Making a profit while helping the poor

During a recent visit to the U.S. from India, Vikram Akula walked into a downtown restaurant to talk to a group of well-heeled Seattle philanthropists about how they could help end poverty.
As one of the new mavericks bringing banking to the poor, Akula didn't mention Mother Teresa, the World Bank or the U.N. His guiding lights are Starbucks, Coke and McDonald's.

"My single goal is to eradicate poverty," he said. "The best way to do that is to apply a business model." SKS Microfinance, which Akula started in 1988, connects opposite ends of the global economy: poor women in India looking for loans to expand their tiny businesses with wealthy investors in the U.S.

The traditional system of loans to the poor by aid groups, known as "microfinance," relies mostly on charitable donations. SKS is helping transform that field by plugging into the engines of commercial capital. Along the way, SKS has picked up a nickname: "the Starbucks of microfinance."

SKS' growth reflects an explosion of interest in providing financial services to the world's poor among socially minded entrepreneurs and major funders such as the Bill & Melinda Gates Foundation. As banks and venture capitalists take an interest in microfinance, they add valuable resources to "scale up," or expand credit to millions more who could benefit.

The borrowers, mostly women who use the money to buy fish nets, goats or water buffaloes for their livelihoods, pay back SKS with 25 percent interest. SKS then pays about 20 percent to the original investors, considered a healthy return for venture-capital funds.

It isn't such a bad deal for the impoverished borrowers, either: The only loans usually available to the poor in India are from local moneylenders who charge interest rates of up to 120 percent.
So far, SKS says it has a 99 percent on-time repayment rate.

What keeps Brookfield going is the thought that a year spent raising money will help 600,000 people. Many use their first loan to buy a water buffalo for about $175. They'll make $1.50 a day from the milk, and use the profit to pay back the loan.

"At the end of the year they own a buffalo, and we get our money back," Brookfield said. "There's an entrenched idea that you're either doing charity or you're making money and there's nothing in between," he said. "I'm trying to walk the middle ground."

[The Seattle Times]