Can Microfinance be Called a Commercial Success if it only Creates Social Value?
How can an industry, which owes its existence to the core goal of poverty alleviation, put business interests ahead of its social objective? And in doing so, what benchmark of success will the industry be measured against?
The Reserve Bank of India’s (RBI) deputy governor, Dr. K.C.Chakrabarty, stated recently that getting the poor to open a no-frills bank account does not by itself lead to financial inclusion.
Providing basic education and financial literacy should also be added to the mix so that the service actually translates into a benefit for the people the banks mean to serve, Chakrabarty said, urging banks to set up literacy centers and inculcate a saving habit among the poor.
The rationale is that these centers will allow banks to interact with their clients on a personal level, understand their needs, which would then enable the banks to design better products and attract more clients.
The business argument notwithstanding, it would seem that banks are being judged against a social benchmark and not a commercial one. But is this fair to a commercial entity such as a bank?
Is it really the job of banks to educate their clients? Should this not be the responsibility of the government, or perhaps an NGO, to ensure people get the necessary education so they’re qualified to operate a bank account and avail of its benefits? Especially because many microfinance institutions (MFIs) transform from an NGO model to a for-profit model, with the very purpose of raising more capital and scaling up their reach.
Microfinance has, over the years, proven to be an effective tool for financial inclusion, but the industry also struggles with the question of where to draw the line between serving the underlying social cause of poverty alleviation and looking out for its business interests.
Microfinance has captured the hearts and minds of people around the world. It appeals to our rags-to-riches vision of “everyman” bootstrapping his or her way out of poverty. It’s rather fortuitous that this formula for poverty alleviation also makes money and it’s this combination that has captivated investors everywhere.
But would people be as interested in the sector if it wasn’t bringing about social change? And to flip the question, if recent research reports are correct — that microfinance doesn’t have the impact or social value we’ve thought it does – then will it lose its commercial appeal or will investors continue to funnel capital into the space?
Author: Arjun Kashyap
Source: Microfinance Insights (https://www.microfinanceinsights.com/comments_tab.asp?id=106)
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