MICROFINANCE - IS IT WORKING?

by Jacob Goldstein

Carlo Allegri/AP

Muhammad Yunus — Bangladeshi economist, Nobel laureate, father of microfinance — may or may not have been fired this week.
This is the latest in a string of problems in the microfinance world.
Here's an explanation of what's going on with Yunus, and what the broader implications are.


Who is Yunus?
In 1976, Yunus launched a project to explore making very small loans to very poor people in rural Bangladesh. That project grew into Grameen Bank, which became famous around the world as a model for what came to be known as microfinance.
What's happening now?
Yunus has continued to run Grameen. But the government of Bangladesh, which owns a minority stake in the bank, appoints the chairman of the bank's board. The chairman says Yunus has been dismissed.
The chairman's rationale: Because the bank is partly owned by the government, its employees should be bound by the government's mandatory retirement age of 60. Yunus is 70.
Grameen, meanwhile, said today that Yunus is "continuing in his office" at the bank.
To learn more, I talked today with David Roodman, who is writing a book on microfinance around the world.
He said what's really going on here is a political fight between Yunus and the prime minister of Bangladesh, Sheikh Hasina.
Yunus has a higher global profile than the prime minister. On top of that, he considered launching a political party a few years back. As a result, the prime minister perceives him as a political threat.
The issue will be resolved in court — and the court is likely to rule in favor of the government and against Grameen, Roodman said.
What are the broader implications?
As we've noted before, there's been a widespread backlash against microfinance in recent years, with questions about its effectiveness as well as the motives of some of its practitioners.
The backlash has been particularly notable in India, where the founders of a for-profit microfinance bank got rich when the bank had an initial public offering. At the same time, there was a rash of suicides among microfinance borrowers there.
On top of that, Roodman said, private microfinance came to be seen as a threat by some local politicians.
Yunus has explicitly distanced himself from this sort of for-profit microfinance.
But the move to oust him makes it clear that he, like his counterparts in the for-profit world, now faces stiff political resistance.
For more: Listen to our podcast, "What's Better For Helping The Poor — Greed Or Charity?
Update: The link to the podcast has been fixed. Thanks to the commenter who pointed out that it was broken.