Microfinance

A tale of Two Worlds

By Tensing Rodrigues

“If you want to commercialise, please choose a different name … Real microfinanciers are not commercially minded. Grameen Bank and all my enterprises are not commercial entities but social businesses. … The ultimate objective of MFIs is to ensure financial inclusion and not making profit. So long as they work towards this objective, they are microfinance companies and when they start looking at profit they become loan-sharks or commercial entities. … He (Akula) was a nice person when he launched an NGO after visiting many of my social businesses in Bangladesh. … But what happened to him now, I don’t understand.”

Coming from Muhammad Yunus, the Bangladeshi Nobel laureate who revolutionised the microcredit sector in his country, the statement needs to be taken seriously. Not that it is surprising, given his stand otherwise; but it is unusually strong for a man of his temperament. That gives me a feeling once again, that microfinance has come of age now – the time for discernment has arrived.

There are basically two dimensions along which to categorise MFIs : Ownership and Revenue Model, as seen in the matrix below. That gives us four prototypes of MFIs : owned by beneficiaries, run on commercial revenue (Prototype A); owned by non-beneficiaries, run on commercial revenue (Prototype B);  owned by beneficiaries, run on charity (Prototype C); owned by non-beneficiaries, run on charity (Prototype D).

microfinance structure

To evaluate Yunus’s statement in its true perspective, we need to place the MFIs he refers to in this matrix. He refers to true MFIs or “real microfinanciers” ( as exemplified by “Grameen Bank and all my enterprises”) on one hand and “commercial entities” (as exemplified by Akula’s SKS). Now, where do these two fit in the matrix ?

Fitting SKS is easy. It conforms to prototype B. But where does Grameen Bank fit in the matrix ? The Notes to the Financial Statements for the year ended December 31, 2009 state as follows : “Grameen Bank was established as a body corporate under the Grameen Bank Ordinance 1983. … Members (borrowers) hold 96.57 percent of Grameen Bank shares. The remaining 3.43 percent are held by the Government of Bangladesh.” This, along with the perusal of the financial statements and information provided on the bank’s website (“Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992.”), would suggest that it conforms to prototype A.

Now the difference between prototype A and prototype B is just this : in A the beneficiaries own the MFI, in B the non-beneficiaries own the MFI.  But it is not this that Yunus seems to driving at in the statement given at the start. Where does the sore point lie then ?

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