Microfinance Discredited?

Muhammad Yunus, the Bangladeshi winner of the Nobel Peace Prize in 2006, is internationally renowned as the pioneer of microfinance, having founded the Grameen Bank in 1983.

Grameen provides financial services to those who are excluded from the traditional banking sector, making small loans available to low-income rural borrowers. Indeed, microfinance has been hailed as a silver bullet for development, enabling poor people to develop their own businesses.

Yunus, however, is facing strong hostility at home, with the Bangladeshi Government making it clear they no longer view him suitable to continue as Managing Director of the Grameen Bank, an independent organisation.

This follows on from events in late 2010 when a Norwegian documentary accused Yunus of transferring funds from Grameen to an unapproved project. This claim, however, was unfounded, with the Norwegian government finding that the documentary was incorrect.

There is also a personal dimension to the Bangladeshi government’s intervention in the affairs of Grameen. In 2007 Yunus attempted to set up a new political party, to challenge the Bangladeshi political establishment. Consequently Bangladeshi politicians have sought to discredit Yunus, with Sheikh Hasina, prime minister, accusing Yunus of “sucking blood from the poor.”

Thus far, Yunus has survived these attacks on his character. Recently, however, he has been informed that at seventy he is five years past the retirement age for managing directors in Bangladesh and must vacate his position.

Grameen is yet to respond to this demand, with the outcome remaining uncertain. What is clear, however, is that this deadlock is not in the interests of Grameen Bank, or the individuals who rely on microloans.

Once hailed as the tool to end global poverty, microfinance has fallen from grace. This fall predates Bangladeshi government intervention with Grameen. Indeed, in recent years there has been a noticeable backlash against microlenders.

The Indian state of Andhra Pradesh found many microlenders to be too aggressive in debt collecting and the movement was blamed for a spate of suicides.

There is, however, a crucial distinction between the practices of aggressive creditors and not-for-profit microfinance.

The Grameen Bank has 8.35 million clients, of whom 97 per cent are poor women. These loans enable the women to start small business, with flexible repayment, allowing borrowers to cope with short-term shocks such as illness.

The ongoing dispute between Yunus and the Bangladeshi government is not serving the long term interests of microfinance, and of the global poor. Indeed, some fear that continued government interventions will undermine the stability of Grameen.

Grameen-style microfinance is not the silver bullet for development but it does aid the poor. What needs to be considered now is the future security of the bank and its borrowers.