Don't make fortune out of poor: Rajan to micro lenders

Asking micro-lenders to look at only a “reasonable profit” to sustain their business while serving borrowers at the bottom of pyramid, Reserve Bank of India Governor Raghuram Rajan has said one should not think of making a fortune while serving the poorest of the poor.

The comments come in sharp contrast to management guru late C K Prahalad’s views in his book The Fortune at the Bottom of the Pyramid.

This concept was originally appeared in an article by Prahalad and Stuart L Hart in business journal Strategy+Business in 2004. It was followed by a book with the same title that discussed new business models targeted at providing goods and services to the poorest.

Microsoft founder Bill Gates has described the book as something that offers an intriguing blueprint for how to fight poverty with profitability.

Rajan said during a recent microfinance event, “I think Prahalad did a disservice by saying there is a fortune at the bottom of the pyramid.”

“My sense is that you cannot, in good conscience, make a fortune at the bottom of the pyramid. Make reasonable profits, but if you start making a fortune, it does start raising societal anxiety about how the fortune is being made.”

Following the advice of Prahalad, many companies across the world and especially consumer goods, auto and telecom marketers in the country, have begun to tap the underserved markets and made a big market out of them, Rajan said.

He said a reasonable profit must, however, be there at the bottom of the pyramid as the business has to be self-sustaining. “If business is not self-sustaining, then entities will make a pretence of doing business but they are not really going to get engaged until there are profits,” Rajan said.