The Tuesday Podcast: What's Better For Helping The Poor — Greed Or Charity? : Planet Money Say you want to make loans to millions of very poor women in the developing world, to help them climb out of poverty. Is it OK to raise money from rich investors, who expect to make a profit?

The Tuesday Podcast: What's Better For Helping The Poor — Greed Or Charity?

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ANDREW SHERRILL: We estimate that female managers earned $0.81 on the dollar for every dollar earned by male managers, compared to $0.79 in 2000.


STARS: (Singing) This scar is a fleck on my porcelain skin. Tried to reach deep, but you couldn't get in. Now you're outside me, you see all the beauty. Repent all your sin. It's nothing but time...


Hello, and welcome to PLANET MONEY. I'm Adam Davidson.


And I'm Chana Joffe-Walt. Today is Tuesday, September 28, and that was director Andrew Sherrill of the GAO, talking about what seems to me like a fairly pathetic narrowing gender pay gap, that you heard at the top of the show. On the podcast today, we ask a fundamental economic question - can good come out of greed? And to look at that question, we have a Nobel Peace Prize winner, Muhammad Yunus.

First, our PLANET MONEY indicator from Jacob Goldstein.

JACOB GOLDSTEIN, BYLINE: Today's PLANET MONEY indicator is 0.6%. That's how much U.S. home prices rose between June and July of this year. That's from the Case-Shiller Index, which is probably the most important measure of home prices in this country.

DAVIDSON: Kind of like the Dow Jones of home prices.

GOLDSTEIN: If you will.

DAVIDSON: All right. So this morning, I saw this number. Housing prices went up 0.6%. And I swear, I had this big smile on my face because, you know, Jacob, you come on this podcast month after month, week after week, and say how horrible the housing market in the U.S. is. And here is perfect proof - 0.6% rise in house prices. The housing market is getting stronger. That means maybe the economy is getting stronger because people are buying houses. They're feeling confident. We're coming back, baby. There is no way you can turn this into your usual bad news.

GOLDSTEIN: It is really good news. It's really good news about what housing prices were doing this spring. It doesn't really tell us anything about what housing prices are doing right now. The housing numbers we got today are for July. That's already a few months back. And then, on top of that, Case-Shiller uses a rolling three-month average. So what that means is, the July numbers are actually an average of May, June and July. So here we are - it's the end of September, and we're seeing numbers influenced by what was going on all the way back in May. And on top of that, in the past few weeks, we've seen all these other housing indicators for July and August that suggest pretty clearly that there is this glut of unsold homes on the market, and those are likely to be putting downward pressure on house prices already.

JOFFE-WALT: So a very long way of saying those monthly gains in the Case-Shiller probably aren't going to continue.

GOLDSTEIN: Right. And in fact, housing prices could already have begun to fall. We just won't know it from Case-Shiller for a while yet.

JOFFE-WALT: Always trusty Goldstein style - you think it's good, but I'm actually going to tell you why it's not.

GOLDSTEIN: Makes me a little bit happy.

JOFFE-WALT: Thank you, Jacob.

DAVIDSON: Thanks, Jacob.

GOLDSTEIN: Thanks, guys.

DAVIDSON: So Chana, I feel like one of the most difficult ideas in capitalism and capitalist economics is the idea that you might be able to help poor people more through greed than through charity. You know, this is an idea Adam Smith wrote about in "The Wealth Of Nations" - that people seeking profit will, often entirely by accident, end up making the world a better place than people seeking to do good. You know, like profit-seeking supermarkets and bakeries end up feeding a lot more people a lot more efficiently than nonprofit food banks - that kind of thing.

JOFFE-WALT: Exactly. So what we're looking at today is, what about efforts to explicitly help the poor? When people try explicitly to help the poor, does that work as well? And today, we're looking at microfinance. So that's lending small amounts of money to very poor people so they can start businesses and try to do better for themselves.

DAVIDSON: Last week, I moderated a panel at the Clinton Global Initiative. That's this annual thing in New York where for three days all these world leaders and business leaders and nonprofit people from all over the world get together and talk about and plan how to make the world a better place. And the panel I moderated was so interesting. I found it really powerful, and I thought that our listeners would enjoy it as well. So we're going to bring you much of that debate today.

Muhammad Yunus was there. He won the Nobel Peace Prize because he is the father of microfinance, one of the biggest revolutions in helping poor people become less poor. And his view is, it is simple - greed will not help the poor. No rich investor should ever make a profit from a business that lends money to poor people. Profit seeking, he says, will always end up hurting the poor.

JOFFE-WALT: In the other corner on this panel is Vikram Akula, the CEO and founder of SKS Microfinance, which is exactly the kind of company Yunus hates. SKS is not only for profit - it's now publicly traded on the stock exchange - and it has lots of rich investors making profits by lending money to very poor people in India. And Akula, who's Indian American, says at first, he was like Yunus. He started working for a nonprofit microfinance NGO that lived off tiny grants instead of investor money, and it sucked.


VIKRAM AKULA: Women from more remote areas would often come and say, can you start in our village? And we'd always have to say, no, you know, it's grant run, so we don't have funds, and we'd have to turn them away and they'd walk away disappointed. Now, on one particular day, a very poor woman - emaciated, torn sari, no chappals - she had clearly walked from quite a distance to ask me the same question. And again, I said, we don't have funds. We can't come into your village. But unlike the other women who simply walked away disappointed, she looked me in the eye and said something that I'll never forget. She said, am I not poor, too? Do I not deserve a chance to get my family out of poverty?

Now, for me, this was a jarring question because here I was thinking I'm doing something to help eradicate poverty, but this woman's question basically put me in my place, basically said, look, what are you doing if you're doing this only in a handful of villages and not doing it in the next set of villages? It's as if you're sending one child to school and holding the other one back. And that's when - I was so shook up by that question, I actually left my NGO, and I came up with the idea of using a highly commercial model so that you could access capital markets and go back to that woman or any poor woman anywhere in the world and say, yes, you, too, can have an opportunity.

JOFFE-WALT: Vikram says that SKS, by offering decent profits to investors, has grown insanely fast in a very short amount of time. It's reached millions of poor people in India who never would've had access to microloans. And he says the more money his investors make, the better his company does, the lower the interest rates he charges to customers.

DAVIDSON: Yunus says he doesn't even want to hear about this business logic because it's just wrong to make money that way. And he knows, even if it's helping them now, it's going to end up hurting the poor.


MUHAMMAD YUNUS: So what we are opposed to, when you say profit or commercialization, it's money of the poor going out to somebody else. And you may say, well, what's wrong with taking a small amount of profit? Then I would say, is it small? Who defines that is small? How do you - do you have any rule that will keep it restricted to this percentage? You're not. It's an open thing. So anybody who makes profit can do that. So today, you may say, well, we are making only a small profit. But tomorrow, because of the system that you have, you like to maximize your profit.

You - it's a wrong direction. That's all I'm saying. We are not opposed to making profit - only who makes the profit out of the poor people and how much. That is the issue. If somebody said, oh, we are a restricted profit area, we take only 1% profit or 2% profit, I said, go right ahead. No problem. But the moment you say profit, the sky's the limit.

DAVIDSON: OK. And Vikram, I think, when we look at your personal biography, this is someone who devoted his career and his training to helping poor people. If you were trying to become a big, fancy bank CEO, you made a terrible series of career choices. But how do we trust that, 10 years from now, 40 years from now, SKS will continue to have serving the poor as central to its mission? The phrase in the literature is mission drift. And how is it not inevitable that the pull for profits will, you know, will outlast you and will eventually shift away from caring whether women are the main recipients or positive uses are made of the loans?

AKULA: We see at SKS Microfinance no conflict between the social mission that is our actual mission of helping to eradicate poverty and the commercial approach. Now, let me explain why this makes sense. In a typical financial services company, the idea is you push up loan sizes, for example, because that increases your profits. You raise interest rates to as high as you can because that increases your profits. At SKS Microfinance, to give you an example, our loan officers are not incentivized on loan size. Whether our loan officer gives a $40 loan to a woman - and we work 100% exclusively with women - or a $400 loan to a woman, he gets compensated in exactly the same way. Now, we do that because we want him to give the right loan amount for the right individual and not to push out something that may increase profits, but actually may not be good for her. Likewise, when it comes to interest, we could easily increase our interest rates to a much higher amount and probably not lose a single customer and extract from them because in many cases, we're in a monopoly situation. Yet we don't do so. We don't push out large loan sizes, and we don't charge the - what the market can bear in terms of interest. And we do that because it's socially, in terms of our mission, the right thing to do.

Having said that, let me give you the business logic. The business logic is, you create greater shareholder value not by extracting from someone when she takes a $40 loan, but rather by as she moves up the economic ladder and moves to a $400 loan, moves to taking three, four different insurance products, five, six different credit products from you That's when you create greater shareholder value. So the business logic actually lands you in exactly the same place that the social logic does.

YUNUS: If the Grameen or microcredit program is not owned by the borrowers, my next suggestion is, why didn't you make it - if it's owned by somebody else outside the borrowers - make it as a social business? And social business means we do it to make this loan available to you so that you can help yourself. We have no intention of making a penny out of your loan. So it's very clear upfront. We know that.

So the moment you do the other conventional business - conventional business has its own logic. No matter what Vikram says today, that logic will get him over. He cannot escape that. Today, he's very nice, very frank. He's telling this is his mission.


YUNUS: He is a good person. There's no problem with that. But he will be caught up by other interest into it because others are shareholders now. They will - give us the return. Where's my return coming up? So under that pressure, he will be gradually moving in. So all I am saying, it's wrong direction, and you'll end up in the wrong target.

DAVIDSON: Now, we should note that Yunus and Grameen Bank - you know, he's the guy who's against the kind of for-profit, investor-driven model - Yunus is in a very special situation. He and Grameen Bank don't have to look for investors to give them capital because they operate as a real bank, as a microbank. They go into a new area in Bangladesh, they open a bank and they take deposits from the poor villagers in that community, and they use that money to make loans to other poor people in that community. And the bank as a whole is owned by the villagers, so if there is any profit, it goes back to the villagers.

JOFFE-WALT: As opposed to investors from the outside.

DAVIDSON: As opposed to outside rich people investors.

JOFFE-WALT: Right. But most microfinance institutions around the world either can't or choose not to operate as banks, and a lot of times because many countries' banking laws make it very difficult to open a bank focused on poor customers. So instead, microfinance companies take charitable grants from foundations or individuals, or they go to investors and use that money to lend to poor people.

DAVIDSON: Yunus wants all those microfinance companies all over the world - the non-profits and the for-profits - to just become regular old-fashioned banks. That way, poor people can have savings accounts and not just loans. No money has to go out to investors as profits.

But the third panelist on this panel, Mary Ellen Iskenderian with Women's World Banking, says it is not so easy. In most countries, if a microfinance company wants to become a bank, they would have to lobby the government for new banking laws because it's basically illegal for them to become a microbank. And also, it's really hard to be a small bank. You need all these complicated computer systems to keep track of borrowers and depositors, and that's really, really expensive.


MARY ELLEN ISKENDERIAN: We're working with four of our network members in Colombia, the Dominican Republic, Kenya and Pakistan right now, and they're each at varying stages of the transition from NGO to regulated institution. And, you know, the one in Colombia, McKinsey comes in and does a study and tells them, you can't afford to raise deposits from your clientele until year five. You have to start going to the middle class and upper class for deposits. So we're working very hard to make that possible for them. But, you know, I don't think we should sort of gild the lily here. It is difficult to convince microfinance institutions to make that shift, to start taking deposits because it's very expensive.

DAVIDSON: Now, Vikram, why didn't you just become a bank?

AKULA: Well, the reality is that getting a banking license in India is nearly impossible. I think what Professor Yunus has achieved in Bangladesh is quite remarkable, but it is a slightly unique situation. It's a special act of parliament that created a bank that allowed for deposit-taking from borrowers. And it's a remarkable thing. But the reality is, in most developing countries, the central bank simply does not have that structure - certainly not in India. And if we were to lobby for that as we try and do, this is something that is sort of waiting for Godot. It'll take a bit of time before that actually does happen.

One of the challenges that the rest of the microfinance institutions face around the world is access to capital. And because we went to a commercial model, we were able to overcome that challenge in a way that otherwise wouldn't be possible. The fact is that no profit and no dividend would not have enabled us to raise $350 million of equity and disburse $3 billion of loans.

DAVIDSON: Yunus, I want to ask you - if all I care about is there's a poor woman in Port au Prince or Nairobi or Hyderabad who I know, if she got a $200 loan, her life could be changed. Here's what I think I'm hearing - is Vikram saying, I can get some money quickly. I can get it to her. I'll make a few bucks, but she'll do what - she'll make a disproportionately larger share of her own income. Mary Ellen's saying, I have a whole host of ways that can - we can do it fast, but the more for-profit it is, the better. And what - I may be mistaken, but what I hear you saying is, slow down, convince the government to dramatically change the laws. Don't go to those investor - go to those investors and say, invest in us, but you won't make any return. We need to convince you that that's a valid way to use your capital. In other words, it might feel, what you're saying, more morally pure, but it also feels a very, very long way away in most countries. Is that fair?

YUNUS: Well, we have gone through that process. The bank didn't come on one day. We could have done a conventional bank ourselves. We'd assisted. We said, we don't want to. You can - you know, we put pressure. So you have to bring your patience into it and passionately pursue that. Suddenly, you - government didn't create my Grameen Bank, microcredit bank. They didn't even understand what this bank is all about. But we had to push, push. We drafted the law and so on. And finally, we got it, got it done.

So if you don't even try, this will never happen. You said, OK, we have the easy solution. You go to the international market or a money market. They bring it, and so this is a solution for the time being looks good. But ultimately, it's not the good solution. Good solution is the one that you become a bank because microcredit is all about banking, not borrowing in the additional market and lending people - to the poor people. That's not banking. Banking is about intermediation. You are moving away from that very concept of microcredit.

DAVIDSON: You know, Chana, I spent a lot of time talking to these guys preparing for the panel and after the panel and on the panel, and I got to say, it is so hard to figure out where to come down on all this. You know, Yunus is suggesting just be patient. Lobby the government, create a new banking system, create really good banking computer systems, and then create all these tiny microbanks all over the world.

JOFFE-WALT: And Vikram is basically saying in response, Yunus' operation worked in Bangladesh, but it won't work anywhere else. Microfinance without money from investors is just too small and grows too slowly, so let's promote lots of for-profit, investor-driven microfinance institutions.

DAVIDSON: And Mary Ellen was probably where I would say the bulk of the policy experts I talked to are, which is somewhere in the middle. I mean, she says, first of all, there are estimates that more than 3 billion poor people in the world would benefit from access to microfinance. And right now, after 30 years of microfinance, there's only about 150 million people in the world who have access to it. So if you do want to ramp things up to reach most of the poor people in the world, then there really is no choice. Microfinance needs access to the massive amounts of capital available from investors. But investors, of course, don't give you their money unless you give them some sort of profit. But, she says, these banks need to be structured and the laws need to be structured in a way that prevents them from just becoming loan shark operations that just siphon money from the poor and give it to the rich.


JOFFE-WALT: Which brings us back to our question - can greed be used for good? - which is something I know many people have opinions about. We'd love to hear yours.

DAVIDSON: In fact, we set up a discussion page on the internet. We're working with our friends at the Center for Global Development. David Roodman is a microfinance expert there, and he has this great discussion page specifically for us to discuss this particular debate. So we linked to it on our blog, and we'd love you to check it out at

JOFFE-WALT: It's part of a book that Roodman is writing about microfinance. It's a crowdsourced book. You can read the whole book for free and make comments, or you can just enter the profit debate. Again, it's at

DAVIDSON: And if you want to hear this whole conversation with Yunus and Vikram and Mary Ellen, we posted the whole thing, including video, on our blog. I'm Adam Davidson.

JOFFE-WALT: And I'm Chana Joffe-Walt. Thanks for listening.


STARS: (Singing) There's one thing I want to say, so I'll be brave. You were what I wanted. I gave what I gave. I'm not sorry I met you. I'm not sorry it's over. I'm not sorry there's nothing to save.

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