For profit or for people

There has been much talk in recent times about the commercialisation of microfinance and what that means for loan recipients living in poverty. So where does Opportunity fit in? Squarely in the for-people sector.

Earlier this year, Indian microfinance institution SKS Microfinance made an initial public offering, bringing attention to the commercialisation of microfinance and the impact for-profit microfinance organisations have on the microfinance industry, and ultimately, the poor. The risk is that a focus on profits rather than client needs will sooner or later be to the detriment of people living in poverty. At Opportunity International Australia, we are a purely not-for-profit organisation, and our return, rather than financial, is social – seeing people set free from poverty.

Where profit is the primary motive, the poor may still benefit, but only as a by-product of the motive to make a profit. Some decisions will put profit first, at a cost to the poor. We observe that commercially focused microfinance organisations tend to operate in less marginal areas that are often flooded with supply, as opposed to reaching out to people in more isolated, underserved areas where the unmet need is greatest. Through our network of partners, Opportunity aims to reach out to those who have no, or very little, access to financial services. As a social investor, we focus on the most excluded groups and take many steps to ensure that our services are reaching the poor.

The distinction between socially run microfinance institutions and commercially funded microfinance institutions is that any surplus income in a commercially funded organisation will go to the funders, whereas in a socially funded organisation, such surplus can be used to further extend outreach, lower interest rates or provide additional support at free, or below market rates. Many of Opportunity’s Indian partners provide support such as training, free healthcare and subsidised financial services.

This is not to say that all commercially funded organisations are bad for the poor and all socially funded organisations good. Any microfinance organisation can be well or poorly run, provide good or bad service, or be managed in an ethical or unethical manner, regardless of their funding source or legal structure. The primary concern of the microfinance industry should be that affordable financial services are provided to poor clients in a responsible way.

Opportunity International Australia ensures good governance to protect our social mission. This includes initial due diligence on partner organisations and constant monitoring of microfinance partner performance and activities. We also have positions on the Boards of our partners. In a case where a partner organisation may move from socially driven outcomes to commercial outcomes, Opportunity would end its partnership with the organisation to ensure that we – and you, as a valued supporter – continue to help people out of poverty above all else.