MicroFinance - Should you Profit from it?

The huge sucess of the IPO of a microfinance company called SKS in India has triggered a wide spread debate around whether it is good to make a profit out of the poor. The argument goes that since almost all of microfinance users are poor, doesnt it make it easier to give them loans at lower rate, if there was no pressure to make a profit.

This again goes back to the thought behind one of my previous posts Micro or P2P Lending – Investment or Charity. 

My Take

Charity has been around for a long time. It are hundreds of thousands of NGOs, Charities and other organizations that depend on public/private/corporate donations to help people in needs. The problem is that you are dependent on people giving you something for nothing and this is always a dicey game. In times of recession like now, people become more inwards focussed and so the source of income for a lot og charities just dry up. I read some where that a lot of charities/trusts have actually closed due to the double whammy of drieing up of donations and losses to their capital due to the stock market fall in 2009.

People see investments differently from charity. So if they see microlending as an investment rather than charity, there is better chance that inflow of funds do not dry up as easily when the going gets tough. Also universally, MF institutions charge the end borrower 30% or more due to the high risk of these loans and so the question remains why should the person providing the source of those funds not benefit from the same.

Both investors and MF institutions need to start looking at this as a high risk, asset type, which also has the by product of helping the society. This I think is the only way this asset type will grow via funds from individual investors and not depend on big banks or institutions alone.

Comments

[Inheritance Advice]

Thanks for the post, I fail to see a reason not to invest in the poor, as the industry of poverty alleviation is the biggest industry in the world.