Micro-finance has proven to be an effective strategy for addressing poverty in developing nations. Early success achieving the dual goals of profit and social impact has attracted additional attention and investment, increasing amount of funds available for micro-entrepreneurs. All of this success builds on itself creating a virtuous cycle:
early successes attract new investments → new investments lead to greater success
But as micro-finance investments grow and as micro-enterprise organizations grow in scale, it becomes more and more difficult to ensure that all the people involved (new investors, loan managers, operational staff) share the same humanitarian and altruistic values as the early pioneers in the field.
The positive feedback created by the success of this creative strategy attracts individuals who are willing to exploit the social aspects of the business for the sake of profits. Inevitably greed, exploitation, and scale enter and end up cheapening these efforts to do good.
Recently, harassment and bullying microfinance of borrowers by lenders in Andhra Pradesh in India has gotten so out of hand that the region has seen a rise in suicides. According to the Hindustan Times, the state government is planning on introducing new legislation to address the issue.
R. Subramanyam the principal secretary for rural development of the Andhra government told the Hindustan Times, “The government cannot be a mute spectator (to these atrocities). We are moving fast to bring in legislation, a draft of which is ready, to reign in these institutions.”
India’s Money Lender’s (regulation) Act (introduced in April of this year) governs traditional lending institutions but does not cover non-banking micro-finance institutions (MFIs). While the new legislation will be limited to Andhra, since the region has approximately 40 percent of all MFIs, it is likely that similar laws will be put in place throughout the rest of the country. While such legislation is necessary to prevent the exploitation of the country’s poor entrepreneurs, these changes will create additional challenges for US-based non-profits, missions agencies, and business as mission companies operating in the country.
As “doing good” continues to become further integrated into our social and business lives, doing actual good will continue to get harder. It is important that individuals and organizations that are serious about finding innovative ways to do good and serve others think strategically about the best ways to overcome these new challenges.
