Yunus forced from bank. How will it affect microfinance?

Marketplace Staff Mar 2, 2011

Yunus forced from bank. How will it affect microfinance?

Marketplace Staff Mar 2, 2011


Kai Ryssdal: There was a big shake-up today in the world of microfinance — the business of giving tiny loans, generally to poor people in developing countries. Muhammad Yunus, Nobel Peace Prize winner and a pioneer in the field, is said to have been ousted from Grameen Bank, the microfinance bank he founded 30 years ago.

David Roodman is a senior fellow at the Center for Global Development. We’ve called him up to get some insights into this. David, good to talk to you.

David Roodman: Great to be here.

Ryssdal: So what has happened in Bangladesh between Muhammad Yunus and the government?

Roodman: Well a rumor went out today that Muhammad Yunus had been fired, which technically is not true because the only people who can really fire him are the board of the Grameen Bank, and they don’t want to do that. But it’s clear that the government wants to get rid of Yunus, and I’m thinking increasingly that they will succeed.

Ryssdal: Why do they want to get rid of him? He is, you could fairly say, the founding father of microfinance.

Roodman: Well for the prime minister of Bangladesh, Sheikh Hasina, this is a serious political game. She comes from a long, established, political family with a brutal history. And she sees Muhammad Yunus — because of his fame and stature — as a potential rival.

Ryssdal: And he has been saying unkind things about the government? He’s accused them of corruption and all kinds of different things.

Roodman: Well yes. Back in 2007, he said once or twice that politicians in Bangladesh are corrupt, which actually happens to be true. But that’s kind of the extent of it.

Ryssdal: This whole thing in Bangladesh, though, plays into the larger question of what has become of microfinance. I think last time people checked, it was the salvation for poverty in the Third World, and now there are suicides in India, there are talks of extortion in South America, I mean a little bit has changed in the past couple of years.

Roodman: That’s right. A lot has been going on. I think what’s happening in Bangladesh — although it is primarily a domestic, political structure — is a symbol because it raises this big question, can microfinance survive its own success? And what’s happened is that it really is doing good on the ground. It’s providing useful services to millions of people, but it’s also been oversold. And now there’s a kind of backlash. Both because people are finding out well actually, maybe it isn’t a proven weapon against poverty. And also because it has motivated such a flood of capital into microcredit that it has led to over lending and over borrowing in a story that’s very familiar to Americans.

Ryssdal: Yeah. Sounds a little bit like subprimes.

Roodman: Exactly. In fact, Yunus has called it something like sub-sub-subprime lending. I don’t think he meant it quite that way.

Ryssdal: So are we going to see in microfinance the same thing we’ve seen in, I suppose you might say, macrofinance — subprimes and the rest of the global banking economy, this pulling back and a retrenching and a tightening up of standards and maybe not so much micro capital out there?

Roodman: To an extent, I think we will. I think that would be a healthy thing. One big difference here is the microcredit sector is not systemically important. If it all collapses tomorrow, that won’t create a recession. So the issue here is just how to make this little part of the economy in certain poor countries work better so it can really serve poor people more. And I think we’re at a point where actually less money going in might actually make things work better because then the growth would be slower and safer.

Ryssdal: Is what’s happening in Bangladesh going to change anything on the larger microfinance world? I mean, Muhammad Yunus is having problems, Bangladesh is upset, but microfinance will continue?

Roodman: Yes, I think microfinance will continue because what happens on the international stage is that Muhammad Yunus will still be a hero. This is not really undermining his reputation of the reputation of microcredit.

Ryssdal: David Roodman is a senior fellow at the Center for Global Development. David, thanks a lot.

Roodman: You’re welcome.

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