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Betting on the poor has never been this profitable or this tasteless.

Just ask the good folks at George Soros’s Quantum, Goldman Sachs, JPMorgan Chase and Nomura. Funds they control stand to make a bundle on SKS Microfinance’s initial public offering.

Never mind that bankers’ disregard for the poor necessitated the creation of microfinance. Wall Street investment banks and hedge funds alike now see value in the poor of India, where about 120 million households have no access to banking. All’s fair in love, war and finance, right? Wrong.

This is a sad day for a grassroots phenomenon that has altered the lives of millions. Be it the widow in Bangalore seeking $100 to buy a cow, the man in Lagos eyeing $75 for a used motorbike or the family in Jakarta looking for $30 for a mobile phone, microfinance is changing the face of development.

The Nobel Peace Prize committee underlined the point in 2006, when it honored Muhammad Yunus, founder of Bangladesh’s Grameen Bank. Conceived in 1976, Grameen inspired countless copycats to provide credit where it was most needed.

It’s strangely fitting that Yunus plans to star in an episode of “The Simpsons” later this year. His life’s work risks being turned into a farce in the name of shareholder value. Yunus has been vocal in concerns that micro lending is about to morph into just another money-making business.

Yes, I know what the investment set thinks of all this. The IPO by India’s largest microfinance lender could bolster credit in Asia’s third-biggest economy. SKS is seeking to raise as much as $353 million, money that could be deployed widely among India’s 1.2 billion people — perhaps at lower interest rates.

Nice theory, but good luck making it real. Over time, you can bet shareholders will wonder why profits and dividends aren’t higher. Oh, they’ll say, why did we make this massive block of less-than-lucrative loans in Goa or Kolkata? Microcredit was supposed to be about alleviating poverty and reducing dependency on an inefficient state.

Capitalism certainly plays a role. Bankruptcy helps no one, and money should always go to productive purposes. It’s wrong, though, to subject microcredit to irreconcilable objectives.

When you meet with microcredit officials in Asia, Africa or Latin America — most often, they are women — they stress a key element behind their success: peer pressure.

If you borrow money from your community, it’s not so easy to renege. When you are late on a loan to Citigroup, you can dodge phone calls. It’s a different story when you have to slink past neighbors to whom you are indebted as you make your way home from work — or to the pub. Microcredit works and default rates are low because of its local and intimate nature.

Institutionalizing the process runs counter to those tenets. Once bureaucracy, metrics, credit scores and computer models take over, the process loses its soul. The depersonalization of the movement will kill its effectiveness.

It is no coincidence that Wall Street bigwigs and hedge-fund moguls chose now to bet on microfinance. They are looking for income streams less connected to turmoil-ravaged markets. The desire to diversify is leading them to unfamiliar places.

Tiny lending in India may surge by about 40 percent annually over the next few years, Sanjay Sinha, managing director at Micro-Credit Ratings in New Delhi, said in June. Such growth presents Vikram Akula, SKS’s founder and chairman, an opportunity to edge closer to Wall Street than to slums in Mumbai or Hyderabad, where SKS is based.

Perhaps the poor pumping up profits for billionaires is a natural next step in an out-of-whack world where growth in developing nations supports the richest. After all, we live in a moment when private-equity companies go public so they can raise money to take other companies private.

As competition heats up between micro-lenders, salespeople may hit the slums to drum up business and make lots of ill-fated loans. Would bankers repackage these and sell them as securities? A sub-subprime crisis, anyone?

Microcredit going upmarket would pull these loans into the broader system, making the industry more vulnerable to the whims of markets. Also, SKS’s size means it could encourage major players to follow.

Amid the excitement over rapid growth, it’s easy to forget that more than 600 million Indians live on less than $1.50 a day. If you believe India’s bureaucracy is nimble enough to spread the benefits of 8.6 percent growth, then go ahead and let those offering credit to the poor get co-opted by bankers.

There’s a reason India has more mobile phones than toilets. Microcredit has plugged many holes in an economy bleeding potential. It’s understandable why investors see this as a way to plug their own holes. Too bad it may come at the expense of the bottom half of the economic pyramid.


William Pesek is a Bloomberg columnist.