From non-profit to for-profit - the poverty of microfinance

SOYMB like some activists and economists have long criticised microcredit. ( see here )

Vikas Bajaj, the Mumbai-based New York Times columnist, co-authored an article last year lambasting the microcredit enterprise's (MCE) transition from "a promising path out of poverty for millions" into a joyride for "foundations, venture capitalists and the World Bank who have used poor countries as a petri dish for for-profit 'social enterprises' that seek to make money while filling a social need." It is now a widely accepted notion, according to Bajaj, that microfinance in pursuit of profit – where local and foreign private equity investors seek huge returns on their initial investments – in fact push women, who constitute the enterprise's primary "market", further into debt and disempowerment.

David Korten, president of the People-Centered Development Forum, wrote extensively about the "turn to Wall Street" in Yes! magazine early this year, stating that, "As microlending programs became… focused on repayment rates and growing the size of their loan portfolios, they looked for new sources of capital to expand their reach. Many turned to foreign commercial equity investors, but since private equity conflicts with the nonprofit model… many nonprofit microcredit programs changed their status to for-profit enterprises and converted their philanthropic nonprofit assets into private for-profit assets."

Mohmmed Yunus himself noted the consequences of these changes early on when he said, "To ensure that the small loans would be profitable, banks… raised interest rates and engaged in aggressive marketing and loan collection – the kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared."

Looking at the numbers, it is easy to see how microfinance for profit is so attractive to venture capitalists. Both Microfinance Focus and the New York Times reported that by mid 2010, shareholders of Indian microfinance giant SKS generated over 350 million dollars on the stock market and witnessed an annual revenue increase of 100 percent in five years. The downside, of course, is that women are getting "trapped in a spiral of debt" according to officials and economists in the global south. In January this year, Bajaj reported that in order to sustain its returns, the for-profit model often enticed women to borrow more than they could afford, sometimes amounting to debts of over 2,000 dollars for a 200-dollar loan.

Indian environmentalist-philosopher Vandana Shiva has said for years that microfinance is only a solution in a particular context. "But credit, loans and money circulation cannot solve the problems of alienation," she stressed. "Privatisation of water leading to a high cost of water could be financed by flows of credit, but the solution to access is really about the basic right to water. Rights cannot be substituted by credit," Shiva added. "They need to be recognised as the collective rights to the common wealth of this planet..."

Since 1904 the Socialist Party has advocated for nothing less than a world-wide cooperative commonwealth of humanity which will allow a free development of human potential in a way that is impossible under capitalism. ,