Resources, Social Entrepreneurship

How to enable credit to the poor?

Karmayog CSR Dialogue Series 2010

We would like to kick-off the first of the “Karmayog CSR Dialogue Series“, that is a continuing set of of discussions on Corporate Social Responsibility in India.

The discussions will be based on the learnings and results from the Karmayog CSR Study and Ratings of the 500 largest Indian companies, that has been undertaken since 2007. (See www.karmayog. org/csr2009  for more details)

Our objective is to both broaden and deepen the understanding and implementation of CSR in India, by including more people from different areas of work and experience in the dialogue on CSR. So far, Corporate Social Responsibility is discussed and debated largely by corporates, industry associations and some departments of government that have a direct connect. But because what corporates do (through their products and processes) affects all citizens, it is important that all types of stakeholders from citizens to NGOs, media to academia, and corporates and government, together interact and engage on Corporate Social Responsibility.

Solutions to the issues and problems that confront society today need the contribution and involvement of all stakeholders, especially corporates, that form a large, influential and resource-rich group, but also the contributions of all other stakeholders. Karmayog, through the CSR Dialogue Series and through the networking platform that it provides, aims to bring together inputs, contributions and suggestions from all, enabling these to be used in finding and implementing solutions.

We welcome suggestions from you for topics to be covered in the “Karmayog CSR Dialogue Series”.

Karmayog CSR Dialogue Series 2010 – 1

How to enable credit to the poor?

Mohammed Yunus, the pioneer in microfinance and Nobel Peace Prize Winner 2006, says that “Microcredit should be about helping the poor to get out of poverty by protecting them from the moneylenders, not creating new ones. A true microcredit organization must keep its interest rate as close to the cost-of-funds as possible. My own experience has convinced me that microcredit interest rates can be comfortably under the cost of funds plus ten percent, or plus fifteen percent at the most.” (See http://www.grameen- for details)

Several Indian micro-finance companies are shortly seeking listing on the stock exchange, and once listed, will be seeking and working towards huge and increasing profits for their investors. This means that they will be lending money to the poor at higher and higher interest rates, and justifying the same as there is currently no other way of reaching credit to the poor. This method of maximizing profit without any other social objective is a way of cashing in on poverty, and is contrary to the objective with which micro-finance insititutions were started, which was to provide credit to marginalised sections of society at the lowest possible rate of interest, with the objective of bringing them out of poverty, and not with the objective of earning profits for the lender.

Some questions:
– Should companies with no social objective be permitted to lend money to the poor?
– Should only government organisations and non-profits be permitted to lend to the poor?
– Should there be a limit set to the profits that can be made from micro-finance activites?
– Should the rate of interest be fixed by government, as is done for banks?
The Government of India has framed the Draft Document on Regulation and Development of Microfinance Sector. Please send your suggestions and ideas on ‘how to reach credit to the poor?’ . All responses received will be displayed on Karmayog as well as forwarded to the Ministry of Finance and NABARD.
www.karmayog. org — creating collective conversations

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.