The ability of commercial microfinance institutions to fight poverty is under renewed scrutiny because of the current financial crisis.
While subprime housing loans — loans made to people who don’t have long credit histories and documented earnings — triggered the market meltdown and the collapse of several venerable investment banks, Daniel Gross, a writer for Slate magazine, says the poor need greater access to credit.
“What the world needs right now is more subprime lending — a lot more of it,” writes Mr. Gross.
To be sure, the journalist was supporting the growth of microcredit, but others have derided any comparison between subprime lending and microloans.
Last week during a World Business Forum meeting, Muhammad Yunus, the Nobel-Prize-winning founder of the Grameen Bank, said the subprime market failed for one reason — greed.
According to Felix Salmon, a blog writer for Portfolio magazine,
Mr. Yunus went on to question all loan businesses serving the poor that seek to make a profit. “Breaking even, said Yunus, was a great idea,” writes Mr. Salmon.
Based on problems a Mexican bank has had with mixing profit with microfinance, writes Mr. Salmon, “for the time being, I’d keep the idea of for-profit philanthropy in the ‘not proven’ category.”
However, the moderator of the World Business Forum’s session, Matthew Bishop, an editor at The Economist magazine and co-author of Philanthrocapitalism: How the Rich Can Save the World, disagreed with Mr. Salmon’s conclusions.
On a blog that promotes their book, Mr. Bishop and co-author Michael Green write that a diverse source of funds — nonprofit, government, and commercial — are needed to get microfinance to reach the world’s poor.
“As we report in the book,” they write, “Pierre Omidyar, the founder of eBay turned philanthrocapitalist, calculates that meeting the needs of all the potential poor borrowers would require about $60-billion and that ‘there is not enough nonprofit and aid capital in the world to get microfinance to the scale it could achieve.’”
(Read The Chronicle’s interview with Mr. Bishop and Mr. Green. A paid subscription is required to view the article.)
What do you think? Does microfinance need both for-profit and nonprofit supporters?
