Should microfinance institutions be run for-profit or not-for-profit?

An interesting article in the New Yorker discusses if microcredit initiatives should be run for profit of as non-profit organisations. It portrays the different views of both Grameen founder Mohammed Yunus and eBay-founder Pierre Omidyar of Omidyar Network.

Yunus is convinced that the profit maximisation is inappropriate when dealing with the poor:

“I had a long debate with Pierre,” Yunus told the author, referring to Omidyar. “He says people should make money. I said, Let them make money—but why do you want to make money off the poor people? You make money somewhere else. Here, you come to help them. When they have enough flesh and blood in their bodies, go and suck them, no problem. But, until then, don’t do that. Whatever money you are taking away, keep it with them instead, so they can come out more quickly from poverty.”
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Yunus is now seen by Omidyar and many others as the archetypal founder, too wedded to his original vision. In recent years, younger and nimbler players have been taking microfinance—their preferred term—toward the idea of building a fully commercial, profit-making sector. This conflict, between pure do-gooders and profit-minded do-gooders, has come to define the current debate in the microfinance world.
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Omidyar and his colleagues say that the biggest obstacle to commercialization of the sector is philanthropic capital. They say that it distorts the market—not only by filling channels that might otherwise draw commercial investors but also by keeping unsustainable programs alive.

It will be interesting to see how the microfinance community will evolve in the coming years. One of the great questions when dealing with bottom-of-the-pyramid markets is if any profit margin is too much - you could always spend that money for poverty alleviaton instead of compensating investors - or if the greater scalability and sustainability of profit-driven organisations justify making money out of the very poor.

My hunch: There will be a place for both. Philanthropic giving alone will never achieve the necessary scale to fight all poverty-related problems (even with all the generous Bills, Melindas and Warrens around), and business alone will never reach everyone. But since the profit-driven approach is more disruptive - serving the BoP profitably is still new thinking - I expect to see more growth in Omidyar's approach.