so cleverly subsidised Vodaphone’s MPESA in East Africa, and Wal-Mart had done very well out of it, as MPESA apparently has, would we complain? I think we would congratulate the donor for effective promotion of ‘market access for the poor.’
So although many people (and I include myself), find it distasteful, or may even think it stinks (are we perhaps secretly a little jealous?), when the promoters of SKS make millions out of a business whose original objective was to serve the poor, that’s capitalism.
We may prefer co-operative banks, which don’t make a lot of money for any one individual but do provide safe and accessible savings products to poor people. In spite of some notable exceptions, however, that’s not the dominant paradigm.
It’s more profitable to keep people in debt than it is to help them save.
As Peter Drucker wrote, “the purpose of business is to create and keep a customer,” MFIs certainly do that, and if we don’t like it we should maybe go back to Marx rather than nit-picking over the details.