What's the Real Deal on For-Profit Microfinance?

    Copies of a book authored by Muhammad Yunus, founder of microfinance institution Grameen Bank.Yunus argues that the commercialization of the microfinance sector is robbing the poor of the financial assistance they need and indicates a “mission drift” among institutions lending to the poor. Photo by: The Amerincan Library Association / CC BY-NC-SA The Amerincan Library AssociationCC BY-NC-SA

    Muhammad Yunus’ criticisms against the commercialization of microfinance appear to be sweeping generalizations based on ideologies instead of realities, according to the authors of the book “Philanthrocapitalism.”

    In a recent opinion piece on The New York Times, Yunus argues that the commercialization of the microfinance sector is robbing the poor of the financial assistance they need and indicates a “mission drift” among institutions lending to the poor.

    “The [microfinance] community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor,” the Grameen Bank founder writes.

    He says renewed international support and leadership as well as a stricter government regulation of microcredit institutions, including the imposition of caps on interest rates and the creation of a regulating body, could help “steer microcredit back on course.”

    Matthew Bishop, U.S. business editor and New York bureau chief of the Economist, and his co-author, Michael Green, say they agree with Yunus on his argument that mistakes are being made within the microfinance community and his call for proper regulation of microfinance.

    “It is that rather than making a justified warning against mission drift by for-profit microfinance institutions, he is making sweeping generalizations that seem to be ideological rather than grounded in reality,” the two write in the “Values” blog. “The danger is that his public attacks on microfinance models that are not the same as his own will play into the hands of vested interests who want to resist changes that benefit the poor.”

    The two argue that for-profit microcredit is not necessarily a bad thing, particularly when it is the best means for a microfinance institution to generate capital. 

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      Ivy Mungcal

      As former senior staff writer, Ivy Mungcal contributed to several Devex publications. Her focus is on breaking news, and in particular on global aid reform and trends in the United States, Europe, the Caribbean, and the Americas. Before joining Devex in 2009, Ivy produced specialized content for U.S. and U.K.-based business websites.