Feature
June 1, 2009Microfinance Debated: Mission to Serve the Ultra Poor?
It is estimated that there is a $300 billion gap globally between what current financial institutions offer and what low-income people need. This is the space that microfinance institutions (MFIs) around the world seek to fill.
At the 2009 microfinance conference-sponsored by the Harris School of Public Policy Studies and the Booth School of Business-heated debate centered on how to fill that $300 billion gap when clients are poor, and many institutions are nonprofit. In fact, speakers debated more about which model of microfinance is most effective than how the field could unite to best serve those who fall within the "capital gap."
Vikram Akula, chairperson and founder of SKS Microfinance in India, was the morning keynote speaker and inspired much of the day's discussion. One of the fastest growing MFIs worldwide, SKS India is trying to fill that gap quickly. It serves over 3.9 million clients in 18 states across India and is growing at a rate of 150 percent per year, three to four times faster than any other MFI. But even that is not enough to meet demand in India let alone elsewhere where organizations are growing more slowly. Akula said, "Unless MFIs can scale up very rapidly, we'll never be able to reach the need."
Akula differentiated his institution from the Grameen Bank model, the world's first microfinance institution, and whose founder, Muhammad Yunus, received a Nobel Peace Prize in 1996. SKS Microfinance uses a profit model unlike Grameen's model of social enterprise. "We are not like Grameen," Akula said. "We use a model like Coke: standardization of product and mass distribution."
Although they charge low interest rates, SKS expects to receive high profits. "Microfinance fails to serve the ultra-poor," said Akula; the class is admittedly not among the bank's clientele.
As the day wore on, though, speakers discussed other models of development finance. For some, "reaching the base of the pyramid"-the world's ultra-poor-is exactly their focus. For example, both Global Alliance for Africa and Jatropha Pepinye in Haiti are leading projects with for-profit models that incorporate training and building clients' skills.
Ultimately the question of whom MFIs serve takes secondary importance to a bigger question: are developmental finance institutions successful in alleviating poverty?
Although the answer to that question remains to be seen, afternoon keynote speaker Michael Chu was optimistic. Chu is a senior lecturer in the initiative on social enterprise of the general management group of the Harvard Business School. He said, "We live in a golden era in the fight against poverty. I don't think the world has spent so much time, talent, and treasures in the fight against poverty since the end of the Second World War. Every five years the world spends $1 trillion on this cause."
Those at the conference shared a hope that with all of these efforts in alleviating poverty, microfinance will prove to be an impactful model.
By Elizabeth Vivirito
Photos by Kelvin Chan, Chicago Booth
Contact Information
Communications Office
Phone: 773-702-7681
