For the second year in a row, a Nobel Peace Prize Laureate supported Full Circle Fund by addressing our community at our annual Forum. In honor of the new Global Economic Opportunity Circle Launch, 2006 Nobel Peace Prize Winner, Dr. Muhammad Yunus spoke at a special reception of Full Circle Fund Forum guests. Dr. Yunus is widely regarded as the father of microfinance and continues to challenge conventional thinking and identify new ways to unleash the entrepreneurialism of the world’s poor.

Dr. Yunus spoke passionately to the guests about the importance of investing both time and money into social enterprises in developing regions. His talk can be seen by clicking here.

Dr. Yunus spoke passionately to the guests about the importance of investing in both time and money into social enterprises in developing regions.

“Philanthropy – the giving [money] away part is good; I’m not denying that. But if you can somehow manage to bring it to the social business level, what happens? Its power becomes multiplied several times. Because in philanthropy, you give the money, it goes, achieves its objective, but money never comes back. But if you can take that objective, build a social business around it, money recycles. It continues, it grows, and you learn and create an institution out of it, and it is replicable.”

After congratulating Full Circle Fund on its new Global Economic Opportunity Circle, he highlighted the positive impact individuals can have when using their time, talent and resources to solve the world’s most pressing problems.

“Funding is important, but at the same time when you personally can get involved with the business itself, in using your talent, your creativity, your connectivity to that business…and then you feel good that you have helped something which changes people’s lives in the world.”

By John Willman, Business Editor

Published: December 23 2008 23:32 | Last updated: December 23 2008 23:32

The Treasury is looking at a scheme to persuade Britain’s wealthy to donate an extra £5bn a year to help relieve world poverty, at no cost to the exchequer.

Although the richest 20 per cent give most to good causes in absolute terms, they donate on average 0.8 per cent of their income to charity, compared with the 3 per cent donated by the poorest fifth.

The scheme was devised by Nobel Prize-winning economist Sir James Mirrlees and drawn up with Renu Mehta, founder of the Fortune Forum networking organisation for the super-rich.

Dubbed the MM (Mehta/Mirrlees) proposal, the scheme advocates a 50 per cent tax relief on donations towards the UN’s millennium development goals, which would effectively match pound for pound what wealthy donors give.

The cost of the tax relief would be met from the government’s overseas aid budget, effectively doubling the amount diverted to encourage donations and helping the UK meet its goal of contributing 0.7 per cent of national income to development.

Sir James, who is chairing a review of the UK tax system for the Institute for Fiscal Studies, believes the current incentives for charitable giving, with a maximum of 40 per cent tax relief through gift aid, are poorly understood.

A 50 per cent tax relief would prove much more attractive, as it did with a scheme to raise money for universities in Hong Kong where the Nobel laureate is now based. If adopted in all G8 nations, it could raise more than $78bn, he believes.

Ms Mehta said her aim was to raise the level of charitable giving in the UK, currently 0.9 per cent of gross domestic product, to US levels of 1.9 per cent.

Donors would be able to specify to which development sector their money was allocated – clean water or disease prevention, for example. Money raised would be kept separate from the government’s aid programme to reassure donors it was spent efficiently and not wasted on excessive administration.

The scheme is under consideration by the Treasury at a time when the financial crisis is expected to lead to a sharp drop in charitable legacies on which many good causes rely.

“The MM proposal sets out to boost voluntary donations for these issues whilst simultaneously freeing general government revenues to concentrate on addressing issues of high domestic priority,” Sir James said.

Copyright The Financial Times Limited 2008

Giving to charity is much like investing
Posted: 11 Nov 2008 08:40 AM CST
A great article today in the New York Times about charitable giving. It talks about George Soros $50 million gift to the Millennium Project. Some quotes are taken from Soros about his gift to the charity.

The article also provides some guidance to would be givers on how to choose a charity. Explaining that some research is needed much like you would research an investment. It reminded us that we should have one of these charity oversight groups on our “get Involved Links” so we will add Charity Navigator later today.

Our snippet from the Times article includes Soros explanation on why he thought the Millennium villages was a worthy charity.
Mr. Soros’s gift was for Millennium Villages, a project of Millennium Promise affecting a half-million people in Africa, where more than 80 villages are operating or are planned in 10 countries: Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda. Professor Sachs described the project as community-based development using a three-pronged approach — agriculture, health and education.

Asked why he had chosen Millennium Promise, Mr. Soros, a graduate of the London School of Economics, said, “Watching the Millennium efforts, I thought it was worth taking a risk.”

“My calculation in supporting this is as follows: $500 will move a family out of poverty,” he said. “As a pilot program, it will make a big difference in the pilot villages.” That is the first level of risk, he said, and it alone would justify the expenditure.

The second level of risk is leverage, or the hope that the villages will succeed in setting an example. “It can be a model for bringing about systemic change,” Mr. Soros said, and “if it can be scaled up, it will make a very big difference.”

Often pilot programs do not succeed on a larger scale, he added, but in this case he is hopeful. The government of Mali is very supportive, he said, so it could be expanded there.

Asked how he would advise prospective donors, Mr. Soros said they should “do as much research as possible. Looking at the expense issue is relevant but not decisive.” The humanitarian factor is vital. “There is no substitute for firsthand engagement,” he said.

Smart solution for corporate philanthropists

By Deborah Brewster

Published: September 30 2008 19:30 | Last updated: September 30 2008 19:30

When Ted Turner pledged 11 years ago to give $1bn to the United Nations to cover the unpaid dues of the US, there was an unexpected hitch.

Under UN rules, the US could not abrogate its debt, and there was no mechanism for individuals to make donations to the UN. So Mr Turner, who had founded the cable television television channel CNN and sold it to Time Warner, created a foundation to make the donation. The idea was that the funds would be channelled into UN causes – poverty, maternal and child health, and protecting world heritage.

Mr Turner’s solution also led to an unexpected benefit for UN causes. The foundation, whose board includes such heavyweights as Kofi Annan and microfinance pioneer Muhammad Yunus, has turned out to be an unexpected draw for corporate donations to the UN. These are now running at around $700m (£385m, €484m), slightly ahead of Mr Turner’s $50m a year donation (his $1bn is being donated over 15 years). Buoyed by the inflows, the UN Foundation plans to raise another $1bn by 2017.

The rapid rise in corporate donations has come at a time when the UN has been struggling with a decline in its image, especially in the US. Yet it is easy to see the attraction for donors. In the UN, companies find a menu of philanthropic options, from Unicef to the World Health Organisation, under a relatively respectable charitable umbrella, and also guidance as to how to channel their funds.

Corporate philanthropy is expected to be badly hit from the financial crisis, because financial firms were among the biggest donors. However, there has been no sign of cutbacks as yet, apart from the specific firms – Lehman and Bear Stearns – that have failed.

Amir Dossal, the manager of the UN Office for Partnerships, says: “We have become a gateway for partnerships with the private sector…we are a broker for causes.”

The UN Foundation, which has been run since its inception by Tim Wirth, a former Colorado senator, receives the money while the UNOP works out how to spend it within the UN. It attempts to tailor the projects to the goals and activities of the corporate giver.

Mr Dossal himself has evolved into something of a point person for corporate philanthropy. His office handled about 500 inquiries last year from assorted foundations, corporations and institutions.

The UNOP was formed on the cusp of a rapid shift in corporate philanthropy. Instead of writing a cheque to selected charities, companies are increasingly trying to choose projects that they can be actively involved with and which encompass parts of their business. This approach, sometimes called “strategic philanthropy”, is gathering momentum alongside the idea of “capitalist philanthropy”, which holds that charitable giving should be seen as an investment.

The UNOP idea of forming partnerships with corporate givers lends itself to both. “Our earliest programme was HIV Aids, in Africa, with Coca-Cola,” says Mr Dossal.

Coca-Cola, the biggest employer in Africa, had thousands of delivery trucks criss-crossing the continent daily. The company was directly affected by the scourge of Aids, with workers dying at a great rate. Through a plan devised with the UNOP, the Coca-Cola trucks now carry condoms and Aids literature into every African village.

Through UNOP, Vodafone has helped develop an emergency response system for aid workers in Africa with its mobile phone technology, and Dow Chemical is working on a pilot programme to establish global guidelines for water treatment.

Many companies have their own ideas of where they want to donate, but Mr Dossal says: “I encourage them to do two things: focus on Africa, and focus on safe drinking water. Don’t think of it as charity, but think of it as investing.”

The increased role of the UN is recognised by other philanthropic organisations. Charles Moore, the director of the Committee for Encouraging Corporate Philanthropy, an invitation-only group whose members include chief executives of most of the world’s biggest companies, says: “The UN is getting much smarter at breaking down its goals and showing companies what they can do to help achieve them.”

The UN tries to argue the case for investing in the developing world as a way of establishing goodwill in those countries over the long term, in order to reap the benefits when they develop their economies.

Mr Dossal, who has spent more than 20 years at the UN, is not above making suggestions of his own to would-be donors. “Wal-Mart, which has a huge foundation and gives away $250m a year, came to us and said they were interested in doing some projects on women and the environment. But we said, what we’d like you to do is open a Wal-Mart in Africa. If you do that, you create employment and improve the quality of life for people right away rather than giving charity.”

The US retailer told the FT that it was always looking for new markets, “but it is a long process. However, we thank him for his suggestion.”

The UN is also turning its attention to persuading countries outside the US to develop a greater tradition of private donations. “In the US, there is $300bn-plus a year in charitable giving. People in the US say: ‘I have made money, now I need to make a difference with the money’. That doesn’t exist as much in other parts of the world,” says Mr Dossal.

Mr Moore says his group is considering pairing with the UN to develop an international philanthropy day, in which big corporations would help solve the UN’s Millennium goals, eight stated aims that are supposed to be achieved by a deadline.

Mr Moore remarks: “Companies do better when they align their philanthropy with their business model…and when they become part of a solution.”

Copyright The Financial Times Limited 2008

The reason I am posting this request now is that Stacey has entered their first video in YouTube competition for funds to equip the school further. They need lots of people to vote for them. Their jury are YOU, so please VOTE at YouTube if you agree with me that this is a worthwhile example of a social business that not only bridges continents but provides unique opportunities for all involved (whether people going to help in Tanzania or mama Lucy or her school kids) to meet, enjoy working together, learn about each other and have fun.

We need more such examples. Let us know if you come across any others.

Philanthropy manifesto designed to promote giving

By Sarah Finley, Third Sector Online, 15 July 2008

Community Foundation Network plans to draw up ‘philanthropy manifesto’, which it hopes will influence the main political parties.

Baroness Usha Prashar, the new president of the Community Foundation Network, yesterday announced the establishment of a working party to draw up the manifesto.

Matthew Bowcock, philanthropist and chair of CFN, will chair the group, which will comprise half a dozen influential people, including donors, grant-makers and academics.

The group will consider how the Government can encourage voluntary sector organisations and philanthropists to promote giving locally. It will then put its ideas out to consultation before drawing up a manifesto.

Prashar said: We need to empower local people to fund and deliver change at a local level, to help release the full power and potential of voluntary activity. Governments take too few risks when it comes to philanthropy and need to be less controlling.

A spokesman for CFN said: We hope we have enough influence for the manifesto to be seen by the right people. We want the manifesto to shape the policy thinking of all the main political parties.

Perhaps this is one more avenue for bringing the social business definitions as in this blog at About into this framework.

A Capitalist Jolt for Charity

By STEVE LOHR
Published: February 24, 2008

IN the summer of 2005, Miles Gilburne and Nina Zolt had long talks over dinner in their Washington home about what to do next. For more than six years, Mr. Gilburne, a former AOL executive, and his wife, Ms. Zolt, a former lawyer, had supported a philanthropy that used books and online tools to enhance skills of inner-city students.

The program, which Ms. Zolt directed, had been moderately successful. Students liked writing online about books and sharing their ideas with Internet pen pals, including adult mentors. Many teachers embraced the project, called In2Books, and participating students outscored their peers in standardized tests.

Still, the costly venture grew only gradually, classroom by classroom. The couple had put $10 million into the charity, a “meaningful portion” of the family wealth, Mr. Gilburne says. “It was enough money that I did lie awake at night thinking about the size of the checks,” he recalls.

As philanthropy, the couple’s efforts, however worthwhile, weren’t sustainable. But their vision of using the Internet for communication and collaboration to improve education has taken on a new life — as a business.

Today, the once-struggling venture has morphed into a primarily for-profit enterprise. And the striking transformation of In2Books is emblematic of a larger trend: charities are changing their spots and making use of some of capitalism’s virtues.

The process is being pushed forward by a new breed of social entrepreneurs who are administering increasing doses of bottom-line thinking to traditional philanthropy in order to make charity more effective.

To make a fresh start, Mr. Gilburne attracted like-minded angel investors, and at the end of 2006 the group bought a for-profit company, ePals Inc., to expand on the original mission and support the foundation. The ePals company has grown and now offers classroom e-mail, blogs, online literacy tools and Web-based collaborative projects on subjects like global warming and habitats.

EPals says 125,000 classrooms around the world are using at least some of its free tools, reaching 13 million students, and its ambition is to become a global “learning social network.”

National Geographic is to announce this week that it is investing in ePals, based in Herndon, Va., and will supply educational content for the ePals learning projects. Worldwide distribution should get a lift from Intel, which will soon ship its Classmate laptops, designed for students in developing nations, with the ePals icon on the screens. And ePals is also offered for use on the low-cost computers from One Laptop Per Child, a nonprofit group trying to bring the content and experience of the Internet to children in developing countries worldwide.

Various versions of efforts like this are appearing across the philanthropic landscape as business-minded donors, epitomized by Bill and Melinda Gates and their foundation, have treated their charitable contributions more like venture capital investments. They seek programs that can be catalysts for broad changes in fields like health, education and the environment, they measure performance and results, and they encourage nonprofits to become more self-sustaining.

Yet to have the greatest possible impact, a further step down the capitalist road is sometimes needed, analysts and others in the field say. Muhammad Yunus, the microfinance pioneer and Nobel laureate, calls this next step the “social business.” The goal, according to Mr. Yunus, is to create ventures that more than pay for themselves — in other words, turn a profit.

Social business entrepreneurs, he writes, can help “make the market work for social goals as efficiently as it does for personal goals.”

PHILANTHROPIES are discovering that for-profit status and financing can be a useful tool. For example, many microfinance lenders, modeled after Mr. Yunus’s project, the Grameen Bank in Bangladesh, aim to make the crossover to profit-making institutions.

Mozilla, the nonprofit foundation that developed the open-source Web browser Firefox, decided that it needed a for-profit unit to accelerate its business activities and gain market share against Microsoft’s Internet Explorer. The business unit is freer to spend on marketing, charge for software service and technical support, and pay to compete for engineering talent in Silicon Valley.

Likewise, Google.org, the search giant’s corporate foundation, chose for-profit status to be able to easily make investments in for-profit companies including alternative energy start-ups like eSolar and Makani Power.

“Capitalism is a very mutable, flexible beast, and what we’re seeing is social entrepreneurs addressing some of these social challenges in profoundly different ways than traditional nonprofit organizations,” said John Elkington, co-author with Pamela Hartigan of “The Power of Unreasonable People: How Social Entrepreneurs Create Markets that Change the World,” a new book that was handed out last month to attendees at the World Economic Forum in Davos, Switzerland.

Even among its hybrid peers, ePals has evolved into an unusual combination of a business and a social venture. When Mr. Gilburne and Ms. Zolt established the for-profit arm in 2006, they attracted like-minded investors, acquired ePals Inc. and began hiring talented staff. They gave the original education foundation a 15 percent stake in the ePals company, and its endowment will grow if the business prospers. The nonprofit division is focusing on educational research and bringing technology into classrooms.

But the company is where the action is. “This needs to be a large business to have a really significant social impact,” Mr. Gilburne said. “We couldn’t do what we’re doing as a nonprofit.”

Very few nonprofits get big. Only 144 of the more than 200,000 nonprofits established since 1970 had grown to $50 million or more in revenue by 2003, according to a study published last year by the Bridgespan Group, a nonprofit consulting firm that advises philanthropies.

With the rising influence of social entrepreneurs in philanthropy, many nonprofits have sought to generate revenue to become more self-sustaining. But it is still rare for a nonprofit to cross the chasm to become mainly a profit-seeking business, as in the ePals experience.

“It’s tricky, but it makes sense when the business is highly aligned with the mission of the social entrepreneurs,” said Jeffrey L. Bradach, a managing partner of Bridgespan.

As a for-profit business, ePals can more easily attract financing for growth. But outside investors raise the risk that the original social ideals will be lost in a single-minded pursuit of profit. Mr. Gilburne has tried to avoid that pitfall by gathering a stable of angel investors among his longtime business friends, who bring not only money but also a shared belief in the promise of the Internet to improve education.

The group includes Stephen M. Case, the former chief executive of AOL; Mitchell Kapor, the founder of the early spreadsheet maker Lotus Development and an open-source software supporter; and Yossi Vardi, an Israeli Internet entrepreneur.

“None of our investors are interested just in making another financial score,” Mr. Gilburne said.

AFTER pooling their money, the angel investors bought the ePals company in December 2006 for an undisclosed price. Mr. Gilburne had watched ePals for years, starting when he was at AOL in the 1990s, and he saw it as the foundation on which to build an educational social network.

EPals started as a Web-based electronic pen-pal service in 1996, offering point-and-click tools that teachers could use to control how students use e-mail. A teacher in California, for example, set the controls so her class could communicate online only with a class in China that was engaged in a joint cultural exchange project.

Since the angel investors came aboard in 2006, the ePals work force has more than doubled, to 43, and the company continues to hire. It has improved the e-mail and blogging software and added links to outside resources, like National Geographic’s digital library, to its Web-based software for online projects.

“We were a small company with little capital,” said Tim DiScipio, a founder of the original ePals, who is the chief marketing officer of the revamped company under its new ownership. “But now we have the resources to really pursue the vision of social learning over the Internet.”

Until last fall, ePals charged $3 to $5 a year for each student e-mail account, but the service is now free. The effect of free distribution was immediate and dramatic. The number of registered users has nearly doubled, to 13 million, since September.

The growth and ambition of ePals have impressed National Geographic enough to make an investment and forge a partnership.

“We’re looking at them as a global network to distribute National Geographic content,” explained Edward M. Prince, the chief operating officer of the venture arm of the nonprofit scientific and educational organization.

The ePals team is betting that it can build a worldwide social network in education — a serious, controlled version of Facebook, for students in kindergarten through 12th grade. “When markets go digital, they go collaborative and sharing,” said Edmund Fish, the chief executive of ePals and a former executive of AOL, where he oversaw online education offerings. “That can happen in education, too. A learning social network is not an oxymoron.”

Even the basic social networking of ePals e-mail exchanges, teachers say, helps improve writing skills and stirs curiosity about other cultures. Mirjana Milovic, a teacher in Kragujevac, Serbia, says ePals has helped the 120 students in her school with their English-language skills. Their correspondents in Alabama and Kansas have also learned that jeans and Nike shoes are popular in Kragujevac but that the McDonald’s in town closed for lack of business.

“We usually prefer our domestic food,” wrote Marija, an 18-year-old.

Candace Pauchnick, who teaches English and sociology at Patrick Henry High School in San Diego, has been using ePals for what she calls “virtual field trips.” In their online exchanges with students in Italy, China and the Czech Republic, her students have learned about family life and political systems in foreign lands and improved their writing skills.

“If they were just writing for me, they wouldn’t be as careful,” Ms. Pauchnick said. “But they’re writing for a student in another country. It’s not drudgery for them. They buy in and they enjoy it.”

Ms. Zolt, the chief program architect of ePals, endorsed the for-profit route but insisted that the digital network also provide a free searchable database for educational research.

“The promise here is to be able to study, with vast amounts of real-time data, how children learn,” she said.

Scholars are enthusiastic. “Its potential is very exciting,” said Linda B. Gambrell, a professor of education at Clemson University, who is one of the academic advisers of ePals. “This should help us quicken the pace of translating innovative research into best practices in the classroom.”

Like many start-up companies, the revamped ePals is still working on its business model. Mr. Gilburne, the chairman, says it will pursue corporate sponsors for certain project areas. These could be part of a company’s community and social responsibility activities, providing approved adult experts to help students online. For example, General Electric might sponsor ePals’ global warming section by providing environmental experts as online mentors, Mr. Gilburne said, or perhaps Intel or I.B.M. would help in engineering projects.

There are commerce opportunities, Mr. Gilburne added, for education publishers who might want to market books or curriculum materials for home-school students over ePals.

Eventually, Mr. Gilburne said, advertising will be part of the mix. “But we’ll go gingerly to figure out what is appropriate and doesn’t impose on the classroom,” he said.

The failure rate for entrepreneurs — whether social or purely capitalist — is high. Still, ePals’ backers are betting that it is worth the risk. “These kinds of opportunities to do well and do good at the same time don’t grow on trees,” said Mr. Kapor, the ePals investor and a philanthropist. “But I do think that ePals could be one of them.”
]]> http://yunusphere.net/2008/04/19/nyt-24th-feb2008-a-capitalist-jolt-for-charity/feed/ 1 lilashana http://yunusphere.net/2008/04/06/new-york-times-april-5-2008-microfinance%e2%80%99s-success-sets-off-a-debate-in-mexico/ http://yunusphere.net/2008/04/06/new-york-times-april-5-2008-microfinance%e2%80%99s-success-sets-off-a-debate-in-mexico/#comments Sun, 06 Apr 2008 01:45:28 +0000 Lilly http://yunusphere.net/2008/04/06/new-york-times-april-5-2008-microfinance%e2%80%99s-success-sets-off-a-debate-in-mexico/ ]]> Microfinance’s Success Sets Off a Debate in Mexico – New York Times

By ELISABETH MALKIN
Published: April 5, 2008

VILLA DE VÁZQUEZ, Mexico — Carlos Danel and Carlos Labarthe turned a nonprofit that lent money to Mexico’s poor into one of the country’s most profitable banks.

But not all of their colleagues in the world of microlending — so named for the tiny loans it grants — are heaping praise on the co-executives of Compartamos. Some are vilifying them as “pawnbrokers” and “money lenders.”

They are the center of a fractious debate: how far should microfinance go toward becoming big business?

At one end stand traditional microlenders, like the economist Muhammad Yunus, founder of the most famous microlender, the Grameen Bank, and winner of the 2006 Nobel Peace Prize. At the other are the Two Carloses, as they are widely known in this tight-knit world that gave them their start as starry-eyed idealists.

Microlenders, the original and still the most common type of microfinance organization, help the poor start or expand businesses in places most banks shun, like the slums of Calcutta or these impoverished hills in Mexico’s sugar cane country, three hours south of Mexico City. Their efforts are widely considered successful in transforming the lives of developing-world entrepreneurs, particularly women, and their families.

Many microlending advocates, including Mr. Yunus, say that success is threatened by Mr. Danel and Mr. Labarthe’s market-oriented model, with its emphasis on investor returns.

“Microfinance started in the 1970s with a focus on using this breakthrough to help end poverty,” said Sam Daley-Harris, director of the Microcredit Summit Campaign, a nonprofit endeavor that promotes microfinance for families earning less than $1 a day. “Now it is in great danger of being how well the investors and the microfinance institutions are doing and not about ending poverty.” He said the situation posed the danger of “mission drift.”

Mr. Danel and Mr. Labarthe say microfinance will help more poor people by tapping the boundless pool of investor capital rather than the limited pool of donor money.

“It’s marvelous to have one creditor but it’s marvelous to have one million creditors,” Mr. Labarthe said, “and that’s where we really start to change the face of opportunity.”

Compartamos (“let’s share” in Spanish) expects to reach one million borrowers this year. Its profits are healthy, some $80 million last year, and its portfolio has grown to almost $400 million. Since it went public nearly a year ago, return on equity has been more than 40 percent.

Both sides agree that there is a need for capital, too great to be met by the donor groups that initially financed microlending. Deutsche Bank estimates the global demand for microfinance loans at about $250 billion, 10 times the amount that has been lent.

But Compartamos’s decision to go public last April became a flashpoint in what had been a genteel debate over how microfinance could tap into the financial markets’ vast resources. The initial public offering gets special mention at every microfinance conference, and has been condemned by Mr. Yunus, the Nobel laureate.

Alex Counts, president of the Washington-based Grameen Foundation, said Compartamos’s poor clients “were generating the profits but they were excluded from them.”

Lynne Patterson, a founder of Pro Mujer, a nonprofit microfinance group with branches in several Latin American countries, agrees. “We use the profit to reinvest in the service of the clients,” she said, referring to loan repayment profits.

Since lack of access to credit is just one of the problems the poor face, Pro Mujer also offers services like breast cancer screenings, advice on dealing with domestic violence and financial education.

Still, in three decades microfinance has evolved — from small nongovernmental organizations lending $50 to women to buy sewing machines or fruit to sell at market to, in some cases, formal banks that cover costs and grow through profits, like any business.

On Wall Street, investment banks package microfinance loans to sell to institutional investors, many of them “socially responsible” and looking for steady returns rather than trading profits. A few equity funds have even taken stakes in microfinance institutions.

Critics say that Compartamos manages its business to benefit its investors, not its borrowers. The bank began as a nongovernmental organization in 1990, started by a Catholic social action group called Gente Nueva, whose inspiration was a visit by Mother Teresa to Mexico.

After Compartamos became a for-profit company in 2000, costs fell as efficiencies increased, but the bank kept interest rates high. On average, customers pay an annual interest rate of almost 90 percent, which includes 15 percent in government tax. In much of the world, microfinance interest rates range from 25 to 45 percent. But in Mexico, high costs, inefficiency and limited competition keep interest rates much higher. Compartamos’s rates are only a few percentage points higher than Pro Mujer’s, for example.

Like microfinance businesses around the world, Compartamos makes loans without collateral. Its borrowers, who are nearly all women, are organized in groups, which guarantee the loans. Stop paying and your friends must pay for you: the system keeps default rates down.

Historically, microlenders point out, such borrowers are excellent risks. For instance, Compartamos’s nonperforming loans were just 1.36 percent of its portfolio at the end of last year.

Servicing those loans takes labor and that pushes up rates on such small amounts. A Compartamos collection agent visits each group every week, riding public buses out to villages.

Compartamos is more efficient than other Mexican microfinance institutions and its own borrowing costs are lower, thanks to its strong credit rating. Critics charge that it has not passed those savings on to its customers.

The numbers seem to bear that out. A study last year by the Consultative Group to Assist the Poor, known as CGAP, a microfinance industry group based at the World Bank, estimated that 23.6 percent of Compartamos’s interest income went to profits. Its return on average equity is more than triple the 15 percent average for Mexican commercial banks.

Profit is not a dirty word in the microfinance world. The question is how much is appropriate. CGAP estimates the average return on assets for self-sufficient organizations to be 5.5 percent. The figure for Compartamos was 19.6 percent in the fourth quarter.

Mr. Danel said Compartamos’s interest rates have fallen 30 percentage points over the last five years. “They go down based on efficiencies, and we pass this benefit on to the customer,” he said.

Compartamos grew to 840,000 customers last year, from 60,000 in 2000.

Last April, Compartamos’ owners sold 30 percent of their stock on the Mexican stock market in an initial public offering. The public offering brought in $458 million. Private Mexican investors, including the bank’s top executives, pocketed $150 million from the sale. More than half of the public offering proceeds went back to development institutions that had invested in Compartamos when it moved from being a nonprofit to a commercial venture in 2000.

One of them was Acción International, a Boston-based nongovernmental organization that helps build microcredit institutions and provides them with technical assistance. Acción invested $1 million in Compartamos in 2000. It sold half its 18 percent stake at the time of the public offering for $135 million.

“This is one strategy to address poverty that doesn’t remain small and beautiful,” said María Otero, president of Acción.

Charles Waterfield, a microfinance consultant who has been among the most vocal critics of Compartamos’s model, disagrees. “Not only are they making obscene profits off poor people, they are in danger of tarnishing the rest of the industry,” he said. “Compartamos is the first but they won’t be the last.”

There has not been a rush to market yet. In part, the subprime mortgage debacle and the ensuing selloff on global markets has made this a poor time for initial public offerings. Compartamos has not escaped the turmoil; its stock price is up nearly 17 percent since the offering, but down 32 percent from its high last July.

Those who argue for more such public offerings say that Compartamos set the right example.

“Boy, you got a lot of people’s attention with that I.P.O.,” said Bob Pattillo, who runs Gray Ghost, a fund that invests in microfinance. “This has got Wall Street’s eye, London’s eye, Geneva’s eye — to have one out there to say that if all the dots got connected this can be quite profitable.”

Mr. Danel and Mr. Labarthe argue that successful microlenders in a middle-income country like Mexico should use the capital markets, instead of crowding out donations.

As part of their defense, they argue that Compartamos’s success has prompted a number of institutions, including traditional banks and retailers, to start offering financial products to the poor. “We don’t only see ourselves as a specialist in microfinance but also as the builder of an industry,” Mr. Danel said.

Compartamos estimates that its target market is 14 million households, more than half of the country’s population, most of them with little or no access to banking services.

At the recent weekly meeting of a group of Compartamos borrowers in the village of Valle de Vázquez, the interest rate was not a great concern. Indeed, several women said they had left another microfinance institution because it charged more.

The group was well established, 35 strong and well into its third year of borrowing. The meeting, which took place in the living room of one borrower’s home, was the start of a new four-month borrowing cycle.

A Compartamos manager, Claudia Ayala, began with a pep talk, pointing to a house plant set on a chair beside her. “This plant grows and this group can grow,” she said to the women, who were listless in the afternoon heat. “How? By inviting more compañeras,” or friends. “By fertilizing it with responsibility,” she said.

Though the village depends largely on remittances sent by relatives in the United States, the Compartamos loans have helped some women become self-sufficient.

Silvina Martínez started a little restaurant in her house a year ago to sell her homemade snacks to students at a nearby high school. It has grown steadily since then. With this cycle, she was going to borrow about $1,100 to paint the restaurant and expand her menu. “It’s my own business,” she said. “You are a slave to it, but at least it’s mine.”

Other women were successful entrepreneurs to start with, but the Compartamos credit gives them a push, allowing them to hire an employee or help ease their cash flow.

Alejandra Abúndez, 57, keeps pigs and cattle, and produces 330 pounds of cheese a day, which she sells in the local market. She and her daughter, Micaela Rivera, were borrowing $3,550 from Compartamos to buy animal feed and to stock the tiny store in her front entryway.

“Everything I have, I invest,” said Ms. Abúndez, who was left a widow with five children at 35. “No gadding about for me.”