Later On

A blog written for those whose interests more or less match mine.

Destruction of the Grameen Bank

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It’s hard to see the Grameen Bank being destroyed, but corrupt governments have enormous destructive power and don’t hesitate to use it. I have contributed to microlending, mainly through Kiva.org, and it was Grameen that created the idea. David Bornstein reports in the NY Times:

This month, the Grameen Bank, the organization that won the Nobel Peace Prize for extending small loans to impoverished village women, has come under renewed attack from the government of Bangladesh. Last year, I reported that the government was attempting to forcibly remove the bank’s founder, Muhammad Yunus, from his position as managing director on the pretense that Yunus, then 70, was beyond the official retirement age. The government prevailed.

Now it has struck again. On Aug. 2, the cabinet of Prime Minister Sheikh Hasina Wazed approved a proposal to amend the 29-year-old law that governs the Grameen Bank so the government can bypass the bank’s board of directors and handpick Yunus’s successor. This is a brazen step to seize control of an institution that serves 8.4 million poor villagers across Bangladesh and provides inspiration to social entrepreneurs around the world. Sadly, it is occurring in a country where the government has been consistently ranked as highly corrupt. Just this past June, the World Bank canceled $1.2 billion in financing for the much-needed Padma Bridge because of corruption at a high-level within the government.

The government’s most recent action not only threatens the bank’s independence, which has been crucial to its success, it challenges the ownership rights of millions of poor women who control 97 percent of the shares of the Grameen Bank and whose collective savings (about $1.4 billion) finances its operations. It is a powerful blow against an institution that has flourished and helped millions of poor people largely because it is in the hands of women.

When we picture the board of a bank we envision a table surrounded by powerful men in expensive suits. Grameen’s board is different. Of the 12 voting seats, 9 are held by village women who dress not in suits but in saris; they are borrowers of the bank who are duly elected by its more than 8 million members. The government controls only three seats, including the chairman. The board was set up this way by Yunus to make sure it stayed true to its social mission.

During its early years, Grameen switched from banking primarily with men to banking primarily with women. (Today, 96 percent of its members are women.) According to Yunus, the main reason for the shift was that a woman was a “better fighter” against poverty than a man. A woman, he said, went to greater lengths to improve her children’s nutrition and health and educate her daughters. Simply put, she used the loans more effectively. In the past few years, the field of development has come to a similar conclusion, with many aid workers asserting that the best way to fight poverty is to strengthen the positions of women and girls. . .

Continue reading.

Written by LeisureGuy

23 August 2012 at 7:34 am

2 Responses

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  1. micro-financing works only if it is NOT treated like regular retail banking. The probability of default is very high in micro-financing and hence it can succeed only when treated as a social enterprise and not a business. In India, there have been reports of micro-finance companies harassing rural lenders for recovery of loans. The Government had to step in to save debtors from these strong arm tactics of micro-financers.

    Raunak

    23 August 2012 at 9:44 am

  2. According to a 2005 story in BusinessWeek:

    Default rates on MFI loans run about 4%, which is less than half the rate on subprime loans made by U.S. lenders. “There is a deep pride in keeping up with payments,” says Deidra Wager, 50, an executive vice-president of Starbucks, who invested $100,000 in a microfinance equity fund in 2003. “In some instances, when an individual is behind on payments, others in the village may make up the difference.”

    However, that story is 7 years old, and things change. I do agree that microfinance is a social enterprise. I still hate to see the Grameen Bank taken over, particularly in light of how it’s being done, which suggests nefarious motives.

    LeisureGuy

    23 August 2012 at 10:01 am


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