In 2010 SKS Microfinance went public with great excitement from the financial markets and a hail of criticism from some in the industry. The criticism centered around the idea that profit is NOT a proxy for success and an aggressive focus on growth is bad for the poor. SKS disagreed. The following is from a Forbes article about a debate between Vikram Akula, founder of SKS Microfinance and Mohammed Yunus, founder of Grameen Bank, at the Clinton Global Initiative conference in 2010.
Akula: Yes you increase profits by pushing up loan sizes and raising interest rates. But SKS loan officers are not incentivized by loan size; we want him to give out the right loan amount. The logic is to create great shareholder value as she [the woman who takes the loan] moves up the ladder to take multiple loans for multiple products. SKS has reduced interest rates from 36% to 24% and in the same period ROE has gone up from 5 to 22%. You can bring these two elegantly together.
Yunus: Conventional business has its own logic; there’s no getting away from that. You get caught up by “others”–other shareholders and that’s the wrong direction. Micro credit should be about local money. When you get outside money, you get the risks, the volatility of it [too.] You could’ve lobbied with the government [to pass an act similar to the one in Bangladesh.] Microcredit is not about exciting people to make money off the poor. That’s what you’re doing. That’s the wrong message completely.
Since then, SKS and many other Indian MFI’s were embroiled in a microfinance crises in the Andra Pradesh province of India.
Fast forward to this week at the recent (Feb 25, 2012) Social Enterprise Conference: '“Professor Yunus was right” Akula said tonight, amidst a room of 500 attendees at the Conference. “Bringing private capital into social enterprise was much harder than I anticipated.”'
The lesson as I see it is that ethics and morality are important. Human benefit is not inherent in business but this does not mean that economies can or should be amoral. The failures of the casino-like aspects of our financial markets are teaching us that businesses should intend to benefit humanity, that providing value to all stakeholders is good business. From a practical perspective, ethics and morality reside in intent first, are embedded in operational infrastructure second and then are tested rigorously and iteratively over time. Success can only be defined as the presence of intent to do good made manifest through the customer’s experience. This is essentially the Social Performance Management framework.
The double bottom bottom line, the triple bottom line, these are useful marketing terms as they highlight that there is value beyond the traditional bottom line, profit. What I have avoided saying for much of my career and what I am saying now is, profit should never be a bottom line. The SKS experience and the current global economic crisis have taught us that it is time to evolve . For ALL business, social or otherwise, there is only one bottom line that matters and that is to add value to humanity. Social businesses should differ from other businesses only in degree and market segment. We -- social enterprise -- are a disruptive innovation. Businesses writ large as economies will only succeed to the extent that we are willing to reach beyond our for-profit progenitors to build something new, something better.
Written by Steve Wright, Director of the Social Performance Management Center at Grameen Foundation