“Charging to Teach a

Man How to Fish”The Emergence of For-Profit Micro Finance Institutes

By Brittany Shaffer

How I Became Interested Helped with the Capulana

Bag Project

http://thecapulanastore.webs

.com

Poverty its relation to

Business are interesting to

me.

Microfinance is helping make

an impact on poverty.

Quick Terms Micro financing: banking services (especially loans) for

the poor

For-profit vs non-profit

Foreign aid: money sent to the poor

Doesn’t Sending Money

Help? Foreign aid is NOT solving

the issue of poverty. (Moyo,

2012)

Creates dependency.

Money often not used in best

ways.

May keep dictators in power.

(Campbell, 2012)

If Sending Money Isn’t

Helping… What Can?

“If you give a man a

fish, you feed him for a

day. Teach a man

how to fish, and you

feed him for a lifetime.”-Chinese Proverb

What is Micro Financing? Banking services for the poor

Includes loans, bank accounts, insurance, and sometimes counseling.

Loans typically consist of US$100-300.

Poor use these loans to start their own businesses and generate an income for themselves.

Scott (2009)

Benefits of Micro Financing Households becoming more stable

Women empowered (Scott, 2009)

“Women spend 89 cents of a dollar earned on children,

education, housing, and health care, where men spend

60 cents that way” (Dusky, 2008)

Emergence of For-Profit MFIs Some MFIs have decided to

make a profit from offering

these services

SKS India, Compartamos

Controversial: Is this taking

advantage of the poor?

Are there benefits?

What about the cons?

Benefits of For-Profit Micro

Finance

Growing Demand for

Microfinance Only 1/10th of the need is

currently being met (Univ. of

Penn).

Compartamos is able to to

offer loans to 10 times as

many people now as a for-

profit (Lewis, 2008).

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

NP FP

People Helped

People Helped

Incentive to Run Business

Better More efficiently and

effectively

Better the business is

managed, more profits

Profit is motivating

Reason Vikram Akula (SKS)

made switched to for-profit

business model

(Bellman, 2006).

Competition Among MFIs MFIs would be forced to

work more competitively

Offer best rates and services

to attract customers

Would not make sense to

have high interest rates

Opportunity to Conduct Better

Research As MFIs gain more

funding, they will be able to

research best ways to help

poor through microfinancing.

Research is necessary…

developing countries lack it

(Charlton, 2008)

For-profit would give

incentive to research, as well

as funding to do so.

Ability to Sustain Itself Charitable purpose is not

enough: You need money.

Difficult to make profit on small loans (Bishop, 2011).

Transaction, paperwork costs (Bellman, 2006)

One of two options if employees are not paid: another job (distracting them), needing to leave organization (to find paying job)

Giving Confidence to the Poor Poor are seen as

customers, rather than

charity cases.

Not a bad thing!

Providing Jobs for Locals By being for-

profit, companies will be able

to hire local people.

Story of Ms. Swarnaltha

(Bellman, 2006)

Arguments Against For-Profit

MFIs

Some Bad Companies Yes, some companies are

handling it wrong.

Many other businesses take

advantage of the poor in

other fields.

Some may, but it is not fair to

judge the whole industry that

way and prohibit others from

doing good.

Easier for Poor To Be Taken

Advantage Of Company with higher loan

prices will not get any

business.

For-profits are and can be

regulated (SKS).

For-profit would have even

more incentives for wanting

their borrowers to succeed.

For-Profits Will Hurt Non-

Profits Non-profits have specific

benefits that for-profits do not

have (Campbell, 2012).

Not having to pay taxes.

Not being required to make

records public.

Pressure on the Poor Anyone who has a loan

should feel some amount of

pressure!

Student loans! I feel

pressure.

That pressure helps the

borrowers to make good

decisions to allow them to

pay back.

Company Cannot Have A

Double Bottom Line You can help others, while helping yourself.

No business exists without helping others, whether for-

profit or non-profit.

Conclusion Why is it wrong to earn profit from teaching a man how to

fish and helping him in that process?

No one criticizes a tutor who charges to help a struggling student.

For-profit MFIs may have the opportunity to take advantage, but not any more of an opportunity that non-profits.

For-profit MFIs can help the poor, as long as they are governed by certain principles and regulations.

I plan to further study MFIs and their impact, and I would like to work with MFIs some day, perhaps doing research for them.

Works Cited

Bellman, E. (2006, May 15). Entrepreneur Gets Big Banks to Back Very Small Loans. (Cover story). Wall Street Journal - Eastern Edition. pp. A1-A12.

Bishop, M. (2011, January 15). Muhammad Cronus. In Philanthrocapitalism. Retrieved November 19, 2012, from http://www.philanthrocapitalism.net/2011/01/muhammad-cronus/

Campbell, D., personal communication, November 16, 2012

Microcredit Is Becoming Profitable, Which Means New Players and New Problems (2005, April 20). In Knowledge @ Wharton. Retrieved November 19, 2012, from http://knowledge.wharton.upenn.edu/articlepdf/1177.pdf?CFID=230279896&CFTOKEN=86236828&jsessionid=a830789eeb93d8a37f82501e84c7c26f6d67

Moyo, D. (2012). Does aid work? No says Dambisa Moyo. (cover story). New Statesman

Scott, J. (2009). Microfinancing: Helping Poor Entrepreneurs Succeed. Business Education Forum, 64(1), 35-37.