A Thanksgiving Discussion of the Best Microfinance Model

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December 03, 2010

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

On Nov. 25, Thanksgiving Day in the U.S., I joined Vikram Akula, the founder of SKS Microfinance (India’s largest microfinance institution), for an interview on “Talk of the Nation,” which airs nationally on National Public Radio. This 40-minute interview followed our 90-minute debate at the Asia Society a few weeks earlier. I must say, my heart goes out to Vikram, since for him both sessions took place after midnight his time (he participated remotely from India).

The host and especially the callers asked some direct questions about interest rates and private benefit for SKS’s management, including Vikram himself. In response, Vikram seemed evasive at times, prompting follow-up questions. At one point, I answered on his behalf, saying that his stock options were worth about $60 million based on publicly available documents and the share price at the time of the offering – facts that he did not challenge. I was not trying to embarrass him, but I thought the question deserved a direct answer. Several times I raised the issue of the ways that the IPO had likely provoked the regulatory backlash that is endangering the entire microfinance sector in India today. Vikram basically ignored the point. This echoed some of our earlier exchanges.

During the Asia Society debate, I said that I was disappointed that SKS (a) had not embraced an internationally accepted social performance tool such as the Progress out of Poverty Index™ (a point I returned to during the NPR interview), (b) had not undergone a social rating, and (c) had not commissioned a randomized control trial (RCT)-type study of its impact. My thesis was that taking these steps would represent a true embrace of being a double-bottom-line MFI, rather than one focused exclusively on maximizing profit. Vikram responded that there in fact had been an RCT study of SKS that indicated income growth of 45%. I indicated surprise about this study since I had not heard of it previously, and after the debate I emailed him asking that he send it. Weeks passed and I did not hear back.

In the aftermath of the NPR interview, Vikram and I exchanged emails congratulating each other despite the fact that we have some fundamental disagreements – disagreements that came out on the air. Having his attention, I followed up on the issue of the study and the following day a colleague of his sent a link to the report, which can be found here. In several respects, I was underwhelmed by it. Rather than being a study of SKS’s impact, it covered 25 MFIs and it is impossible to know whether or not SKS’s clients were among those who experienced income gains. Secondly, after consulting two experts on research methodology, it is clear that this was not an RCT study. Third, the 45% client income gains that Vikram cited twice during the debate were higher than those actually found in the study itself (though not by much, as the researchers stated that microfinance clients had average income gains of 37% beyond what the control group experienced).

I will be travelling to India in mid-December and I expect that I will be revisiting some of these issues in the discussions and presentations I engage in while there. Stay tuned!

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