Muhammad Yunus, the Nobel peace prize winner of 2006 and founder of Grameen Bank of Bangladesh, a global model for micro-lending to the poor, on Monday came down heavily on micro-finance companies going public through share issues. He said stock markets or public floats had no place for micro-finance companies, as it destroyed the very essence of micro-credit.

“Micro-credit was born with a mission of helping people; helping poor women particularly to overcome their problems with their own personal efforts and change their lives. There was no intention whatsoever in the entire history of micro- credit to make personal money out of this,” he told select media persons at the second edition of India First Responsibility Forum, hosted by Nishith Desai Associates.

The Grameen model, which spawned micro-finance companies in India and elsewhere, however, went into turmoil after SKS Microfinance founded by Vikram Akula, got its IPO listed.

The issue was highly successful, but the company got bad publicity for high interest it charged the poor and strong- arm tactics used to recover money.

“To look at poor people and benefit personally from the business you do with them has no place. The trend destroys the very essence of micro-credit. We say they don’t belong to micro- credit; they belong to a completely different class of programmes you have nothing to do with,” said the man widely regarded the father of micro-finance.

“Outside of Bangladesh some people were very excited about the possibility of making money out it. And some took leadership in going the IPO way and making big money. This has destroyed the whole idea of micro-credit.”

Following the SKS share issue in August 2010, Share Microfin and Spandana Sphoorty also were reportedly planning similar IPOs. However, after the RBI clampdown there has been talk of a three-way merger of the two companies and Asmitha Microfin.

Yunus said, “When you are going in for an IPO, what are you telling the investor? The message you are forced to give, even if you don’t want to, is that you make a lot of money by lending money to the poor. And that’s an absolutely wrong message. Poor people should not be presented as a kind of opportunity to others to make money off them. That was not the intention of micro-credit. Micro-credit was created to help the poor overcome their problems, not for somebody else to make money out of.”

(At least one micro-credit operator, Chandrasekhar Ghosh, chairman and managing director of Bandhan, does not agree. He told Financial Chronicle that IPOs were not always bad. It also brought good governance and transparency.”

(Ghosh said that to any organisation wanting to scale up and reach out to more people had to be a “for profit” organisation. “Unless it develops its own business model and creates its own capital base, it will not be able to sustain itself in the long run. One cannot scale up and sustain on the basis of grants and charity.”)

About the problems in India’s micro-credit sector, Yunus said, “What was happening was abuse of the idea in a direction which was completely contradictory to the mission of micro-credit. In Bangladesh many organisations give micro- credit but nobody has departed from the definition.”

Events in India offer important lessons. First, there is a need to make a distinction between micro-credit of the genuine type and those who do micro-credit only in name. The latter businesses are “not entitled to use the name micro-credit,” Yunus said.

“The word micro-credit always evokes respectability; you are helping people. But some people use that respectability without spelling out what they are doing. They made money for themselves. Had they spelt this out this upfront, probably they would not have received the kind of support they did. So that’s a big lesson,” he said.

“We suggested the same thing to India, but they did not do it,” he said, adding that India wanted regulation through RBI, Nabard and other agencies.

He said it would be a good idea to do two things in India. One, create a legislation to allow micro-finance organisations to convert themselves into micro-finance banks. “So shortage of fund cannot restrict them.

(With inputs from Ritwik Mukherjee from Kolkota)