April 5th saw an unfortunate end to the Yunus-Grameen Bank saga that has been unfolding since the end of last year. Muhammad Yunus, Nobel Laureate lost his final appeal to stay as the managing director of the very institution he founded nearly thirty years ago. The Bangladesh Supreme Court dismissed Yunus’s appeal challenging a High Court ruling that upheld his removal as managing director of Grameen Bank. After the court’s ruling, Yunus told reporters, “I went to court to seek justice, but now I have received the verdict and it’s my time to leave Grameen Bank” (Al Jazeera 2011).
The conditions of Yunus’s removal are bizarre to say the least. The Bangladeshi government mounted an aggressive attack against the microfinance guru following a Norwegian TV documentary that accused Yunus of tax evasion. Following a swift investigation, the Norwegian government cleared Yunus of charges of misuse of funds or corruption (Microfinance Monitor 2010). Despite the Norwegian government’s statement, the Bangladeshi government launched a corruption investigation against Yunus.
While all institutions and individuals should be subjected to financial scrutiny, what has specifically raised eyebrows is the nature and timing of the Bangladeshi government’s multi-pronged attack. In addition to the corruption investigation, the court ordered Yunus to appear to face charges of defamation for saying that politicians only pursue money. The Bangladeshi press started printing false reports that Yunus will (willfully) resign. Later, a high court ruled that Yunus had illegally stayed on as managing director past his retirement age (Yunus was ultimately removed on those charges). In the words of Kristof, “it sure looks as if this is an orchestrated campaign to take him out”.
The fact that Yunus has had tense relations with the current PM, Sheikh Hasina for several years now is no secret. Things got sour when Yunus revealed plans of starting his own political party in 2007 (the plan was later abandoned). A former supporter of microfinance, Hasina now accuses the bank of “sucking blood from the poor in the name of poverty alleviation”.
Of course, it is important to reiterate that neither Yunus nor Grameen Bank are above the law and microfinance should be debated. Microfinance has come under growing criticism, not just in Bangladesh but also in India, Pakistan and Nicaragua (Bajaj 2011). Research studies have yet to reveal a positive relationship between microfinance and poverty alleviation. There have been numerous instances of over lending, borrowers being unable to pay back loans due to high interest and allegations of micro lenders reaping a profit on behalf of poor borrowers (Read about the case of SKS Microfinance in India here).
A critical Al-Jazeera report reveals Grameen Bank managers using heavy-handed tactics to get borrowers to pay back their loans. One former Grameen Bank interviewed states he left the Bank because he was uncomfortable with how it worked: if a person can’t pay back a loan, the Bank simply gives him/her another loan. If the borrower still can’t pay back the loans, the Grameen managers begin to threaten him/her.
Bornstein’s recent column on “Microfinance and the Public Good” sheds light on how in addition to politics, much of the criticism of Grameen Bank comes from discomfort with the institution of microfinance itself:
Many suspected that Yunus was being targeted for political reasons. But others said that there were people within the government, as well as across Bangladeshi society, who opposed the work of the Grameen Bank on principled, if ideological, grounds. Simply put, many people don’t think that microfinance helps the poor and they believe that socially-minded businesses, like the Grameen Bank, undermine the work of government.
If you’re a little confused at this point, don’t worry, you’re not alone. As Bornstein rightly points out, “Microfinance is not, itself, one simple thing. It may involve loans, or savings, or a combination of the two, plus training, insurance or other services. Different mixtures can produce different results in different settings”. Furthermore, the spending patterns of low-income households are a lot more complex than what we would imagine and it may take several years for us to come across the true benefits of microfinance.
The real value of microfinance as Morduch frames it (and I agree with him) is the fact it helps provide poor people with a reliable source of money. “With microfinance, you get a sum of money that’s promised on the day it’s promised in the amount that’s promised. It’s often the only reliable service that poor people have — and that’s incredibly powerful.” It helps smooth over cash flows and provides low-income households with a degree of much needed certainty.
Going back to Yunus’s removal, while every leader needs to responsibly pave the way for his/her successor, leadership transitions need to be handled with great care. Forced exits such as in the case of Yunus will shake up an institution and send a strong signal to the larger civil society to back off. The fact that the government is pushing for a greater share of the Bank is also worrisome. Aside from the fact that Bangladesh has a history of using banks and cooperatives as political instruments, government ownership will be a deviation from the model of the bank itself.
As we learn more about microfinance’s various impacts and pitfalls, we cannot escape the question of reform. Governments need to start working constructively with microlenders to address issues rising out of microfinance e.g. growing indebtedness, high default rates, rather than embarking on politically motivated slander campaigns. Forced exits such as those of Yunus will accomplish very little.
ThinkChange Pakistan 