Doing Poorly by Doing Good

KIEL – The new catchphrase in business seems to be “do well by doing good.”  In other words, undertaking socially responsible activities boosts profits. For example, Pepsi bolsters its bottom line by shifting to more nutritious, healthier food.

Yet, in much of the world, doing well still implies that you must be up to no good, especially if you are dealing with the poor. A recent case in point is the imbroglio in Andhra Pradesh in India, where the administration has moved to curb microfinance.

Microfinance has become the darling of development enthusiasts. After all, who could be against an activity that produces uplifting stories like the cell phone ladies of Bangladesh, who lift themselves out of poverty by obtaining loans to buy phones and then selling minutes to others in the village.

The benefits of microfinance are in danger of being over-hyped – there are not that many successful micro-businesses that the poor can start solely with the help of loans, because skills and management abilities are also often necessary. Nevertheless, the benefits are real: while there is little evidence that microfinance sets substantial numbers of poor people on the path to riches, it does help the poor save, smooth consumption, deal with emergencies, and expand existing businesses.