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Fighting poverty and making a profit in India

26 Mar 2013

The University of Sydney Business School is studying the commercial and moral implications of projects in India which aim to turn poverty alleviation for the nation's poorest people into profit making ventures.

Microfinance projects which charge relatively high interest rates have in recent years targeted thousands of people at the bottom of India's socioeconomic ladder.

"For a very long time, poverty alleviation through microfinance has been the domain of not-for-profits, governments and huge multilateral organisations like the World Bank," says Dr Ranjit Voola, Business School Researcher and Co-Chair of the Discipline of Marketing. "Now may be the time for business to also get involved in return for a profit."

Not-for-profit organisations have traditionally provided credit to people, often women, who are too poor to qualify for traditional bank finance. These small amounts of money are usually invested in small scale by sustainable village level enterprises.

"Unfortunately, these microfinance projects sometimes fail because lending organisations lack the profit incentive to continue with them," said Dr Voola.

The profit making projects in India to be audited by Dr Voola and his team have loaned money to about a thousand women wanting to invest in small scale dairying, village level retail businesses, goats, food stalls and range of other ventures.

The goal is to ensure long term income, health and food security for the women and their families

"While these seem to be an admirable goal, we want to take a step back and look at whether this is the right criteria for success," Dr Voola said. "We want to know if the profit motive really does have a role in poverty alleviation or are these very poor people simply being exploited."

"At the end of the day, we may find that profitability holds the key to the grinding poverty that affects nearly half of the world's population," he concluded. "Perhaps it is possible to make a profit and go to heaven." The notion that businesses are important in combating chronic poverty is recognised by Tim Costello, CEO of World Vision.

"We will not succeed in eradicating chronic poverty unless business joins the fight," says Mr Costello. It has a critical role to play in lifting 2.6 billion people, or 40 per cent of the world's population, out of poverty."

Dr. Voola is the Director of The Poverty Alleviation and Profitability Research Group which has been formed within the Business School to manage various research projects aimed at understanding the challenges of profitable and poverty alleviation here in Australia and around the world. The Group includes academics with expertise in marketing, human resources, business information systems, accounting, international business, education and social policy.

The Group also includes internationally recognised experts in the field of poverty alleviation and business, Jaideep Prabhu, who is the Jawaharlal Nehru Professor of Indian Business & Enterprise at Cambridge University's Judge Business School and Mushfiq Mobark, Associate Professor of Economics, School of Management, Yale University.