The rift between microfinance institutions (MFIs) who’ve decisively turned to commercialisation and those who believe that MFIs must retain their altruistic spirit by remaining non-profit organizations has further widened during the last few weeks, when it was revealed that SKS Microfinance, India’s largest MFI, which serves about 5.5 million clients intends to raise $250 million in an initial public offering (IPO). This means that they will be offering shares in the MFI to be bought by the public for the first time, and they will therefore become accountable to their shareholders for delivering a return upon their investment – effectively meaning that they will be required to make a profit.
This development comes in the wake of the announcement by Compartamos – a Mexican microfinance bank founded in 1990 which is one of the few MFIs that have already made the leap and gone public – of its intentions to take microfinance institutions in other Latin American countries such as Colombia, Peru or Brazil. Such acquisitions would allow Compartamos to grow faster since for instance Brazil’s GDP is forecast to grow 5 % in 2010, while Mexico’s outlook stands below 3%.
This trend constitutes a major source of concern for the supporters of the original mission of microfinance. Their emblematic figure, Mohammed Yunus, Nobel Peace Prize and founder of Grameen Bank, shared his views on the issue in an interview with Microfinance Focus on the sidelines of the Regional Microcredit Summit earlier this month, and stated that many organisations were taking microfinance “as an opportunity to make money for themselves rather than worrying about what happens to the poor people so that goes into the same mentality as the loan sharks”. He lamented the fact that although the original founders had created microfinance in order to fight loan sharks, “in the process some of these organizations are becoming loan sharks themselves”, citing Compartamos as the ultimate example.
Supporters of commercialisation within the microfinance industry often claim that it is necessary in order to reach many of the billions of people without access to financial services. Because non-profit-making MFIs often rely on donated funds to support their operations, there are limits on how much outreach they can do.
However, there are some who question this view. Yunus’s comrade-in-arms and another historic figure, the founder of RESULTS and CEO of Microcredit Summit Sam Daley-Harris, also spoke up in an interview with Microfinance Focus published on Tuesday, raising concerns over the real intentions behind IPOs: “Did Grameen Bank raise money from the market? [Grameen is one of the largest MFIs in existence and in 2007 had over 7.41 million members] How much of the Compartamos IPOs went to fund the loan portfolio? Zero. How much of the SKS IPO will be going into the loan portfolio? It seems like it’s a lie.”
Mr Daley-Harris was keen to point out that he is not against MFIs raising funds from investors in principle, commenting: “If MFIs stick to the mission, they can engage with investors or other stakeholders in a right direction of poverty alleviation programme.” As an example he explained “There was a deal, 3 years ago, of $180 million with BRAC and Citibank – I don’t think BRAC’s mission changed, I think they just had the resources they needed to expand their mission.”
Commercialisation of microfinance is an undoubtedly controversial topic. Muhammad Yunus and Sam Daley-Harris are sounding warning notes against ‘mission-drift’, against letting the growth of an organisation erode its mission to tackle poverty. In his interview Sam Daley-Harris ended on a rather sad note: “if we go too far down that road there’ll be a day where you, and I and others will be ashamed that we’re in microfinance.”