USA TODAY:’Fistful of Rice’ argues for making a profit while helping poor
December 9, 2010
Is making a profit from the poor a form of exploitation? It’s a frequently raised question in the world of microfinance, where financial services such as loans are provided to those who have not traditionally had access to banks.
Vikram Akula, the founder of India’s SKS Microfinance, argues that not only is it ethical for microfinance institutions (MFIs) such as his to earn high profits, it’s more ethical than practicing non-profit microfinance.
How he reached that controversial conclusion makes up the early parts of A Fistful of Rice: My Unexpected Quest to End Poverty Through Profitability (Harvard Business Press, $26.95). Akula’s book details how the big-thinking social entrepreneur applied the practices of companies such as McDonald’s and Google to fuel SKS’s explosive growth.
Born in India but raised in the USA, Akula knew from the age of 12 that he wanted to return to his birthplace to help people. He writes of heartbreaking encounters that highlighted the disparity between his comfortable life as a surgeon’s son in upstate New York and the hunger and desperation he saw during visits to India.
Another pivotal moment came after graduation from Tufts University. While working for a non-profit in a remote Indian village, Akula had to turn away a woman from another village because the non-profit lacked resources to expand an agricultural lending program to her area. Her words — “Am I not poor, too? Do I not deserve a chance to get my family out of poverty?” — made Akula resolve to find a way to make microfinance available to anyone.
After cobbling together funds from family and friends with a matching grant, Akula started SKS in 1997 to provide small loans to India’s rural poor as a tool to help them find their own way out of poverty. Though he began the company as a non- profit, Akula says that his goal was always to turn SKS into a for-profit entity. The flaw of non-profit microfinance, he writes, is the limited pool of capital available from donors, social investors or governments: Not everyone who wants a loan can get one.
Akula felt the only way to raise more capital and help as many people as possible would be to run SKS as a highly commercial, for-profit entity to attract a “virtually unlimited pool” of private investors — everybody wants a return on their investments. With more funds, SKS could grow faster and reach more poor villagers.
It’s a perfect circle that benefits everyone, Akula writes. Venture-capitalist firms apparently agree: In 2006, Sequoia Capital lead an $11.5 million round of financing for SKS, while another round in 2008 raised $75 million. Akula’s dogged pursuit of his goal has yielded SKS more than a million members and 2,000 branches in India, and makes for a colorful story, as well.
In Fistful, Akula details how Michelle Obama helped him shape a grant application in the mid-1990s, how crowbar-carrying thugs locked him inside SKS’ first branch, and how he explained “goat economics” to Bill Gates. With such reach into India’s underdeveloped, rural markets, Akula says SKS has opened up a new world of possible revenue streams, as well as opportunities for their members in the form of deals on goods and services, increased political power and health and education initiatives.
Some people, Akula writes, will never feel comfortable discussing poor people and profit in the same sentence, no matter how much sense it makes.
“The notion that it’s somehow unethical to enter into profitable business working with the poor is insulting to the poor,” he says in the book. “They are not children who need our protection.
“Instead, they are working men and women who thrive under a system that lets them take their economic lives into their own hands. Treating them as anything less is unjust,” he concludes.
Archer is a freelance writer based in Seattle
November 9, 2010
The August IPO of Indian microfinance giant SKS attracted $354 million from investors — and bitter criticism from Nobel laureate Muhammad Yunus, who told the Associated Press that the offering was “pushing microfinance in a loan-sharking direction.”So it’s not surprising that Vikram Akula’s engaging account of founding SKS is a vigorous defense of what he calls “my unexpected quest to end poverty through profitability.” Turning a not-for-profit making small loans to village women into a commercial venture was, he says, the only way to raise enough capital to make a difference in India, where 75% of the population live on less than $2 a day and “poverty is a part of the landscape, as natural and unchanging as the vast Deccan plains and the flow of the Ganges River.” – DBM