Those looking to make fistfuls of cash by lending to the poor will already be aware of the following news item, but the rest of you might have missed it: a recent big initial public stock offering was not for some Silicon Valley start-up, the next Google or Amazon. Instead, it was for an outfit called SKS Microfinance, the “largest and fastest-growing micro-lender in India.” The company raised $342 million, and its founder, a so-called “social entrepreneur,” has personally made at least $13 million already.
You might be asking, “Isn’t microcredit supposed to be a philanthropic endeavor? And, if so, how did such a thing as this millionaire-making I.P.O. ever come about from it?”
Here’s the basic story:
For those of us of follow the politics of poverty, development, and international exchange, microcredit is always a fascinating topic. The idea of giving small loans to the very poor—often to women in the developing world—for them to start their own money-generating enterprises has been in the limelight for at least a decade now, so the basic concept will no longer feel new to most people. Web sites such as Kiva.org have become popular avenues for Americans to donate money to their own favored micro-entrepreneurs.
What makes microcredit so interesting is that it at once embodies radical and reactionary principles. On the radical side, it asserts that the poor do not need patronizing job-training programs. They need not to be exploited. The reason the poor remain mired in poverty is that, however industrious they might be, they have no access to capital. Therefore, they must go to those who do (the bosses and moneylenders), who demand a hefty price for so kindly allowing the workers to toil in their service. By the time the day is done and debts are repaid, the poor have very little to show for their efforts. Most of the value of their work has been siphoned away by the better off.
Put this way, the rationale for microcredit is almost a Marxist one. The argument is that if you eliminate the exploitative middlemen and extend capital to the poor on fair terms, they, too, will be able to earn a dignified living.
There’s a reactionary side to this too, however. Microcredit is popular with market-driven neoliberals and up-by-the-bootstraps conservatives because it focuses entirely on individual initiative. Moreover, instead of acknowledging that unchecked capitalism has created vast inequalities, it proposes that these inequalities exist because capitalism has not gone far enough. It suggests that expanding the market is the best way to solve the market’s problems.
Whether the progressive side of microcredit or its conservative face will be exposed in any given instance has a lot to do with interest rates. If you loan the poor money with little expectation of profit, you’re probably running a legitimate anti-poverty program. On the other hand, if you turn microcredit into a business in which shareholders expect to maximize return, your interest rates will start to creep up. At that point, you might be a shade better than the black-market loan sharks, but you are still practicing usury.
Unfortunately, in recent years, the Good Samaritans in the microcredit movement have been increasingly pushed aside by the profit-hungry bankers, who see a fortune to be made on the billions of potential new customers at the “bottom of the pyramid,” as they call it.
The list of highlighted stories under the topic heading “microfinance” in the New York Times archive effectively tells the story of the movement’s evolution. In chronological order, it reads:
-“Tiny Loans Have Big Impact on Poor” (from 2004)
-“Peace Prize to Pioneer of Loans to Poor No Bank Would Touch” (from 2006)
-“Banks Making Big Profits From Tiny Loans” (from 2010)
The second story in this list is about Muhammad Yunus, the “Godfather of Microcredit,” whom I profiled in the Fall 2009 issue of Dissent. Yunus perfectly embodies the contradictory impulses of the microcredit movement, but overall I consider him one of the good guys. These days, he’s been watching his original vision being hijacked by commercial bankers, and he’s not thrilled about it. Regarding the most recent I.P.O., Yunus was particularly nonplussed to see that the capitalization of SKS Microfinance coincided with the shuttering of an allied nonprofit, the Seattle-based Unitus, which was more explicitly charitable in its intent than its Indian counterpart. The Times quotes Yunus making the point that, with this change in the micro-lending landscape, “You are now encouraging the profit-maximizing part, and the nonprofits are closing down.”
Those who advocate the commercialization of microcredit argue that only the free market can provide large enough pools of capital to reach all of the poor. In a certain respect, they are right. It’s always easier to find people eager to make money off of the desperate and the destitute than it is to find people who will help them without expectation of financial return. The question is whether this fact is really something worth celebrating.
A postscript: There is actually one other story in the list of highlighted articles in the Times archive on this subject. It’s a piece from late July entitled, “With Squeeze on Credit, Microlending Blossoms.” The story is about how, in the bad economy, micro-lending is becoming increasingly popular even within the United States. Those of you who missed out on the recent I.P.O. should take note: you might still have a chance to cash in on an investment even closer to home.