After doing the readings I wanted to write a post about Grameen Bank's replication efforts in the U.S. I was curious about the type of changes they made to their lending model and business structure (they're actually set up as a 501c3 nonprofit in the U.S.) and how much of their success would conceivably be tied to these changes versus their stature in the world of micro finance. However, while I was doing research I came across this exchange between Muhammad Yunus of Grameen and Vikram Akula of SKS Microfinance in India and I decided to change course.
In the chapter "Creating Successful Business Models," John Elkington and Pamela Hartigan classified both Grameen and SKS as "model 3 social businesses." Though they never use that exact term, Yunus' and Akula's back-and-forth is an impassioned debate over the finer points of what it means to be a "model 3 social business." Their exchange took place this past September at the Clinton Global Initiative Annual Meeting.
(I'll attempt to provide a brief summary below, but the article/transcript is well worth the read. And it's only 801 words, so there's really no excuse not to read it. Here's the link again.)
Grameen is owned by its borrowers. Their profits are mostly used to expand the bank's services and anything remaining is given back to the borrowers as dividends. In contrast, SKS recently had an IPO and counts several large-scale investors among its ranks. They operate much closer to a Western business model. Through the course of the discussion Yunus and Akula defend the contrasting approaches of their respective organizations and which is more appropriate to serve their countries' poor.
In perhaps their most heated exchange, Yunus says, "Conventional business has its own logic; there's no getting away from that. You get caught up by 'others'--other shareholders and that's the wrong direction. Micro credit should be about local money. When you get outside money, you get the risks, the volatility of it [too]...Microcredit is not about exciting people to make money off the poor. That's what you're doing. That's the wrong message completely." Akula defends SKS' approach by saying, "A woman [taking the loan] is not concerned with who is making a profit but if she's getting her loan. Yours is maybe the more morally pure way but it's a long way away from helping all the people who need it...We need more than one approach with 3 billion people to save."
(The whole discussion is really worth a read. Here's the link one more time.)
So, if SKS is indeed "exciting people to make money off the poor" can it really be considered a social business, "model 3" or otherwise? Is SKS' approach simply in response to issues of scaling and banking laws in India? Are Yunus' allegations off-base and SKS just has a different approach to address the same problem (i.e. "Compete with us to save the world.")? And where does the balance between profit and social mission lie?
Thanks.
-Kyle
As C. K. Prahalad says in his book 'The Fortune at the Bottom of the Pyramid', in order to come up with a new, sustainable solution to alleviating poverty, deep-set assumptions are going to have to be challanged. In my opinion, the SKS model simply challenges Dr. Yunus' assumption that poverty alleviation and social objectives are distinct from profit-making. This is not surprising as this has been his life work but if that assumption is correct then why hasn't the Grameen Bank model made bigger in-roads in alleviating poverty globally - according to the World Bank Development Indicators, the same number of people were below the $2 poverty line in 2005 as were in 1981, when the Grameen Banka roughly began. I say good luck to Dr. Akula - any attempt to alleviate poverty that appears to be having success is valid and should not be written off. Time will tell.
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