By CSRwire Talkback Managing Editor Francesca Rheannon

In Shakespeare’s play, Polonius told Hamlet, “neither a borrower nor a lender be.” He was advising the young prince how to be fiscally responsible and prudent. But in today’s world, enterprise would come to a screeching halt if we followed Polonius’ advice — and millions of poor women would be denied the chance to lift themselves out of poverty.

That’s because the invention of microfinance has given them the resources to open microbusinesses that make all the difference between destitution and a chance to climb their way into a decent standard of living. It all started one day back in 1976, when Muhammad Yunus, an economist visiting desperately poor households in the village of Jobra in Bangla Desh, took a fistful of dollars out of his pocket and gave them to some local women. That was the birth of what would become the Grameen Bank, which now lends out some $100 million a month to poor women.

The borrowers of Grameen Bank are its lenders, too. The women who take out loans of a few dollars to buy the wherewithal for their tiny enterprises are also owners of the Bank itself. Whatever interest they pay as lenders returns to them in the form of revenue. True to its billing as “banking for poor people,” Grameen Bank is wedded to a profit model that enriches only the poor on both sides of the balance sheet.

But microfinance is becoming a subject of great interest to outside investors with deep pockets. They hope to profit off the huge market of poor entrepreneurs with drive, creativity and a fire in their bellies. Microfinance now brings access to financial services to over 150 million people worldwide and the new investors hope to grow that exponentially.

As microfinance goes mainstream, what’s the best model to expand its reach? Should its mission be solely a social one, as with Grameen Bank? Should its mission be solely to maximize profits? Or should it have a double bottom line, equally social mission and profit-seeking? And where are the boundaries to be drawn between the three?

That was the question posed by a fascinating special session at the 2010 meeting of the Clinton Global Initiative: “Profiting from the Poor? A Discussion on Microfinance IPOs.” Muhammad Yunus, who won the Nobel Prize for his creation of microlending, was there, along with Vikram Akula, Founder and Chairperson of SKS Microfinance Ltd. and Mary Ellen Iskenderian, President and CEO of Women’s World Banking. Akula argued the profit maximization model position in the debate, while Eskanderian took the middle position.

Muhammad Yunus set the terms of the debate, defining microfinance as “lending money to the poorest women for income generating activity, without collateral, so she can help herself out of poverty.” The others concurred, but both Eskanderian and Akula argued that getting wealthy investors involved in lending was more effective than the Grameen Bank’s model in expanding the scale of microcredit. He charged that Yunus’ model was not for profit and hence was less “inclusive.”

But Yunus challenged him, saying he was not opposed to profit. Grameen Bank was “swimming in an ocean of money,” with 80% of the people in Bangla Desh having access to microfinance. Instead of profit, Yunus said, ownership was the crucial question: microfinance banks could obtain banking licenses and their members could thereby be owners, as well as borrowers. “Instead of rushing to the capital markets, rush to the government to open a bank,” he said.

Akula countered that getting a banking license in India is “nearly impossible,” pointing out what worked in Bangla Desh might not work elsewhere. To me, this begged the question: what kinds of changes on the policy and legislative levels are needed to enable poor people to have collective ownership over lending resources? If giving poor people loans is, á la the Biblical parable, like teaching them to fish, then giving them control over financial resources would be giving them a rod and reel.

The difference ownership over the means of lending was starkly limned when a question on interest rates was posed to the panel. Akula had told the audience that interest charges could go up without losing customers, but that it wasn’t necessary to go the whole distance to what the market could bear: as the borrower “moves up through prosperity, she buys more products and gets higher loans.” Then he named what SKS charges: 27% interest — down from 37% at the start. The questioner asked why the for-profit model of microlending charges such high interest rates in poor countries — 27% (and, according to Akula, that was down from 37%) — while borrowers in rich countries pay interest rates in the single digits for most non-credit card loans.

The answers were illuminating: Vikram Akula argued it was general practice to charge 15% over costs and costs to generate loans are higher in poor countries. (Fifteen percent is a hefty profit rate — many companies do well with rates much lower than that.) Mary Ellen Iskanderian of Women’s World Banking said competition in microlending could drive down rates, giving microfinance in Bolivia as an example. But Muhammad Yunus gave what I thought was the clincher: in socially driven microlending, as at Grameen Bank, the borrowers pay lower rates (20% for business loans, 8% for housing loans and 5% for education loans) — and they get a return on the interest rates they pay, since they are owners, as well.

For my money, Yunis convinced me that microfinance doesn’t need profit-seeking wealthy investors to fulfill its mission of lifting poor women out of poverty on a massive scale. It needs government policies that allow poor people to own the banks they borrow from.

About Francesca Rheannon

Talkback’s Managing Editor is Francesca Rheannon. An award-winning journalist, Francesca is co-founder of Sea Change Media. She produces the Sea Change Radio’s series, Back to The Future, and co-produces the Interfaith Center of Corporate Responsibility’s podcast The Arc of Change. Francesca’s work has appeared at SocialFunds.com, The CRO, and E Magazine, and she is a contributing writer for CSRwire. Francesca hosts the nationally syndicated radio show, Writers Voice with Francesca Rheannon.