Opinion: For-Profit Approach to Offer the Poor Small Loans Gets Unfair Criticism

Nonprofit leaders have criticized a successful Mexican for-profit bank that makes small loans to poor entrepreneurs because “the international charity brigade is at risk of becoming obsolete,” argues an editorial writer in The Wall Street Journal.

Compartamos Banco makes loans to very poor women and others who have struggled to obtain financial help. With an average loan size of $450, the bank serves 900,000 borrowers.

Compartamos began its life as a nonprofit group, but realized after 10 years that by forming a for-profit arm it could dig into sources of capital besides government and charity money. But critics like Richard Rosenberg, an adviser to the Consultative Group to Assist the Poor, argue that the for-profit approach may undermine the bank’s potential for helping poor people out of poverty.

The Journal suspects that the reason for this criticism is that successful for-profit ventures crowd out nonprofit organizations.

“Perhaps this explains why people who make their living giving away other people’s money are badmouthing Compartamos for the vulgar practice of earning ‘too much’ profit,” the editorial writer says.