Conglomerate Blog: Business, Law, Economics & Society

For your consideration:

1. Wednesday's news regarding the EU restricting banker's bonuses. Quoting from the FT:

Banks will be required to defer 40 to 60 per cent of bonuses for three to five years, and half of any immediate bonus must be paid in shares or in other securities linked to the bank’s performance. As a result, bankers will only be able to receive between 20 and 30 per cent of any bonus in upfront cash – the toughest restriction worldwide of this kind.

2. Today's WSJ on SKS Microfinance Ltd's planned IPO, detailed in today's WSJ. Christine has blogged about microfinance before, and this article brings up a fundamental divide in the microfinance (defined as banking for the very poor) world: can a microfinance organization aim to make a profit? One side of the spectrum is Compartamos, which started out as a nonprofit but converted to a for-profit, netting its founders millions. On the other side we have Nobel prize winner Muhammad Yunus, founder of the Grameen Bank, who says "Microcredit should not be presented as a money-making opportunity. It is an opportunity to make an impact on poor people's lives. An IPO gives a wrong message."

SKS seems to be trying to thread the needle, aiming to make some profit while still maintaining its bona fides as a non-exploitative microlender. I.e., it's looking to make money, but not as much as it could. Which leads to this unexpected sentence: "[A]s SKS's executives and investment bankers went on a roadshow to stir up interest in the shares, they stressed how little profit the company makes."

2 very different stories, linked in my mind because of the implicit presumption of certain players--EU regulators, SKS--that financial participants are willing to leave money on the table. That is, not to jump ship (er, bank) for a country with a more generous bonus regime, or to invest in a company that's sales pitch specifically disavows the goal of making the maximum possible amount of money. How naive is that presumption?

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For your consideration:

1. Wednesday's news regarding the EU restricting banker's bonuses. Quoting from the FT:

Banks will be required to defer 40 to 60 per cent of bonuses for three to five years, and half of any immediate bonus must be paid in shares or in other securities linked to the bank’s performance. As a result, bankers will only be able to receive between 20 and 30 per cent of any bonus in upfront cash – the toughest restriction worldwide of this kind.

2. Today's WSJ on SKS Microfinance Ltd's planned IPO, detailed in today's WSJ. Christine has blogged about microfinance before, and this article brings up a fundamental divide in the microfinance (defined as banking for the very poor) world: can a microfinance organization aim to make a profit? One side of the spectrum is Compartamos, which started out as a nonprofit but converted to a for-profit, netting its founders millions. On the other side we have Nobel prize winner Muhammad Yunus, founder of the Grameen Bank, who says "Microcredit should not be presented as a money-making opportunity. It is an opportunity to make an impact on poor people's lives. An IPO gives a wrong message."

SKS seems to be trying to thread the needle, aiming to make some profit while still maintaining its bona fides as a non-exploitative microlender. I.e., it's looking to make money, but not as much as it could. Which leads to this unexpected sentence: "[A]s SKS's executives and investment bankers went on a roadshow to stir up interest in the shares, they stressed how little profit the company makes."

2 very different stories, linked in my mind because of the implicit presumption of certain players--EU regulators, SKS--that financial participants are willing to leave money on the table. That is, not to jump ship (er, bank) for a country with a more generous bonus regime, or to invest in a company that's sales pitch specifically disavows the goal of making the maximum possible amount of money. How naive is that presumption?

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