Mohammed Yunus and Michael Chu Debate Commercialization
by Richard Rosenberg
October 14th, 2008

During the World Microfinance Forum in Geneva, the debaters argued about whether commercialization (let's define it as the entry of investors whose primary motive is financial rather than social) is good for microfinance.

The World Microfinance Forum in Geneva just put on a conference, and I might say, a quite successful one: over 300 investors and others paid their money to attend, and the presentations were well received. I was asked to moderate a debate between Prof. Yunus and Michael Chu. Michael, for those who don't know him, was a big-wig investment banker who then spent a few years on microfinance as President of ACCION. He's now teaching at Harvard Business School, and has stayed close to our field since he stepped down from running ACCION. The debaters argued about whether commercialization (let's define it as the entry of investors whose primary motive is financial rather than social) is good for microfinance. Yunus thinks that it's immoral to make money off the poor, and that the only kinds of investors needed in microfinance are ones who are willing to accept very limited profits for the sake of keeping as much money as possible in the pockets of the borrowers. Michael thinks that we can't meet the worldwide demand for poor people's financial services unless we can draw in private, profit-oriented capital, and that eventual competition can be counted on to bring interest rates and profits down to consumer-friendly levels in most markets.

It will surprise no one to hear that they didn't work their way to an agreement after an hour and a half. But the audience response was amazingly enthusiastic. I suspect part of what the audience liked (certainly the biggest thing that I liked) was listening to two industry heavyweights talking over these contested issues face to face, and respectfully. I confess that I've been disappointed for years that we conduct so many discussions of these hot issues by lobbing rhetorical grenades over the wall at each other. Even when consensus isn't reached, it's so much more satisfying, not to mention productive, when people are in a room talking to each other, and laying out issues instead of attacking each other's motives.

I had one more reflection after the event. As I listened to and thought over the issues, it became clear to me that a core question in this argument is a factual one: is there enough government and socially-oriented capital to meet eventual worldwide demand for microfinance, or is there not? Neither debater had much to offer by way of evidence to support their opposing assertions about this. Michael did present a back-of-the-envelope dollar demand guesstimate. But Malika Anand and I wrote a paper a few months ago looking at demand estimates, and I'd think that the assumptions behind Michael's, like the assumptions behind all the others I've seen, are probably way too optimistic, at least when compared with the empirical data points that we have so far. Anyway, even if we knew what the demand would be, that gets us toward an answer only if we also have some kind of fix on how much subsidized and soft money is floating around out there. Neither debater had anything to offer on that one. I don't either. As I write this, it occurs to me that some of my CGAP colleagues in our Paris office have invested tons of work in gathering data on donor and investor flows. Maybe I'll give them a call next week to see what light they can shed.