Regular readers of this blog know that I am a strong advocate of microlending and a Kiva lender (have you clicked on the widget on the left sidebar yet?). The main reasons why I am strongly in favor of such programs are summarized in this Independent article.
At the same time, I do not consider microlending a substitute for anti-poverty, gender literacy and overall development programs. Microlending is not the magic wand that will solve all the problems of the Global South. It is one tool that should be used and supported, but there is no substitute for things such as public health policy.
One of the things that is often mentioned in microlending discussions is the high rate of reimbursement and the low rate of default. The poor do pay back. Based on this simple fact, it is not surprising to find that investment firms have been interested in moving in on the microlending potential bonanza (there is no shortage of poor women in the Global South) as a mode of investment for 401k-type of investments. That is how for-profit microlending businesses have emerged. And so, Der Spiegel legitimately asks:
Compare and contrast:
Since he received his Nobel Prize for the work of the Grameen Bank, Yunus has been busy promoting his social business model (businesses that are designed to not generate profit but deliver social goods).
In contrast, Choudhury’s ASA has a different model. It is a for-profit business that is based on (foreign) investment. TIAA-CREF is mentioned as one such investor, along with other pension funds.
An even more extreme form of for-private microlending is Compartamos, which was featured in an episode of Now on PBS (video). Yunus has been especially critical of Compartamos which he sees as exploitation:
For Yunus, this defeats the purpose of microlending, which was, in part, to get rid of the system of usury. But for him, the for-profit microlenders are usurers making a comeback.
What is obvious is that there is indeed a struggle for the definition (or redefinition) of the way microlending should work. Is Yunus’s model obsolete compared to the young and hip American-born and trained economists of ASA? I would argue that the for-profit model might have looked good a few years ago, and its proponents might have thought that they had won the battle. With the global economic collapse, things might be different and Yunus’s social business model might not look so obsolete.