Should Online Micro-Lending be for Profit or for Philanthropy? Dhanax and Rang De
Journal of Innovation Economics, Vol. 2, No. 6, pp. 123-146
24 Pages Posted: 6 Dec 2009 Last revised: 5 Sep 2014
Date Written: November 11, 2009
Social innovation usually refers to two different denotations: One is related to social processes of innovation such as open source methods; the other refers to improvement of the everyday life, meeting social needs of all kinds and finally strengthening of civil society . While this paper deals with the two mentioned approaches of social innovation, the focus mainly remains on innovation with a social purpose such as microcredit and voluntary entrepreneurship.
The literature on innovation often privileges innovation which derives from the different aspects of an offering: product, price, distribution and communication; this paper holds that there is a considerable potential of innovation in adapting and implementing conventional products and services to specific markets with social traits such as individual with problems of insolvency. The paper explores and compares two different approaches to poverty alleviation.
Asian Finance is not just about the formal organized sector. It is also about the billions of small savers and small borrowers, often known as microfinance. Today, technology is building the bridge between the organized formal finance sectors and the informal poor borrowers. Two major technologies are online lending and mobile banking. This paper focuses on online lending in India and uses this setting to explore ethical issues in governance, pricing and marketing.
Two case studies are used: a for-profit company and a not-for-profit. The paper finds that both models are being practiced in different kinds of MFIs. Both are trying to be ethically correct. The main value added by this paper is to highlight how ethical debates in microfinance are influencing the online lending operators.
Keywords: microfinance, online lending, ethics, governance
JEL Classification: E4, F34, G2, G3, I3, M13, M14
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