Philanthropy vs Profit

Muhammad Yunus gave a good speech to the World Business Forum yesterday, and he came down hard on anybody who would make facile comparisons between subprime lending and microfinance. The difference, he said, is the profit motive. In fact, he used a much simpler word to describe subprime lending:

It’s extreme greed. You misled people into getting involved. It’s irresponsible capitalism.

The most interesting part of the event was when Yunus talked to Michael Matthew Bishop, who’s co-written an entire book called "Philanthrocapitalism" based on the idea that the profit motive is a really good thing when it comes to philanthropy. He kept on trying to get Yunus to agree to this thesis, and Yunus steadfastly resisted.

Breaking even, said Yunus, was a great idea. If you want to supply water or credit or any other vital service to the poor, then by all means do so in a businesslike manner and set up a company which breaks even or even makes a small profit for customer-shareholders. But the minute that you start getting equity capital from abroad, everything changes.

Grameen makes a profit, but it goes back to the shareholders: the poor people. It’s not an opportunity for me, a rich person, to take away money from the poor. That’s what the moneylenders do…

There’s plenty of money right there in Bangladesh, we don’t need money from anywhere else. The day you take money from anyone else, you have currency risk. If you want a genuine microfinance program, it should be locally based, with local currency…

The moment profit idea comes to your mind, you have to focus on the people who can give you that money: the rich people. I’m not looking for that money which is looking for profit.

The poster child for philanthrocapitalism, or for-profit philanthropy, is Pierre Omidyar, with his idea that it’s not at all inconsistent for someone to do good and to make money at the same time; has the same idea. But Yunus was quite clear in his view that if Omidyar is making a profit by lending small amounts of money to poor people, he’s a "loan shark". After all, he doesn’t need the money, and they do.

And Yunus says he’s having no difficulty raising money which doesn’t want to see any return — money which can be used to set up a "social business", set up so that all the revenues stay in the country and none are ever dividended back to the original funders.

Foundation money, to begin with. Corporate social responsibility money too. I get a very good response when I talk to people. Intel has set up a social business in Bangladesh, and two French companies. They don’t make money, but they are self-sustaining. Then, the sky’s the limit, and you can interest millions of people.

It’s certainly possible that the likes of Bishop and Omidyar are right that the profit motive can help; I think that Bill Gates’s Creative Capitalism project is structured along similar lines. But for them to be right, there needs to be a shortage of investment in the developing world, and it needs to be the case that there isn’t enough grant money to make up that shortage, but that if you add a profit motive, there will be more than enough money to go around.

So far, I don’t think that anybody has convincingly demonstrated that’s the case. It might be true, but for-profit philanthropies have very little in the way of a track record, and the track record they do have is not particularly good. Maybe that will change, in the future. But for the time being, I’d keep the idea of for-profit philanthropy in the "not proven" category.

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