"Women have plans for themselves, for their children, about their home, the meals. They have a Vision. A man wants to enjoy himself." - Grameen Bank's Md. Yunus to a US Congressional Forum on why 94% of his loans go to women.
When money's too tight to mention, what can you do? Here are two interesting articles about Microfinance, written after the eviction of Nobel Prize Muhammad Yunus from Grameen Bank on March 8th = the day of celebration of the 100th Anniversary of International Women's Day. Isn't it ironic ?
When money's too tight to mention, what can you do? Here are two interesting articles about Microfinance, written after the eviction of Nobel Prize Muhammad Yunus from Grameen Bank on March 8th = the day of celebration of the 100th Anniversary of International Women's Day. Isn't it ironic ?
India Journal: Harnessing Business to Eradicate Poverty
By Lindsay Clinton - March 9, 2011
Source: Wall Street Journal India Real Time blog
Four or five years ago, all you had to do to get people excited about poverty alleviation was to mention the words “Prahalad” or “Yunus” and you had their attention. These two South Asian gurus—the late business professor C.K. Prahalad and the microfinance proponent Muhammad Yunus—captured the hearts and minds of hundreds of thousands of business leaders, academics, students, and social entrepreneurs through their messages and models. Importantly, they made many want to work in low-income markets and to find new solutions to sustainable growth in the developing world.
Mr. Prahalad, through his bestselling 2005 book The Fortune at the Bottom of the Pyramid, advanced a vision of the poor as, on the one hand, consumers with a combined $5 trillion to spend, and on the other hand, as producers, if given access to markets. Mr. Yunus, through the Grameen microfinance model, showed us a sustainable business model that directly involved the poor and that could be profitable, scalable and have immense impact.
However, a lot has changed in five years. During the economic crisis, many companies, while excited about the prospect of entering low-income markets, have taken a back seat in order to mind the store, so to speak. Meanwhile, the microfinance industry has gone through a minor meltdown in South Asia in the last six months, touched off by political debate and new regulation. We’ve sobered to the fact that we’re not going to “put poverty in a museum” through microfinance, as Mr. Yunus said, and that we may need to revise the model.
With companies still struggling to understand how to contribute to economic development and reach the base-of-the-pyramid customer, we are in need of new, inclusive business models and new case studies that involve social change. It no longer works to point to microfinance as a model to live by, or to continually reference the same models when many of them are defunct, or struggling to find a market.
Having worked in the social development arena in India, where social innovation is practically in the blood, I have seen the energy, hope and ideas coming from people doing business at or with the base of the pyramid today. These entrepreneurs strive to close the gaps that government will not fix, and that profit-first private enterprise cannot justify. But, if we are realistic about the magnitude of the challenges we face, these entrepreneurs are a drop in the bucket. They struggle to reach scale, to take their impact from several hundred to several hundred thousand or million, and to expand their models to new geographies.
Is there an opportunity to harness the power of capitalism while spiriting the hope and energy of social enterprise? With more companies aware of the need for more inclusive growth, in the near future we will likely see more business leaders exploring models that contribute to the planet’s resilience, and therefore, their own companies’ resilience.
Some of these companies are already headed in that direction. For all the criticism heaped on Wal-Mart, the company has made strides in making its supply chain friendly to farmers. For instance, the company has committed to working directly with 1 million smallholder farmers in China by 2012, providing them with salaries 10 to 11 times what they would otherwise make off the land.
Meanwhile, Novartis continues to provide medicine as well as health education and disease prevention counseling to 30,000 rural villages across India through its profitable Arogya Parivar program. (Note: Novartis is a client of ours.)
While many of us would prefer local solutions and admire the beauty of small business, these companies have the ability to impact millions of lives because of their sheer size.
Many of us—from development consultants to researchers to economists—want to believe Mr. Prahalad’s argument that we can eradicate poverty through profits. Business leaders want to believe in it, too. But, with the exception of a handful of projects, many big businesses have struggled to make inroads at the base of the pyramid. To drive large-scale change, we must find better ways for big business to contribute to societal good.
Over the next several weeks, I’ll be exploring the intersection of private enterprise and social enterprise. I welcome your comments and ideas.
Lindsay Clinton is a researcher and development strategist at SustainAbility, a hybrid think tank/ consultancy with offices in Delhi. She writes about business opportunities, urbanization and social innovation in emerging markets.
Mr. Prahalad, through his bestselling 2005 book The Fortune at the Bottom of the Pyramid, advanced a vision of the poor as, on the one hand, consumers with a combined $5 trillion to spend, and on the other hand, as producers, if given access to markets. Mr. Yunus, through the Grameen microfinance model, showed us a sustainable business model that directly involved the poor and that could be profitable, scalable and have immense impact.
However, a lot has changed in five years. During the economic crisis, many companies, while excited about the prospect of entering low-income markets, have taken a back seat in order to mind the store, so to speak. Meanwhile, the microfinance industry has gone through a minor meltdown in South Asia in the last six months, touched off by political debate and new regulation. We’ve sobered to the fact that we’re not going to “put poverty in a museum” through microfinance, as Mr. Yunus said, and that we may need to revise the model.
With companies still struggling to understand how to contribute to economic development and reach the base-of-the-pyramid customer, we are in need of new, inclusive business models and new case studies that involve social change. It no longer works to point to microfinance as a model to live by, or to continually reference the same models when many of them are defunct, or struggling to find a market.
Having worked in the social development arena in India, where social innovation is practically in the blood, I have seen the energy, hope and ideas coming from people doing business at or with the base of the pyramid today. These entrepreneurs strive to close the gaps that government will not fix, and that profit-first private enterprise cannot justify. But, if we are realistic about the magnitude of the challenges we face, these entrepreneurs are a drop in the bucket. They struggle to reach scale, to take their impact from several hundred to several hundred thousand or million, and to expand their models to new geographies.
Is there an opportunity to harness the power of capitalism while spiriting the hope and energy of social enterprise? With more companies aware of the need for more inclusive growth, in the near future we will likely see more business leaders exploring models that contribute to the planet’s resilience, and therefore, their own companies’ resilience.
Some of these companies are already headed in that direction. For all the criticism heaped on Wal-Mart, the company has made strides in making its supply chain friendly to farmers. For instance, the company has committed to working directly with 1 million smallholder farmers in China by 2012, providing them with salaries 10 to 11 times what they would otherwise make off the land.
Meanwhile, Novartis continues to provide medicine as well as health education and disease prevention counseling to 30,000 rural villages across India through its profitable Arogya Parivar program. (Note: Novartis is a client of ours.)
While many of us would prefer local solutions and admire the beauty of small business, these companies have the ability to impact millions of lives because of their sheer size.
Many of us—from development consultants to researchers to economists—want to believe Mr. Prahalad’s argument that we can eradicate poverty through profits. Business leaders want to believe in it, too. But, with the exception of a handful of projects, many big businesses have struggled to make inroads at the base of the pyramid. To drive large-scale change, we must find better ways for big business to contribute to societal good.
Over the next several weeks, I’ll be exploring the intersection of private enterprise and social enterprise. I welcome your comments and ideas.
Lindsay Clinton is a researcher and development strategist at SustainAbility, a hybrid think tank/ consultancy with offices in Delhi. She writes about business opportunities, urbanization and social innovation in emerging markets.
Is microfinance a neoliberal fairytale?
By Madeleine Bunting
By Madeleine Bunting
Source: The Guardian - Poverty Matters Blog
The complicated twists and turns in Bangladesh over the position of Muhammed Yunus, the Nobel prize winner, continue. Last week government officials were quoted saying that he had been ousted from his position as managing director of Grameen Bank, and there is clearly a nasty dogfight going on in Bangladesh over the reputation of its most famous citizen. Blame is now flying around in every direction – including the Norwegians for giving him a Nobel prize in the first place.
In the meantime, the film that has played a powerful role in challenging Yunus's global reputation as a pioneer of microfinance will finally be shown in London on Friday( I wrote about the film on this blog a month ago). After the film, the Danish film-maker Tom Heinemann will be in conversation with Alex Counts of the Grameen Foundation. Given how fiercely contested the whole subject of microfinance and the role of the Grameen Bank in particular has become, Counts deserves credit for taking on the debate publicly.
Inevitably, much of the media coverage has focused on Yunus himself, rather than the much broader questions Heinemann is asking about microfinance as an effective strategy for poverty reduction. After I last blogged on this, I had some very interesting responses, including one from the Cambridge economist Ha-Joon Chang, who directed me to a paper he had written (pdf) with Milford Bateman – one of microfinance's most vociferous critics and an interviewee in Heinemann film. Their critique of microfinance makes some very convincing arguments that urgently need rebuttal from the many development agencies and foundations around the world that have ploughed huge sums into the expansion of microfinance in the last decade.
Here are some of Chang and Bateman's top findings:
- Microfinance is based on an attractive but false premise that poor people can make themselves richer providing they have access to credit. But wealth creation, outside of fairytales, is very rarely the result of individual effort. Rather it is a collective endeavour – requiring skills and knowledge – in institutions such as companies, co-operatives. Microfinance has erroneously put the individual centre stage, reflecting a neoliberal world view.
- Microfinance has always maintained that it is self financing apart from the initial start-up costs. But what the last few months have revealed is that unless there is a big injection of government or aid funds, microfinance institutions have to charge very high interest rates. Without subsidy, interest rates soar to 50% and even higher. That really cuts into any possibility of small businesses being able to reinvest their profits.
- Most loans are not used to create small businesses at all; they are used for "consumption smoothing" as the economists describe it, in other words, those items of extraordinary expenditure such as weddings, funerals or education and health fees. That is the kind of scenario which leads to indebtedness.
- Finally, microfinance is not very successful at creating prosperous small businesses in the long run. Much was made of the "telephone ladies" in the 1990s who took out microloans to buy mobiles and rent them out. Initially they made handsome profits, but as Chang points out their income has dropped dramatically. If a business idea works and is accessible to poor people, everyone will pile in; it's why you see rows of women sitting patiently selling a few tomatoes in African marketplaces. Overcrowding is a result of very limited options in terms of technology, skills and financial resources: microfinance doesn't solve any of those problems.
Chang and Bateman cite academics arguing that the claims of microfinance are "in many respects a world of make-believe." These points all seem damaging enough but Chang and Bateman go even further, arguing that microfinance could actually inhibit poverty reduction by diverting attention and resources from the much more important state co-ordinated policy interventions, financial institutions and investment strategies that have been crucial to the success of fast-growing economies such as Vietnam, China and South Korea.
The gist of the argument is that the enthusiasm for microfinance has been rooted in the myth of the heroic individual entrepreneur, the rags to riches fairytales, Dick Whittington style.
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Some food for thought:
The Micromagic of Microcredit
Microcredit and Women's Empowerment
Korea Times's series Korea: From Rags to Riches
Opportunity International
PlanetFinance
Finca
