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Muhammad Yunus Forced Out –Whither Microcredit? David Roodman
May 24, 2011
Muhammad Yunus has been forced by a Bangladesh court to step down as the head of the Grameen Bank, leaving the world to wonder what will become of the institution that helped inspire the microfinance revolution. On this week’s Wonkcast, we consider the rise and uncertain future of microcredit, not so long ago the darling of development experts and activists alike, and discuss whether or not the arc of Yunus’s remarkable life serves as an apt metaphor for the microfinance movement.
My guest is CGD senior fellow David Roodman, who has been tracking the Yunus trial since it began as part of his Microfinance Open Book Blog. The book in public on the blog, Due Diligence: An Impertinent Inquiry into Microfinance, is nearing completion and will be published before the end of the year.
David tells me that when he traveled to Bangladesh in 2008, soon after he began research for the book, he was impressed by the size and strength of the country’s growing microfinance sector. Over the years, microcredit had developed robust institutions that not only provided loans and savings accounts to millions of poor people, mostly women, but also employed thousands. David sees the institutions, not only Grameen but also its largest competitor, BRAC, as transformative development achievements in their own right.
“Services like microfinance do not reduce poverty,” says David. “It’s this very disruptive, often uncomfortable process of economic transformation—industrialization—that does. By helping build these financial institutions, microfinance is fostering that kind of transformation in the financial sectors of developing countries.”
Unfortunately for Yunus, this transformative process challenged the status quo in Bangladesh. Yunus ventured briefly into politics and was ultimately forced out of the leadership of the institution he founded (for exceeding a mandatory retirement age of dubious validity) in a politically motivated effort to reduce his influence. Since then, the government has cracked down on Yunus’ supporters. David tells me that there is growing concern about possible human rights violations, including the abduction and torture of the leader of the Grameen employees’ union.
All this is a long fall from 2006, when Yunus and the Grameen Bank won the Nobel Peace Prize, attracting a storm of international attention and a destabilizing flood of public and private capital. David recounts the roller coaster ride that was the microfinance revolution and explains how over-reliance on lending (as opposed to other financial services, such as savings and insurance), the resulting credit bubble, and randomized control trials results that called into doubt the core belief that microcredit lifts families out of poverty all combined to tarnish the reputation of the movement.
Nevertheless, David ends by reiterating his support for microcredit, even if it has not proven a successful intervention for reducing poverty.
“The strength of microfinance is in building robust, durable financial institutions to bring useful services to millions of people in need,” says David. “That’s still a rather remarkable achievement within the world of foreign aid and philanthropy.”
Listen to this week’s Wonkcast to learn more about microfinance and to hear David’s recommendations for policymakers on how to improve micro-lending and micro-saving practices.
If you have iTunes, you can subscribe to get new episodes delivered straight to your computer every week. My thanks to Will McKitterick for his production assistance on the Wonkcast recording and for assistance in drafting this blog post.
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2 Responses to “Muhammad Yunus Forced Out –Whither Microcredit? David Roodman”
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May 28th, 2011 at 8:06 am
What a shame. I think that is a tragedy.Will wait for the book to get the full story.
June 7th, 2011 at 2:26 pm
The more and more I read about Prof. Yunus’s exit I feel sad. Thanks for the well written piece about David’s views. At one point of time I also felt so bad about the episode that all I could do was write my opinion in my blog.
On March 9th I wrote my views in my blog:
http://udaysmicromusings.blogs.....nance.html
Curry Leaves of Microfinance
The Curry Leaf is a very important ingredient of South Indian cuisine so much so that some preparations bereft of Curry leaves are just not relished. Though the Curry Leaf is so important it is picked from the food and thrown away after cooking, ensuring that the essence of the leaves has been fully extracted. This method of discarding the most important ingredient after it is cooked has been idiomatically used in South Indian vernacular. If some one is shown the door after his “essence” has been fully used by an organisation we relate it to the Curry Leaf Syndrome. With the advent of the globalisation and the entry of the so called corporate culture this Syndrome has come to stay. The Curry Leaf Syndrome had its toll in Microfinance too. Institutions which were planning to move fast from a social mode to the new bandwagon had to pave way for ‘new blood’ to be infused and had to cull out people of the old school of thought and fill the gap with aspirants from the corporate world. I am also an example of the same syndrome. It is today happening to Prof Yunus and the whole Microfinance fraternity (except those who were waiting in the wings for his exit) is shell shocked.
It happened to many others too in the sector during the transition from the social microfinance to commercial microfinance. Today this is noticed because Prof Yunus is known internationally and a recipient of the coveted Nobel prize. It is sad to know that the Government and the judiciary in Bangladesh has failed to see what the Professor has gifted to the world. On the 7th March, on the eve of the International Women’s Day I was pleased to see the following statement from the Microcredit Summit Campaign:
“WASHINGTON, DC – More than 128 million of the world’s poorest families received a microloan in 2009–an all-time high, according to a report released today by the Microcredit Summit Campaign. Assuming an average of five persons per family, this means that loans to 128 million poorest clients affected some 641 million family members, which is greater than the combined population of the European Union and Russia. Microloans are used to help people living in poverty start or expand a range of small businesses, such as selling basic staples, producing handicrafts, and delivering cell phone services to remote villages.”
For more information please visit: http://www.microcreditsummit.org/news
This could not have been possible without the path breaking experiment of Prof. Yunus. I am a great admirer of the professor and was expecting him to get the Nobel in 1995 itself for Economics. Nevertheless, I was gung-ho when he received the Nobel for Peace in 2006. I still remember the day when it was announced and I had a call from a correspondent from BBC Radio’s Tamil Service asking my opinion. It was a short interview but reached as far as Sri Lanka from where I received appreciation.
I have a gut feeling that the establishment in Bangladesh has been watching the Egypt Crisis too closely and having seen the emergence of leaders like Mohammed ElBaradei, the former head of IAEA, it has got into a fear psychosis seeing a potential leader in the making in Bangladesh. The recent happenings in Bangladesh are indicative of such a move against a person who is now a global figure. I wish the professor all the strength and resilience to face the crisis and come out successful.
P.Uday Shankar