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Wednesday, February 02, 2011

Non Profit Microfinance Vs For Profit Microfinance: The Stupid Debate

Differences in national income equality around...Image via WikipediaThere has been a stupid debate going on for a few years now that has taken new life the past few months. There is a school of thought that says microfinance can be non profit and non profit alone.

There has been some serious abuse of microfinance. A lot of MFIs - microfinance institutions - have been messing up the last mile in serious ways. Charging ridiculously high rates is one of them. Some debt collection methods have been shady.

What is needed is regulation. Capitalism works. But ground rules are necessary. Where the ground rules are missing, capitalism can look evil. So the real issue is not that for profit microfinance is a bad idea. The real issue is that for profit microfinance works best when the ground rules are there. And it is for the governments of the world to put those ground rules in place.

What makes the debate stupid, though, is that there seems to be an implicit suggestion that there are too many MFIs and too few poor people. The truth is we started with billions of poor people, and every year since the total number of poor people in the world has gone up, not down. That is the only true way to measure if the microfinance industry as a whole is delivering.

It has not delivered. Eradication of poverty is the goal, and that is nowhere close to being met. So far we have been going backwards despite our best efforts.

The debate should not be if we should go for non profit microfinance or for profit microfinance. The debate ought be to figure out if there are other versions also. I want to know if there is a triple crown microfinance model, whatever that is supposed to mean. I want to know if there is double dip microfinance model, I am on a lookout for purple microfinance. I also want various shades of blue.

There is a tendency towards infighting amongst all sorts of powerless peoples. This debate is an exhibition of that same tendency but among groups that are trying to help the most powerless of all peoples. This fire needs to be put out. This is a false debate. It is not either or. We need both.
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