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

November 16, 2014 18:29 IST

He added however that reasonable profit must be there at the bottom of the pyramid as the business has to be self-sustaining

Image: A customer of a micro finance institution strings beads into necklaces at a workshop in a slum area in Mumbai. Photograph: Prashanth Vishwanathan/Reuters

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

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

The concept of the fortune at the bottom of the pyramid originally appeared in an article by Prahalad and Stuart L Hart in business journal 'Strategy+Business' in 2004.

That 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, a philanthropist who has seen so far spent millions annually to help the poor, has described the book as something that offers an intriguing blueprint for how to fight poverty with profitability.

Rajan, himself is a renowned economist, said during a recent micro finance event, "I think Prahalad did a disservice by saying that 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 added however that reasonable profit must 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 the business, but they are not really going to get engaged until there are profits," Rajan noted.

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