Microfinance: To Profit or Not to Profit?

http://www.nytimes.com/2010/08/17/business/global/17micro.html?ref=india

Started in 1998 as a non-profit organization, SKS Microfinance closed 10.5 points up on its first day of trading stock to the public on September 27th. The first microfinance institution to sell stock in India, SKS has grown remarkably since transitioning to a for-profit company in 2003. The company is currently lending over $3 billion to over 7 million rural Indian women, and is only one of five microfinance institutions globally that offers publicly listed shares. In a chronically underbanked country (approximately only 40% of the population has a bank account), the concept of microlending has spread quickly. This recent success for a microfinance company could prompt scores of others to go public soon.

The debate arises: is it ethical for banking institutions catering to the poor to make large-scale (if any) profits by lending to them at high interest rates? SKS originated as a non-profit organization--by going public it has certainly garnered attention, but analysts fear that increased competition between microfinance companies could lead to higher default rates. Muhammad Yunus, founder of the Grameen Bank, has said that in a social business such as microfinance, if the company makes a profit, the owner should not take a profit. The bottom line then becomes the number of people helped, not dividends made. In contrast to SKS, Grameen is owned primarily by its borrowers- 90% of shares are owned by the poor they serve, and 10% by the government of Bangladesh.