Grameen and Microfinance Under Fire - NYTimes

8/10/2019 Grameen and Microfinance Under Fire - NYTimes

1/6

10/16/2014 Grameen and Microfinance Under Fire - NYTimes.com

http://opinionator.blogs.nytimes.com/2011/03/21/microfinance-under-fire/?_php=true&_type=blogs&_r=0 1/6

Fixes

Microfinance Under FireBy David Bornstein

March 21, 2011 9:30 pm

Fixes looks at solutions to social problems and why they work.

At Fixes, our focus is typically on implementing new or underutilizedideas to help those in need. But sometimes its just as important toprotect institutions that are already working well. Which is why Im writing today about the Grameen Bank, the Bangladeshi organizationthat won the 2006 Nobel Peace Prize, along with its founder Muhammad Yunus, for its work extending microloans to some of the worlds poorest,and has been crucial in global efforts to lift millions of people out of poverty.

Both the bank and Yunus, have come under attack by thegovernment of Bangladesh and its prime minister, Sheikh Hasina Wazed.It has taken 35 years of painstaking effort to build Grameen into a world-class institution that serves millions of poor people. That progress could

be lost if the countrys leaders fail to appreciate what makes the GrameenBank work.

Anyone who cares about international development, microfinance orsocial entrepreneurship should pay attention. The Grameen Bank is not just the largest microlender in the world, with 8.4 million borrowers(most of them women villagers) who received more than $1 billion in

loans last year, it is the flagship enterprise in an industry that, in 2009,served 128 million of the worlds poorest families. It is also a leading
http://www.nytimes.com/pages/opinion/http://www.nytimes.com/http://www.microcreditsummit.org/news/record_128_million_of_worlds_poorest_received_a_micro-loan_in_2009/http://opinionator.blogs.nytimes.com/category/fixes/http://opinionator.blogs.nytimes.com/author/david-bornstein/http://opinionator.blogs.nytimes.com/category/fixes/?module=BlogCategory&version=Blog%20Post&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Headerhttp://www.nytimes.com/pages/opinion/http://www.nytimes.com/


2/6



example and inspiration for millions of citizen-led organizations thathave been established in recent decades to address social problems thatgovernments have failed to solve.

Yunus, the founder of the bank, is an entrepreneurial figure cut fromthe same cloth as Steve Jobs, the founder of Apple. He has devotedhimself since the 1970s to demonstrating, institutionalizing andspreading microfinance. Recently, the government issued orders that Yunus is to be removed from his post as managing director of the bank. Yunus has taken the case to Bangladeshs Supreme Court.

Government officials initially seized on a Norwegian documentary that accused Yunus of improperly diverting funds in 1996 that had beendonated by the countrys aid agency. The Norwegian governmentinvestigated and found that, while funds were transferred internally fromone Grameen-owned affiliate to another, there was no indication that thefunds were misused. Since then, government officials have engaged inattacks against Yunus and challenged the work of all microlenders inBangladesh.

Legally, the government owns 25 percent of Grameen and has theright to appoint a quarter of its board members, including itschairperson. In practical terms, however, the government has little justification to intercede in the banks operations. Today, of the GrameenBanks paid-up share capital, only 3.5 percent comes from theBangladeshi government. It is the banks borrowers who are its majority

owners. They control 75 percent of the board seats and they havesupplied 96.5 percent of the paid up share capital. And its the savings of villagers about $1.5 billion that now finances the banks activitiesand growth.

Nevertheless, the government is proceeding to remove Yunus againstthe objections of its majority owners and will probably succeed. Thestated reason is hollow: Yunus, who is 70, is over the mandatory retirement age in government banks.
http://www.grameen-info.org/index.php?option=com_content&task=view&id=453&Itemid=527http://www.regjeringen.no/en/dep/ud/press/news/2010/report_grameen.html?id=627366http://www.nytimes.com/2011/03/03/world/asia/03yunus.html?_r=1&scp=1&sq=muhammad%20yunus&st=csehttp://www.yesmagazine.org/issues/columns/you-are-brilliant-and-the-earth-is-hiring


3/6



Whats the real reason behind the governments attacks on Yunus?The most likely explanation is that Yunus is being punished for criticizingthe government and making a bid to start a political party in 2007.

This is a threat to be taken seriously not because the bank willcollapse without Yunus. The Grameen Bank is a strong, well-managedinstitution with 25,000 employees. It could probably withstand hisdeparture. Indeed, given Yunuss age, its critical to pave the way for asuccessor. But if he is replaced in a manner that diminishes confidence,the bank could face problems. When an organization has a founder who is intimately associated with it

(as Jobs is at Apple), the leadership transition needs to be handled withgreat care. This is particularly important because the Grameen Bank depends on unusually high levels of motivation among its staff and highlevels of trust among its borrowers. A forced removal of Yunus that isseen as illegitimate, politically-motivated, or vindictive could alienatethousands of employees and trigger a run on savings or loan defaults.

Even the perception that it has come under the influence of thegoverning party, the Awami League, could cause damage. Bangladesh hasa long history of banks and cooperatives being used as politicalinstruments. The state-owned banks have regularly extended loans toelite borrowers (who default at high rates) as a form of patronage. UnlikeGrameen, which is financially self-sufficient, the state banks areperpetually in need of cash infusions from the government.

Heres an example of what could happen: The Prime Minister hasmade it clear that she believes the interest rates are too high. Herconcerns for the poor may be well-intentioned. But historically,subsidized loans have been seen as goodies and have gone to the mostpowerful, not to those they were intended for: the poor. Grameens ratesare, in fact, considered low among microlenders, whose administrativecosts are far higher than that of traditional banks. However, if a

politically-minded managing director decided to cut the interest rate, itcould jeopardize the banks solvency.


4/6



Similarly, if the government installed a bureaucratic manager whofailed to appreciate the banks entrepreneurial culture, it could suck thelife out of the bank. Managing a bank that actually works with poor women in villages means, above all, recruiting people who care about thepoor and training them in creative ways. Before Grameen Bank workersget hired, for example, they spend close to a year demonstrating theirinterest in serving the poor. They have to do things like write detailedcase studies about the lives of village women to show that they genuinely care about, and understand, their clients. Managing this workforce isnothing like managing a run-of-the-mill bank.

In an institution like this, the management needs to be perceived ashonest, responsive and open. If corruption, politicization or bureaucratictorpor began to infect it, the disease would be irreversible.

The government has tried to maintain the appearance that its attacksare merely about following the law. That is hard to believe. Over the pastfew months, officials have sought to damage Yunuss reputation, claiming without evidence that he has enriched himself at the expense of the poor,intentionally harmed borrowers, and engaged in fraud. The primeminister has called microlenders loan sharks sucking the blood of thepoor. Her son circulated a letter which contained a litany of unfoundedaccusations against Yunus the most outrageous being that thegovernment created the Grameen Bank, not Yunus.

Its not as if Bangladesh is lacking real problems that require

government attention. There can be no sense in destabilizing the leadinginstitution in an industry that provides financing to more than half of thehouseholds in the country. In fact, the field of micro-finance needs solid,innovative leadership today more than ever. There remain questionsabout its effectiveness in alleviating poverty. Its crucial for lenders tomake honest appraisals of their impact and experiment with otherservices to determine how it can be made to work better.

In Bangladesh, there is also a potentially serious problem of villagers
http://www.thedailystar.net/newDesign/news-details.php?nid=177250


5/6



taking loans from multiple lenders and getting overly indebted. For theseand other reasons, it is unwise for the government to try to tarnish ormarginalize Yunus, whose experience, global recognition andinventiveness are valuable assets for the whole field.

On March 15, the Bangladeshi Supreme Court postponed ruling on Yunuss case for two weeks. Hopefully, common sense will win the day and a solution will be reached so that this vital institution and themillions of villagers who depend upon it for their livelihoods are not jeopardized. Given that Yunus understands Grameens culture betterthan anyone, he should have a key say in any leadership change.

As weve noted in several previous Fixes columns, the involvement of governments in anti-poverty programs is often essential. Wisegovernments should view microfinance programs not as adversaries, butas partners in furthering public goals organizations that need to beregulated, but not controlled. Not all do. So its important for leaders of micro-finance organizations to take steps to safeguard theirindependence well before political attacks come. Foreign governmentsand multi-lateral institutions have invested hundreds of millions of dollars in the Grameen Bank and other large microfinance organizationsin Bangladesh, and elsewhere, with the goal of alleviating poverty. They also need to remember that its not enough to finance developmentorganizations. They need to protect them, too.

Join Fixes on Facebook and follow updates on

twitter.com/nytimesfixes.

David Bornstein is the author of How to Change the World, whichhas been published in 20 languages, and The Price of a Dream: The Story of the Grameen Bank, and is co-author of Social Entrepreneurship: What Everyone Needs to Know. He is the founder of dowser.org, a media site that reports on social innovation.

Join Fixes on Facebook and follow updates on
http://www.facebook.com/home.php?#!/pages/Social-Change-New-York-Times/147881585260868http://dowser.org/http://www.oup.com/us/catalog/general/subject/Sociology/SocialMovementSocialChange/?ci=9780195396331&view=usahttp://davidbornstein.wordpress.com/books/the-price-of-a-dream-the-story-of-the-grameen-bank/http://davidbornstein.wordpress.com/books/how-to-change-the-world/http://davidbornstein.wordpress.com/http://twitter.com/nytimesfixeshttp://www.facebook.com/home.php?#!/pages/Social-Change-New-York-Times/147881585260868


6/6



twitter.com/nytimesfixes.

2014 The New York Times Company
http://www.nytco.com/http://twitter.com/nytimesfixes

Grameen and Microfinance Under Fire - NYTimes

Documents

Transcript of Grameen and Microfinance Under Fire - NYTimes