Once upon a time, there was a farmer with a goose that laid golden eggs. When he first got the goose, he was delighted. What could be better? Without doing anything, each morning he woke to discover a new golden egg. He was rich! Soon he was richer than his neighbors and got infinite pleasure in buying new, expensive toys for himself and his family. After awhile, the farmer was spending so much money on frivolous things that he stopped farming. He bought cheap corn for the goose —which resulted in smaller golden eggs. He stopped feeding the other geese and as her friends and family began to die, the farmer’s special goose became unhappy and stopped laying eggs altogether. Soon the thin, sad goose laid down and refused to get up. The next day she died.
As the farmer sat despondently at his kitchen table, he glanced across the road at his neighbor’s farm. How had he not noticed that his neighbor had become successful? The farmer wandered over in the hope of discovering his neighbor’s secret. When he walked into the gate he saw miles of fields planted with healthy crops, trees lush with fruit, and then he saw the most surprising thing of all: a large, clean coop full of happily clucking geese laying lots of golden eggs. The farmer was astonished. He found his neighbor and asked him where he’d bought all those geese because he wanted to go buy more. His neighbor looked at him and laughed. “I didn’t buy all these geese, I grew them. I started out with one. With careful cultivation, I found out what foods helped her grow, which foods helped her lay golden eggs. Soon she was raising a family and heading up a community of geese all laying golden eggs.” He looked at his friend’s ramshackle farm across the way and said, “Surely you haven’t forgotten. We are farmers not merchants. Our job isn’t to buy things to sell, it is to prepare the soil for things to grow.”
This adaptation of the well-known parable came to me as I was thinking about the ongoing debate of whether capitalism can or should be a driving engine for social change. I wholeheartedly believe it can. Capitalism can develop “mission along with margin” but the success of the venture in creating lasting social change is, I believe, dependent upon understanding who you are: a farmer or a merchant.
In this oversimplified parable, farmers are concerned with creating the conditions for growth, because an organic increase in soil fertility creates a farm that is a better ecosystem of productivity. Merchants are primarily concerned with creating products that, when sold, give some immediate benefit. Both are good. Both are necessary. But they are necessary in different situations. In microfinance, for example, farmers may be needed, but in the development of solar panels, we may need merchants. As a grantmaker, one will likely set different financial and programmatic objectives based on whether a grant is funding a merchant or a farmer.
Here in Asia, the contrast between creating conditions for long-term growth or products for immediate benefit is being played out in daily news reports on the rapid rise, and equally rapid decline, of SKS Finance, the microcredit company with backers such as by billionaire Vinod Khosla and George Soros. SKS raised $358M in its closely-watched IPO. But the rockstar rise of SKS has been matched by the rapid tumble its stock has taken. Reports of a rash of suicides allegedly caused by high interest rates, clients who were overextended on credit, and tough repayment requirements are said to have affected the crash.
In a matter of one month, a company that had been the exemplar of microfinance-going-to-scale stands on the brink of major changes that may dramatically reshape the players and the way microcredit operates.
SKS has been contrasted with other players in microfinance such as Grameen or ACCION. To be clear, these two organizations charge high interest rates. And they also engage in the practice of collecting repayment on a weekly basis. But some evidence suggests that the differences between them and SKS are as important as the similarities. Microcredit organizations that fall into the “farmer” category focus on social support as a key element of success and repayment. They develop long-term relationships with clients. They recognize that microcredit may be an ideal central organizing tool, but it is only one tool that poor women need to get closer to self-sufficiency. These microfinance organizations use their profits to create farm insurance products that help the poor avoid losing everything due to bad weather. They create savings programs and educational loans to build skills that take people beyond subsistence. In other words, they use revenue to cultivate the soil, not prematurely take profits.
Don’t misunderstand me: profit-making and profit-taking are not bad. However, the idea of calling a purely capitalistic business that “also happens to do good” a social enterprise seems to be a bit of a fantasy. There are always trade-offs. The social enterprise makes profits while asking what more it can do to re-invest those profits into the communities, people and relationships it is helping to build.
The story of SKS is not over. Some say this incident is but a stumbling block on the path to even greater microfinance expansion. But the question I would ask is, are those changes technical or fundamental? “Merchants” may look at Grameen or ACCION and say, “We can sell that product too,” but they are missing the point. “Farmers” focus on all the inputs needed for long-term growth in the community, not just the products that generate short-term profits. It remains to be seen whether SKS and others are nurturing or killing the golden goose.
Crystal Hayling is Former President and CEO of the Blue Shield of California Foundation and a member of the CEP Board of Directors.
