The acceptability of profit
Over the past 15 years or so a vast variety of financial services have become available to millions of people in the developing world. The enormous spread of credit, loan and financial services however has been followed by an academic debate that questions whether it is possible, advisable and indeed ethical to alleviate poverty whilst at the same time make a profit.
The Danish based organisation MyC4 meanwhile is an example of a venture operating currently in Uganda, Ivory Coast and Kenya and with plans for sub Saharan Africa expansion, that aims to fulfil UN’s Millennium goals, by providing support to mainly women in small shop enterprises. This relatively new concept and developmental approach, provides a form of charity with profit, by earning some 13% on investment interest. The concept works by interested entrepreneurs informing about their businesses plans through a blog, what they plan to use monies for. The lender sets the amount themselves that typically is between 1000 and 15000 DKK. During its first year of operations, MyC4 directed nearly 10 million Danish kroner to approximately 1000 African businesses.
MyC4’s basic premise, is that by combining western business sense with a developmental agenda, the South can alleviate poverty, by gaining valuable access to western credit markets to finance entrepreneurial activities and boost local economies. The logic states that the North meanwhile, because it makes a profit from this funding, will attract more serious , then just supporting ’development aid’ or giving out ’cash help’ or charity.
The difference to Kiva and other, more traditional forms of development aid however, is that MyC4 doesn’t see any problems in making a profit out of poverty alleviation. Here, it stands in contrast to the principles of the micro credit founder, Yunus. The MyC4 idea is that mainly private persons with some extra savings in Denmark and Scandinavia can gain a much higher interest rate than banks offer, and at the same time feel good that they are helping a fledgling entrepreneur in a far off underdeveloped country.
The main difference between MyC4 and the financial service offered by Muhammad Yunus and the Grameen Bank, is not just that MyC4 operates over the internet, but importantly that there is the question of making a profit from the investment in the poor. MyC4 allows for, or at least creates a possibility, for both the investors and the receivers of the loan to make a profit. But the African borrowers can easily end up paying some 40% in interest and costs on the borrowed amount.
The Grameen Bank on the other hand, lends out on the basis of a much smaller interest, mainly on a group basis, whilst any profit is pumped back into the bank to the benefit of future borrowers. With this, Yunus is principally against the idea of making a profit from alleviating poverty. It is important to mention however, that the Grameen method was only possibly through the 1990’s, due to quite vast subsidiaries either donated to the bank by global funds or offered at very favourable rates, and the fact that credit, up until recently has been at a historically low interest rate.
On the negative side, it can be problematic that a company advertises itself as a socially responsibility operation, whilst at the same time earning handsomely off of the attempts by poor people, to make a hard earned living. Similar to the criticism in general of micro finance, there is also little documentation, that attests to the extent to which the loans actually create local development. Further, it is of course only those who have the capacity to access internet, who can gain from MyC4’s services. On the positive side however, MyC4 inevitably allows access to credit and much needed entrepreneurial funding to people who otherwise simply would not be able to finance their ventures.