Comment by netsp | Hacker News Reader

Comment by netsp | Hacker News Reader

"This isn’t to say that we should have companies replace non-profits..."

Actually, that is not necessarily a good thing to just sidestep. A lot of things that non profits work on might work better if they were worked on by companies. A lot of things that companies work on might have to be filled by non profits if companies weren't doing it.

Think of second hand stores. They are often run not-for-profit in order to provide cheap stuff to poor people. These compete directly with commercial low cost stores and other second hand stores. If these beat the non profits, there is no societal loss. One of the worlds most celebrated not for profits, the Grameen Bank provides small loans to poor people. It seems very possible that this NGO (and its many imitators) will be put out of business by commercial banks.

The UN has started a free online University to help the world's poor. I would take an either-or bet on for profit variants making a lot of progress on this issue commercially.

A great way of making non profits more like chess masters is making non profits into businesses. You don't always have to. But if it is feasible, its worht considering.

"Grameen Bank provides small loans to poor people. It seems very possible that this NGO (and its many imitators) will be put out of business by commercial banks."

Traditional, for-profit banking simply can't, which is the entire point. Even when microfinance institutions lean further toward for-profit, they end up more and more like traditional banks making traditional big loans.

And that's the way it actually moves, with microfinance institutions edging toward becoming more commercialized, and when they drift too far away from poorer clients, new micro institutions will likely come in to take their place. In other words, the shift naturally moves in the opposite direction.

Compartamos in Mexico is a for-profit bank making microloans. There's some controversy about that: http://www.nytimes.com/2008/04/05/business/worldbusiness/05m...

Indeed, it's former NGO that aggressively went for-profit. That's a good article and sums up some of the major debates around latin american microfinance.

The problem with for-profit microfinance is that, as a general rule, financial performance increases with loan size, and that's why commercialization is a cause for concern, along with a lot of the other baggage that comes with commercialization like pressure to increase profits and employee incentive programs that negatively impact service toward small clients.

Compartamos accounts for the problems of the small loan market (notably the inability to determine which borrows are good or not) the same way moneylenders needed to before them, by charging very high interest rates. But this ends up screening out lower end borrowers, hence the discussion of "mission drift."

Commercial banks have long dabbled in elements of microfinance, but there are fairly concrete obstacles, mostly operational and information-related issues, that make it tough to be profitable, and even tougher to approach it as strictly for-profit while continuing to be actual microfinance.

Which strongly suggest microloans don't really produce that much actual value.

No, it absolutely does not suggest that at all. For example, ROSCAs are inherently non-profit, they don't even hold money at all, and yet provide needed services to their users in ways that for-profits simply can't.

One useful way of thinking about nonprofits: a nonprofit fills a need that the free market on its own cannot meet.

For example, the free market will not provide free meals to homeless people with HIV in Manhattan.

Nonprofits should not be made into businesses. If a business can fill a need and turn a profit at the same time, great (in most cases)!

The difference between a well-run non-profit and a well-run business: the non-profit puts 100% of profits back into its operations, while the business may re-invest the profit or distribute it to its owners.

Most states already require non-profits to operate like businesses; indeed, non-profits are expected to operate better than businesses -- most states require non-profits to maintain levels of capitalization that require devilish efficiency and reuse.

A bigger difference is that the donors aren't the customers. A charity has positive cash flow so long as it pleases its donors, who don't necessarily know what's really happening with the people who receive the charity's services.

I don't think you understand quite how the donor-charity relationship works. The donors are the customers. The charity earns money by pleasing the donors. The venue for pleasing the donors is by performing charitable acts.

If a donor is pissed, it will force the charity to conform to his/her demands. The recipients of the charity's services are usually an afterthought, b/c they are far more easily replaced than any donor.

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