I spent the past weekend at the great 13^th Social Enterprise Conference at Harvard University (you can find my impression of the conference here). Of the two-day gathering, one moment was particularly interesting: ex-chairman of SKS Microfinance gave a humbling talk about failure during Saturday night’s networking reception.

Akula during the Social Enterprise Conference 2012  |  Photo cred: @RxFogarty  |  Check Rob’s beautiful work at www.dearworld.me

For the first time since he resigned from SKS Microfinance, Vikram Akula (who founded SKS in 1997 and turned it into a for-profit in 2005), spoke to a crowd of some 500 aspiring social entrepreneurs. Akula was a poster-child of success in the field. Under his leadership, SKS scaled to a peak of 7.3 million active borrowers in 2010, and had a successful IPO that same year, which turned him into a millionnaire. But the institution, pressured to generate profit, came under severe criticism over alleged coercive loan recovery practices. Tensions culminated with Akula’s resignation in November 2011 after 14 years at SKS’ head. While he has now rebounded to head a new project aimed at spreading mobile banking in India, his experience at SKS has earned him valuable lessons that he wanted to share with the audience.

SKS, Akula confided, enjoyed many first-mover advantages, but as as a result, made “many, many, many mistakes”. Showing Steve Jobs’ infamous Stanford address, Akula reiterated: “I felt that I have let the previous generation of entrepreneurs down”. He said he was so focused on scaling the SKS model that he did not take the time to anticipate the potential downsides of tapping into the public market. “It’s so hard to control for the unintended consequences of your work”, he admitted.  Akula says his views on microfinance have changed drastically in the past year. He used to think the three main challenges of Microfinance were lack of Capital, lack of Capacity, and high Costs.  Today, he argues for a new set of 3 Cs: Culture, Code of Conduct, and Control. First, a founder’s challenge is to make sure the Culture of passion persists when [she/he] leaves and is replaced by a regular CEO in a suit. Second, a solid Code of Conduct is even more crucial in a context of vulnerability like the one faced when working for the bottom of the pyramid. Rules in this context have to be adapted to the communities. And finally, Control: social entrepreneurs are naïve, Akula pleaded. His advice: have a good lawyer look at the shareholder agreement, and keep some control over your company’s big decisions (both him and Yunus ended up having to leave their jobs as heads of the organizations they founded).

More dramatically, Akula acknowledged the legitimacy of the criticism he had received from Mohammad Yunus, 2006 Nobel Peace Prize Laureate Professor and Founder of Grameen Bank, who had long taken issue with SKS’s focus on profitability and its rapid deployment of private capital. “Professor Yunus was right”, Akula said. This was quite a sensational moment. The two big names of microfinance had butted heads repetitively and publicly in previous years, and the blogosphere didn’t miss the opportunity to report the incident (here, here, here, and here).

Okay. But I am not sure I am clear as to what Akula really meant. While it is true that bringing private capital into social enterprise comes with its own challenges, for-profit microfinance does not need to depart from the traditional values-based model of social enterprise. Does Akula now think microfinance should be strictly not-for-profit? Grameen itself is actually making profit – profit that is in principle owned by its clients, though they have little say on how this profit is exactly spent. David Roodman has a much better understanding of the subtleties and distinctions at hand; and he clarifies some of them in this great post.

All that to say, I get that Akula admitting Yunus was right is quite the nerdy gossip. It’d just be more interesting if we could gather, beyond that, what the lessons learned from Akula’s misfortune actually mean for microfinance and social enterprises in general. It would be disappointing for social entrepreneurs of all fields if the conclusion is that the dangers of mission-drift are so great when going for-profit that it is safer to play in the non-profit field.