The Macro Side of Microfinance

“Microcredit has given rise to its own breed of loan sharks,” groused Muhammed Yunus, Nobel Prize winner and the father of microfinance. These comments came in January, 2011 after the revelation that about 20 farmers in the Indian state of Andhra Pradesh had committed suicide due to over indebtedness and ruthless loan collection methods. An investigation by Associated Press (AP), identified Swayam Krishi Sangam (SKS) Microfinance, once the biggest microfinance company in India, as one of the main causes of these suicides, including sordid details of how their loan collection officers had allegedly driven their clients to death. SKS has refuted these allegations, having been exonerated from 14 out of 15 alleged suicide cases.

The Philanthropic Fork in the Road

Apparently philanthropy can no longer be the epitome of altruism. Instead, it needs to yield a smart business decision, too. Philanthropy, and its many facets, was discussed recently in the Wall Street Journal’s “The Journal Report.”

In the philanthropy world, there are usually two decisions to make: which organizations (of thousands) should I donate to, and how much should I give? Well, a third question has been added to that decision-making process, one that might not be easy to ignore. The new, big question: do I invest in an organization that runs its operations like a business and expects returns on investments, or do I invest in one that is addressing a cause I find important and worthwhile? If you’re lucky, the organization fits both criteria. However, the recent financial crises have put a kink in that idea, promoting the need for safer investment and more calculated giving strategies.