As recently as 2006, Muhammad Yunus was the nonprofit equivalent of a rock star. That year, Yunus and Grameen Bank, the microcredit institution he founded in the 1970s, won the Nobel Peace Prize, and Yunus was hailed globally as that rare thing: a social entrepreneur who had succeeded in scaling his innovation.
But as a flood of new lenders, many of them for-profit, entered the field, microfinance increasingly came under attack from politicians who questioned its efficacy and critics who derided the often exorbitant interest rates charged by lenders. Adding to the confusion, a Norwegian documentary raised questions about how Norwegian aid funds awarded to Grameen during the 1990s had been used. Even though a subsequent investigation by the government of Norway absolved Grameen of any wrongdoing, Yunus continued to face criticism in Bangladesh, where Grameen is based. Indeed, earlier this year, the Bangladeshi government took steps to dismiss Yunus as managing director of Grameen on the grounds he had long since passed the country's mandatory retirement age for people working in government-owned banks (the government owns a quarter of Grameen).
Philanthropy News Digest recently spoke with Alex Counts, president and CEO of the Washington, D.C.-based Grameen Foundation, which was created in 1997 by friends of the Grameen Bank to help spread the Grameen philosophy, about the controversy involving Yunus and the future of microfinance in general.
Philanthropy News Digest: Where do things stand with respect to Professor Yunus and the government of Bangladesh?
Alex Counts: First, it's important to note that the Grameen Foundation, with the exception of funding some educational scholarships, does not do any programming in Bangladesh. The Grameen family of organizations there is so well established that we don't feel we would bring anything new to the table.
That said, the fortunes of our sister Grameen organizations matters to us. And while there were many rumors reported in the media, only two material things really happened. One is that the government of Bangladesh set up something called an inquiry committee to investigate Grameen Bank — which, by the way, welcomed the investigation as long as it was impartial and based its recommendations on the facts. Second, the government named a new chairman for Grameen Bank. The position had been vacant for about eight months, and the government has the right to do that. But in doing so, the government of Bangladesh did something unexpected — they appointed Khondaker Muzammel Huq, a former employee of Grameen Bank who did not leave the bank on good terms, to the position. Huq, who was once a deputy of Professor Yunus', was quoted in the New York Times as saying he didn't think Yunus gave enough credit to his deputies. Again, the government had the right to do so, but it certainly raises questions. In addition, there have been a lot of leaks to the media behind the scenes as well as a couple of hostile comments made publicly by the prime minister of Bangladesh, Sheikh Hasina. Of course, since you and I last spoke, the government has taken steps to dismiss Professor Yunus as managing director of the bank, on the grounds that, at the age of seventy, he is well past the country's mandatory retirement age. Professor Yunus has challenged their authority to do this and we believe he has solid legal grounds for doing so. In the midst of all of this, the bank is continuing to operate more or less as it always has.
PND: What effect has the controversy had on Grameen in general?
AC: Unlike many microfinance institutions, Grameen's financial backers are also its borrowers. It is 97 percent owned by the women who borrow from it. Two-thirds of its deposits come from loan clients, while one-third comes from ordinary Bangladeshis who have chosen to open accounts there. The latter group of depositors cannot receive loans and do not own a stake in the bank; they use the bank because it provides a good service. Both groups have remained steadfast. There has been no run on the bank or widespread withdrawal of savings. Its financial backers, so to speak, are waiting the crisis out calmly. The same can be said of its borrowers. Their loan repayments, discipline, attendance at the borrower repayment meetings — what we call center meetings — all have stayed at the levels we saw pre-crisis.
PND: What might the ramifications of the situation in Bangladesh be for microfinance in the larger South Asia region and elsewhere?
AC: As microfinance in countries such as India, Bangladesh, and Bolivia grows to become a significant part of the financial landscape, not to mention a significant piece of national poverty reduction efforts, microfinance groups are going to be subject to more scrutiny from the media and from government. And that means that microfinance organizations, especially in India, are going to have to work harder to develop the case that they actually do help to reduce poverty. This is where the Grameen Foundation has been building on an innovation pioneered by Grameen Bank — namely, the Progress Out of Poverty Index™. It's a kind of scorecard that enables microfinance organizations, at very little cost, to create an evidence base for how quickly their clients climb out of poverty after receiving a microloan or series of loans. We believe it can bolster the pro-microfinance argument within governments and the media while giving pause to those who are opposed to what microfinance organizations are doing. Ultimately, as microfinance organizations grow in scale and scope, they need to be prepared for political leaders to ask hard questions and to even threaten interference in their operations as a way of scoring political points. This is what is happening in India and Bangladesh, and we hope that political leaders in those two countries step back from the brink before the situation evolves into a full-blown crisis.
PND: Is building an evidence base enough?
AC: Probably not. Microfinance organizations need to maintain good relations with both the media and political leaders and not leave their public relations in the hands of others. They need to be proactive. And they need to create some sort of policing mechanism, like a credit bureau, that can determine whether a borrower is becoming over-indebted, as well as consumer protection codes that help define and enforce ethical treatment of clients. The truth is, in every country where microfinance has been introduced, there are some lenders who don't adhere to the high ethical standards of people like Professor Yunus.
PND: Do you have a sense of how the controversy might affect the ongoing rollout of microcredit services in the United States? And what is your organization doing to improve the environment for microfinance, both here and abroad?
AC: I don't see the situation in Bangladesh having any affect on the continued rollout of microfinance in the states. As you know, Grameen America has done very well, for itself and its clients, by introducing the Grameen methodology in a couple of U.S. cities. And there are many other groups in the U.S. that are offering microloans. I've been involved with a group called Project Enterprise that provides microloans in New York City. For what it's worth, the majority of the financial supporters and clients of these organizations are unaware of what is happening in Bangladesh. And among those who have been following the news, the vast majority feel sympathy for and a sense of solidarity with Professor Yunus.
For our part, we've talked to like-minded organizations that are trying to defuse the situation. We've also provided people in the Obama administration and in Congress with information that has enabled them to engage, through diplomatic channels, certain stakeholders in Bangladesh. But we don't believe the situation in Bangladesh has changed how microfinance is perceived in the U.S. or how the Grameen Foundation is portrayed in the media. If anything, it's made Professor Yunus an even more compelling and sympathetic figure.
-- Matt Sinclair