SAN FRANCISCO, Calif. “ Nobel laureate Muhammad Yunus, speaking at the Fairmont Hotel here May 24, said he is increasingly wary of the direction the booming microfinance industry is taking.

"I get very worried when investment funds come to microfinance" said the founder of Bangladesh's Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. "I don't want to excite businessmen that there is profit to be made here" he said.

Private investors and capital have increasingly moved into the realm of the grassroots microfinance industry, boosting its assets to more than $60 billion globally.

Yunus has called for standardizing the rates of interest in micro-lending, which can range from 12 percent to more than 87 percent globally. His formula for determining interest rates calls for no more than 12-15 percent beyond the cost of raising the capital.

"Poor people should not be presented as an opportunity to make money. Then you move in the direction of loan shark" said Yunus, who is on a several-city U.S. tour to promote his new book, Building Social Business: The New Kind of Capitalism that Serves Humanity's Most Pressing Needs, released in May by Public Affairs Books.

"We started out with the idea of getting loan sharks out of people's lives" said Yunus, in his remarks to the sold-out audience in the Fairmont Hotel's ornate Gold Room. "Now microfinance institutions are getting into the loan-sharking business," he said. "If you're making money out of poor people, then you're loan-sharking."

In a brief interview with India-West following his talk, Yunus expressed his aversion to the new trend of microfinance institutions undergoing initial public offerings.

The Hyderabad-based SKS Microfinance, founded by Vikram Akula, announced this April that it intends to raise $250 million in the first Indian microfinance IPO. The Indian business media have also reported a possible second Indian microfinance IPO by Spandana, also based in Hyderabad.

"I have been very critical of SKS's IPO" Yunus told this newspaper. "Under no conditions should a microfinance institution be allowed to conduct an IPO" he said, adding of SKS, "They are announcing to their investors that they intend to make money from the poor."

But at a Microfinance USA panel, held in San Francisco May 20-21, Maya Chorengel, co-founder and managing director of Elevar Equity, defended the SKS Microfinance IPO and noted the gains the organization has made since it first received an angel investment from Unitus (I-W, May 28).

"Muhammad Yunus has taken the stance that it is unethical to make money from the poor,"said Chorengel. "But there are many instances out there where you can have solid financial return while making a social impact."

With funding from private investors including the Unitus Equity Fund, SKS has moved from serving several hundred thousand borrowers to more than six million borrowers in India with a $1 billion portfolio, in just under three years, noted Chorengel, adding, "The growth rate is phenomenal for a financial services firm."

During his hour-long talk, Yunus focused on his concept of "social business," the subject of his new book. Social businesses, as defined by Yunus, are cause-driven businesses, targeting areas often neglected by more traditional companies. The aim of a social business is to achieve a social objective, explained Yunus, while covering costs and making profit, but then plowing the excess back into the company.

"Every human being is packed with impulses of selfishness and selflessness. Business, ideally, could capture equally both those impulses," he said.

Yunus gave the example of Group Danone, which has partnered with Grameen to create micronutrient-rich yogurt to feed to the malnourished children of Bangladesh. Grameen has also partnered with Intel to bring computing to the rural poor as a way of improving their lives.

Other such partnerships include Grameen Veolia Water Ltd., which is attempting to create arsenic-free water for the people of Bangladesh, where almost all groundwater has been found to be contaminated with this toxic substance.

Grameen has also partnered with the German chemical company BASF to create mosquito nets to protect against malaria in Bangladesh, where the disease is rampant.

Speaking on the global financial crisis, Yunus said: "Banking institutions built castles in the air, chasing paper and speculating. Once this beautiful edifice cracked, the whole thing fell apart," he said.

The crisis will continue until its underlying causes 'food, energy and the environment' are addressed, said Yunus.

"We have not designed our lives properly. This mega-crisis is a great opportunity to undo the system and create a new normalcy which leads us down a new path to make it work again" he said.

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