Recently I had the pleasure of visiting our sister organization, Grameen America, which has been providing microfinance services to low-income, mostly Hispanic clients in New York since 2008, and has since opened branches in Omaha and Indianapolis. My host was GA’s CEO of Operations, Shah Newaz, someone I have known for more than 20 years.
When I first arrived in Bangladesh, Shah was head of Grameen Bank’s audio-visual unit, and later became the longest-serving zonal manager in the bank’s history. (A zonal manager is the most senior field-based position in Grameen Bank’s structure.) Some years after that, he served as a senior technical consultant for Grameen Foundation in the Dominican Republic, where he did a great job and picked up some Spanish (which he has continued to perfect in his new role).
Alex Counts attends a Grameen America center meeting in Jackson Heights, NY. (Photo by H.A. Shah Newaz.)
I was interested in how GA was progressing for a lot of reasons. My book Small Loans, Big Dreams extensively examined one of the earliest microfinance programs in the United States, the Full Circle Fund. While doing that research, my eyes were opened for the first time to the vibrancy of the grassroots economy in many inner-cities. Later, I became involved in microfinance institutions in the United States that Grameen Foundation also supported: Project Enterprise in New York City, the PLAN Fund in Dallas and the New Opportunities program of Volunteers of America in Los Angeles. Though the LA program was phased out, the other two continue providing microfinance effectively while drawing on the Grameen Bank model extensively. However, they operate on a relatively small scale, even as they try to serve a lower-income population (including many African-Americans) than other microfinance and microenterprise programs here serve.
Professor Muhammad Yunus recently paid a visit to Grameen Foundation headquarters, meeting with leaders and speaking to staff (as well as to staff from RESULTS) during a visit to Washington, DC. Todd Bernhardt, Grameen Foundation’s Director of Marketing and Communications, was part of an audience who listened to Professor Muhammad Yunus speak, and provides this update on his recent activities.
Prof. Yunus recently visited our DC office.
It’s hard to believe that it was only a bit more than three months ago that microfinance pioneer and Nobel Peace Prize winner Professor Muhammad Yunus stepped down from his post as Managing Director of Grameen Bank, the poverty-fighting organization that he founded in the late ‘70s. During the government’s campaign to remove him from office (read this Fact Sheet to find out more), many Grameen Foundation supporters voiced their concern about Prof. Yunus and the independence of Grameen Bank, and have wondered about his activities since then, asking us to provide an update. A recent visit by Prof. Yunus to Washington, DC, provided us with an opportunity to catch up with him personally, while demonstrating to everyone who spoke with him that his commitment to fighting poverty through innovative solutions remains as firm as ever.
Grameen Foundation President and CEO Alex Counts welcomes Prof. Yunus (right) while Microcredit Summit Campaign Director and RESULTS founder Sam Daley-Harris listens.
Prof. Yunus stayed in Washington from Aug. 10-13, giving a keynote speech at the annual forum of InterAction (an alliance of U.S.-based international NGOs focusing on the world’s poor and vulnerable populations), making several media appearances (he spoke with NPR’s Kojo Nnamdi and Andrea Stone at The Huffington Post) and meeting with U.S. Secretary of State Hillary Clinton, as well as officials from the U.S. Agency for International Development.
He also met with a number of leaders in the international-development community – including Grameen Foundation President and CEO Alex Counts and Sam Daley-Harris, Director of the Microcredit Summit Campaign and founder of RESULTS, a anti-poverty lobbying organization – and spent a morning speaking to the staff of those organizations at Grameen Foundation’s DC headquarters.
Focusing on the Social Business
In all of his visits, Prof. Yunus emphasized the need to develop and popularize the social business, which he wrote about in his book Creating a World Without Poverty: Social Business and the Future of Capitalism. Simply put, social businesses are for-profit entities created primarily to serve a social goal. Such businesses strive to generate modest profits that are used to fund and expand operations, rather than to pay dividends to investors.
Since his departure from Grameen Bank, Prof. Yunus has continued to advocate for its independence from government control and to defend the interests of the Bank’s 8.3 million borrower-owners (97% of whom are poor women). Bank employees have continued to keep operations running smoothly while the Bangladesh government has seemingly turned its attention away from the Bank to unrest in the country caused by, among other things, moves to amend the constitution to remove the non-party caretaker system that oversees the country during general elections.
But many people fear that the government’s apparent lack of interest in taking control of the Bank may prove to be temporary, and that it may move again soon to amend the Bank’s bylaws and change the composition of its Board. With this in mind, Prof. Yunus urged the group assembled at the Grameen Foundation offices to remain vigilant and work with others around the world to ensure that the rights of the 8.3 million owners of the Bank are protected. “We have to stand behind them,” he said. (You can help by signing this petition asking the Bangladeshi government to keep Grameen Bank independent.)
He then reviewed the progress made by Bangladesh over the past 30 years, explaining that it was because of the power of ordinary people working together in civil society that the quality of life had improved for so many. Social business, he said, provides another way for people to work together to achieve social aims, leveraging the power of capitalism and the free market. “Business can be used to solve problems, not just to make money,” he explained. “Money is not the way to happiness. We make ourselves happy by making other people happy.”
Prof. Yunus talks to staff at Grameen Foundation’s DC headquarters about the Asian Social Business Forum recently held in Japan, while Sam Daley-Harris and Alex Counts look on.
Prof. Yunus has been traveling the world explaining the social-business concept, meeting with enthusiastic responses in the developed world (he told the group about a recent and very successful visit to Japan, which is looking at social business as an approach in rebuilding after the tsunami of last March) and in the developing world (he has been invited to visit Haiti in October to show people there how the concept could help them improve civil society). In addition to describing a successful series of events that were held around the world on Social Business Day, June 28, he said is looking forward even more to a series of meetings in November, including the Social Business Summit in Vienna on Nov. 10-12, and the Global Microcredit Summit in Spain on Nov. 14-17.
It’s Up to Us
In taking questions from the staff at Grameen Foundation offices, Prof. Yunus emphasized the power of the individual, as well as our responsibility to empower them – all for the overall good of society. “Peace can be threatened by poverty,” he explained. Microfinance and social businesses create opportunities that “keep people from being dependent … and helps them channel their energies into positive avenues, away from violence.” Creating such opportunity, he said, also helps to address inequalities on a larger scale – between groups of people and even nations – reducing tensions and resentment.
It’s up to all of us, he concluded, to change how we view, and interact with, the world. In capitalist societies, people grow up “wearing ‘profit-maximizing glasses,’ but if you take off those glasses and put on the social-business glasses, everything looks differently! New possibilities open to you.” He gave the example of Danone, which is involved in a social business in Bangladesh that makes inexpensive, nutritious yogurt available for poor women to sell to other poor people. When Danone was starting this enterprise, and asked its shareholders if they would like to invest part of their dividends in a new business that would help people but not give them additional financial return on their investment, 98% signed up, resulting in millions of euros in investment. “Give people a choice to help others,” Prof. Yunus concluded with a smile, “and they will come through.”
Statement from Alex Counts, President and CEO of Grameen Foundation, on the resignation of microfinance pioneer Professor Muhammad Yunus, winner of the 2006 Nobel Peace Prize and founder of Grameen Bank.
The resignation of Professor Muhammad Yunus yesterday marks an important transition in the work and mission of Grameen Bank. For 35 years, his deep commitment to the world’s poorest people and unshakeable belief in their power to help themselves escape poverty have shaped the work of the Bank and its more than 26,000 employees in Bangladesh. His ideals, which have inspired countless others and helped to build a global movement to empower the poor through access to financial services, do not end with his term as Grameen Bank’s managing director.
Throughout his career, Professor Yunus has never been afraid to speak his mind nor challenge the status quo, earning both praise and criticism in many quarters. He dispelled prevailing notions about the abilities of poor people by creating Grameen Bank, which today serves more than 8.3 million people across Bangladesh. His recognition of poverty’s complexity also led to the creation of the Grameen family of companies, which focus on solving problems related to a range of issues, including hunger, educational disparities and access to affordable energy. (For more information about the Grameen family of companies, see M. Khalid Shams’ paper, Accelerating Poverty Reduction in Bangladesh Through the Grameen Family of Companies: Building Social Enterprises as Business Ventures]. That voice of reason will continue to echo, as will his unrelenting quest to promote social businesses and other changes that benefit poor people.
Prof. Yunus has always focused on serving the poor in Bangladesh, and around the world.
His bold vision of a world free from poverty has unleashed a powerful force that will continue, both in Bangladesh and abroad. I’m proud to say that he planted the early seeds of Grameen Foundation. He also played a pivotal role in launching the Microcredit Summit Campaign in 1997, which achieved its nine-year goal of reaching more than 100 million poor families with microcredit – and has now launched a second goal of reaching 175 million by 2015. Equally important, he has inspired individuals in such diverse places as Haiti, India and Nigeria to launch organizations modeled after Grameen Bank to provide hope and opportunity to poor people in those countries.
We salute Professor Yunus for urging us all to do more and press further to make poverty a thing of the past, and will continue to work with him to reach this admirable goal. We also look forward to Grameen Bank and its 8.3 million borrower-owners continuing its long, proud tradition of being a beacon for the microfinance community, and call on the Bangladesh government to respect the independence of Grameen Bank during this new era. As Prof. Yunus said in his resignation statement, “I hope Grameen Bank will continue to operate, maintaining its independence and character under the Grameen Bank Ordinance and move toward even greater success.”
Statement of Nobel Laureate Professor Muhammad Yunus on the Occasion of Supreme Court Verdict on May 5, 2011 Regarding His Removal from Grameen Bank. Professor Yunus voiced his concern after revelations surfaced surrounding violence against employee leaders of the Bank. Those interested may also want to read in the Bank’s point-by-point refutation of the allegations brought up in the government’s Review Committee report, as well as by the nation’s government-aligned media.
You have already heard the verdict from the Supreme Court.
Why did I appear before the Court? Why did I want to contest the order of Bangladesh Bank? Why there is so much concern about this issue at home and abroad? There may be some confusion regarding these questions. Please allow me to share my feelings with you to remove this confusion. I went to the Court for a specific reason. Bangladesh Bank sent a letter to Grameen Bank, removing me from my post as Managing Director of Grameen Bank. The letter also mentioned that I held this position for the last eleven years illegally. Bangladesh Bank did this without giving me a chance to explain my position. I felt that this letter was not legally correct, and through this letter, not only was I been wronged, but so was Grameen Bank. Nine elected members of the Board of Directors of Grameen Bank felt the same way. That is why the nine members of the Board and I filed separate writs in the High Court. We wanted these wrongs to be corrected. Therefore, we had to seek justice through all avenues offered in the Bangladeshi judicial system. This is what we have done.
The fate of 40 million poor people connected to this
In the event that the Honorable Court stated in their final decision that the letter from Bangladesh Bank was issued without lawful authority, I could continue my work with Grameen Bank and make the transition to a capable management as smoothly as possible. But, if the Court verdict went against us, the Board may be forced to take steps to implement the content of the Bangladesh Bank letter. This was the only reason for me to take this matter to the Court. I had no option but to seek justice in this matter.
It is indeed a much wider and much more significant issue to save the future of Grameen Bank and also to protect the hopes and dreams of the over 8 million borrowers. These borrowers are also the owners of 96.5% of the Bank’s shares. The Bank is connected with 40 million microcredit borrowers in Bangladesh, and its impact on all these people cannot be neglected. What happens to Grameen Bank influences the future of the millions of Bangladeshis who benefit from microcredit activities, as well as the future of the institution of microcredit itself. It is actually a great concern for me, and many others, that I properly fulfill my responsibility to safeguard their future before and after leaving the post of Managing Director of Grameen Bank.
Some have said that, instead of going to the court, it would have been more honorable for me to resign from my position as suggested by the Finance Minister. I do not think so. In that case, the end result would have been the same, so far as my exit is concerned. But I would have suffered from carrying the guilt of knowingly accepting an unexpected proposal and putting the borrowers and their families’ futures at risk. I could not do that.
Millions of borrowers like the ones seen meeting above could be adversely affected by a government takeover of Grameen Bank.
Some people felt that I intend to cling to the position of Managing Director of Grameen Bank. But, the nation knows that this position is not my life’s goal. I was, and am, conscious of the fact that my future work will not be based on my holding on to this position, but rather, it would be working with the young generation, from other platforms to address the problem of poverty at home and abroad. I want to do that without jeopardizing the interests of Grameen Bank. This is the thought which prompted me to write the letter to the Honorable Finance Minister one year ago. I suggested two options to him for a transition that could take place without creating any waves within the Bank. I did not get any response to these proposals. I was, instead, told to quit. It is, therefore, unfair to me to suggest that I am holding on to the of position of managing director unjustly or to allege that I am not co-operating in the process of transition.
For the last few months, a section of the media devoted itself fiercely to campaign against me, Grameen Bank, and the concept of microcredit. Everyone has his own explanation why this is happening.
An unfriendly atmosphere is not helpful for a smooth change of leadership
The cause of my concerns, as well as those of the nation and the world, lies here. These concerns are more for Grameen Bank and the future of its millions of borrowers, than for me. For this reason, I have been reminding you repeatedly that undertaking the transition process of Grameen Bank’s management in an unfriendly environment will only cause harm to the future of the Bank. I have always wanted to make sure that the transition takes place in a friendly, mutually supportive environment, so that the achievements of Grameen Bank may continue without interruption. There are many issues related to this. The big questions are: whether Grameen Bank can maintain its independent existence, and whether it can be successful in keeping itself away from political influences. What actually happens to financial institutions in our country if political influences start playing a role in these institutions is common knowledge. This experience will not inspire trust in the borrowers. We all know how important the role of trust is in the operation of Grameen Bank.
A guest post from Sam Daley-Harris, Founder of the Microcredit Summit Campaign, which seeks to reach 175 million poorest families with micro-loans, and of RESULTS, which seeks to create the political will to end poverty.
The deed is done. On May 5th, the appellate division of the Bangladesh Supreme Court agreed that the Bangladesh Bank, the nation’s central bank, was justified in firing Nobel Peace Prize Laureate Muhammad Yunus from his post as Managing Director of Grameen Bank, the institution he founded more than three decades ago. Prof. Yunus’s lead lawyer, Dr. Kamal Hossain, one of Bangladesh’s most distinguished attorneys and a drafter of the nation’s constitution, was scarcely able to hide his disgust at the Appellate Division order, when he said, “I [apparently] have to take admission to university again to newly learn the constitutional laws of the 21st century.”
The dismissal is not the lone action of one government institution, but is part of a premeditated campaign that starts at the highest level, with Prime Minister Sheikh Hasina. Their reason for sacking Prof. Yunus? He’s “too old.” Never mind that the 70-year-old Yunus maintains a rigorous schedule or that the Finance Minister, another key player in the sacking, is at 77 somehow not “too old” for that post.
The dismissal of Prof. Yunus from his post as Managing Director of Grameen Bank could portend ominous changes by the Bangladesh government.
Their excuse would be laughable if it were not for the calamitous impact it portends. What makes the decision to remove Prof. Yunus so disgraceful is not that he would be out of a job – any university in the world would welcome him with open arms as a visiting professor. No, the atrocity here is the fact that the independence and integrity of one of the world’s premier poverty-fighting institutions is now at grave risk. Grameen Bank, an extraordinary institution with more than 8 million microcredit borrowers that took 35 years to build, could be destroyed in a matter of months by incompetent government action.
The government’s action cannot honestly be in response to accusations by a Danish documentary maker about an improper transfer of Norwegian aid funds more than a dozen years ago, because both the Norwegian government and Bangladesh’s own review committee have found that Grameen Bank did nothing wrong. It cannot be due to the documentary maker’s charge of excessive interest rates, because Microfinance Transparency and the government’s own review committee found that Grameen Bank has the lowest interest rates in the country. Instead, most observers see this as an inexcusable political vendetta by the Prime Minister against Prof. Yunus, stemming from his short-lived attempt to start a political party in 2007.
Consider these groundbreaking innovations that Prof. Yunus’ poverty-fighting laboratory has brought to the world, and what could be lost in the future from his unwarranted ouster:
In 1976 he made loans of less than US$1 each to 42 desperately poor Bangladeshis to start or build tiny businesses – and the microcredit revolution was born. It has made its way all around the world. While others have seen microfinance as a way to make big money for investors, Prof. Yunus has never once diverted from his original intent to empower the poor.
In 1997 Grameen Phone Ladies started bringing cell phone technology to remote villagers throughout Bangladesh – providing the dual benefit of creating jobs and increasing communications, which enhanced others’ work.
Grameen Shakti, an energy firm, has installed more than a half-million solar home systems and sold more than a quarter-million improved cooking stoves.
In a joint venture with Danone, the yogurt maker headquartered in France, Grameen Danone is bringing low-cost fortified yogurt to malnourished children throughout the country – and creating a business opportunity for the poor women who sell it.
College scholarships and loans have gone to 180,000 students. Most remarkably, in almost all of the cases, these are the children of illiterate parents who have had the help of Grameen Bank in breaking the bonds of inter-generational illiteracy.
A government that so rashly and ruthlessly ousts this innovative and transformational leader cannot likely be trusted to continue his revolutionary work.
But the deed is done. Here is a sample of the visionary voice that Bangladesh has likely lost in this despicable government act. Reflecting on the 1997 Microcredit Summit, Prof. Yunus wrote: “In teaching economics I learned about money, and now as head of a bank I lend money. The success of our venture lies in how many crumpled bank bills our once starving members now have in their hands. But the microcredit movement, which is built around, and for, and with money, ironically, is at its heart, at its deepest root not about money at all. It is about helping each person to achieve his or her fullest potential. It is not about cash capital, it is about human capital. Money is merely a tool that unlocks human dreams and helps even the poorest and most unfortunate people on this planet achieve dignity, respect, and meaning in their lives.”
Barbara Weber, who worked at Grameen Foundation from 2002 to 2006, was a Rotary International Ambassadorial Scholar in Bangladesh and is now working on her Ph.D. in depth psychology.
Bangladesh went from being dubbed the world’s basket case in 1973 by former U.S. Secretary of State Henry Kissinger to becoming a beacon of development innovation that the rest of the world has since sought to emulate, thanks in large measure to its pioneering in microfinance. This renown is fast turning to infamy, however, as political vendetta cannibalizes the very source of the nation’s well-deserved pride.
The country’s acclaim reached a crescendo in 2006, when the Nobel Peace Prize was awarded to Grameen Bank and its founder, Professor Muhammad Yunus, for creating a system that has enabled the poor to pull themselves up by their boot straps. It has done this so effectively that its microfinance model has been studied exhaustively and replicated around the world.
What ensued next seems to have won Yunus the ire of the current prime minister, Sheikh Hasina. In 2007, the newly ordained Nobel laureate made a fleeting and ill-fated foray into politics in a vacuum that was created when a military-backed interim government began jailing operatives of the country’s top political parties. Sheikh Hasina herself was temporarily in exile and charged with masterminding crime.
Prof. Yunus and most of the Board directors who represent the borrower-owners of Grameen Bank tour the streets of Oslo the day before receiving the Nobel Peace Prize in 2006.
Some saw this as a potential turning point for a country that had topped Transparency International’s list of the most corrupt governments in the world. Bangladesh was number-one on that list for five consecutive years. But when national elections were held in 2008, Sheikh Hasina – who had held the post of prime minister from 1996 to 2001 – again took office. Now, she and her party in power seem intent on systematically dismantling Grameen Bank.
In apparent collusion with the current government, the country’s highest court recently upheld the ouster of Grameen Bank’s founder as managing director. The Supreme Court will have one more opportunity to review the case in a ruling that is due on May 2. In the meantime, Prof. Yunus remains managing director of the Bank while the world watches attentively and awaits Bangladesh’s next move.
Alex Counts is President, CEO and founder of Grameen Foundation.
In addition to our commitment to excellence in social-performance management by microfinance institutions, exemplified by our championing of the Progress out of Poverty Index™, Grameen Foundation has long been committed to promoting a fuller understanding of research into the effectiveness of microfinance as a poverty-reduction strategy. We have published two reports, one by Professor Kathleen Odell of Dominican University in 2010 and an earlier one by Nathanael Goldberg (who is now with Innovations for Poverty Action), that attempted to summarize in simple terms what the evidence could tell us. (Though Grameen Foundation commissioned both reports, we exerted no editorial control over what either Odell or Goldberg wrote.) Both reports were well-received by practitioners, researchers, investors and policymakers alike. David Roodman, a leading blogger in the microfinance industry, wrote that Prof. Odell did “a fantastic job” with her report, adding, “I applaud the Grameen Foundation for giving her such autonomy. The report reviews a good set of relevant studies. With concision and clarity, yet without jargon, it explains the pros and cons of various research methods, and the limitations of them all. And it draws balanced judgments. It is a model of public communication about social science research.”
"Measuring the Impact of Microfinance: Taking Another Look" is the latest report published by Grameen Foundation that examines the studies of the effectiveness of microfinance as a tool to alleviate poverty.
One of the most confusing and contentious issues covered in both reports is the controversy regarding the well-known Pitt/Khandker studies on the impact of three major microfinance institutions in Bangladesh, including Grameen Bank. In general, their research found many positive, statistically significant impacts on clients when measured against comparison groups. Despite being one of the few microfinance impact-assessment research studies that has undergone a rigorous peer-review process prior to its publication in an academic journal (the Journal of Political Economy), it has been criticized as being flawed and unreplicable by other researchers using the same data. These criticisms have been leveled by NYU Professor Jonathan Morduch (a respected researcher) and Roodman (microfinance’s most widely read and respected blogger). Though I lack a deep understanding of econometrics (on which the Pitt/Khandker study relies), I have probed into this debate, as Odell and Goldberg did in their papers. Interestingly, I was alerted last year that an article that was supposed to conclusively prove that the Pitt/Khandker study was wrong was itself rejected from a peer-reviewed journal. It may still be published, though.
Most recently, Professor Pitt has published a detailed response to the criticisms of his original research with Khandker. He claims that Morduch and Roodman made errors of their own in their analysis of his data, and when those errors are corrected, the original findings stand up. The paper’s abstract states, “This response to Roodman and Mordoch seeks to correct the substantial damage that their claims have caused to the reputation of microfinance as a means of alleviating poverty by providing a detailed explanation of why their replication of Pitt and Khandker (1998) is incorrect. Using the dataset constructed by Pitt and Khandker, as well as the data set Roodman and Morduch constructed themselves, the Pitt and Khandker results standup extremely well, indeed are strengthened … after correcting for Morduch and Roodman errors.” Roodman has just published a preliminary response on his blog.
What are the main takeaways at this point? First, in the world of social-science research, things are not always as they appear. Individual studies should be taken with a grain of salt, as all have their strengths and limitations. More than ever, I think the safest course is to reflect on more than two decades of research using experimental, quasi-experimental and non-experimental designs, as well as personal observations (for those of us who have spent time with microfinance clients) and qualitative research, such as that found in Portfolios of the Poor, a terrific book co-authored by Professor Morduch, and my book, Small Loans, Big Dreams. Objective efforts to demystify research findings, such as the Odell and Goldberg reports and another solid treatment by Freedom From Hunger President Chris Dunford, should be reviewed by microfinance practitioners, investors and volunteers.
Finally, there is no “gold standard” in research, but rather a growing body of evidence that microfinance is an incomplete but improving strategy to address global poverty – one that can be made more effective by refining it based on available research, as well as by having regular feedback loops involving social-performance data that Grameen Foundation will continue to ensure becomes a part of our industry’s DNA.
Eric Cantor has led Grameen Foundation’s AppLab efforts in Uganda for the past three years, and continues to serve as an advisor on the project.
More than three years ago, I landed in Uganda to establish Grameen Foundation’s “Application Laboratory” – a program conceived to explore the potential of mobile phones to improve the lives of the poor. In our quest to test, develop and expand mobile services that are useful for the most often-ignored people on the planet, our team spent (and spends) extensive time talking to our users, in the places they work and live, to hear about the good and the bad of the methods we are testing to empower them.
We sit under the mango tree at the rural health clinic, hearing about how people learn to avoid and treat common and devastating diseases like malaria and HIV. We walk the banana plantations of farmers in the West, trying to gauge how they can best control banana wilt, using locally available resources and techniques. We observe the effects of the rapidly growing “mobile money” phenomenon – essentially digital currency delivered through a mobile phone network – and assess how it can improve the lives of villagers. We see how people interact with the Internet and other unfamiliar services available through the few laptops and smartphones in a community. And we listen to farming groups, led by Community Knowledge Workers (CKWs), as they plan and prepare to bulk their crops for sale to the highest-paying buyers. As white winter washes over the US, and the rains wind down and planting season approaches in Uganda, we share some lessons learned through this work in the hopes that our growing body of work, as well as that of other practitioners in this field, will benefit.
In AppLab’s early work, we tested a number of information services, leading up to our launch, with MTN (one of the primary mobile phone services providers in east Africa) and Google, of Google SMS Tips, the product that won the award for “Best use of Mobile for Social and Economic Development” at the 2010 GSM Mobile World Congress. It was rewarding to sit on a farm and hear how making organic pesticides using local chemicals or even waste products found on the farm helped save a farmer money, and increase her yields and incomes.
Community Knowledge Workers act as valuable local intermediaries, bridging the "last kilometer" to bring essential information to other rural farmers in Uganda. Here, a CKW uses her high-end mobile phone to check for information on banana wilt.
But what became quickly apparent was that information alone is not a complete solution. A reference pointer or a tip about maternal health techniques may be useful to an expectant mother, but creating deep, impactful behavior change – what information-driven development initiatives seek – requires a context in which that information has a value. People certainly have a hunger for knowledge and a willingness to embrace the mobile phone to search for answers, as shown by all the questions they asked from the beginning about family planning, and HIV and other sexually transmitted infections, which affect them directly and for which few reliable, anonymous sources are available. But we require several things to make this information actionable and impactful: specific information, a context in which to make it useful, and relevant services and resources.
The media in recent weeks has been full of news – perhaps it’s more appropriate to call much of it “opinion” – about the state of microfinance in India and Bangladesh. A casual glance at headlines would seem to indicate that, for the microfinance sector, the sky is falling over south Asia. Indian microfinance institutions (MFIs) in the state of Andhra Pradesh (AP) have been embroiled in controversy about loan-collection practices … politicians in AP looking to curry favor with the public have urged borrowers not to make payments on their loans … the state government in AP has passed a restrictive law that has brought lending to a standstill … even Nobel Prize winners Professor Muhammad Yunus and Grameen Bank are fighting accusations of improper financial transactions and rumors of Prof. Yunus’s resignation as Managing Director.
Let me say from the start, with absolute confidence, that the allegations against Prof. Yunus are baseless. The “controversy” surrounding him stems from a biased and inaccurate documentary that aired on Norwegian TV in early December (which I wrote about on Dec. 9), from a partisan Bangladeshi media machine that seems more eager to report rumors than to focus on responsible journalism, and from a polarized political environment in Bangladesh, where government ministers who once championed microfinance are now reportedly thinking about compromising the independence of Grameen Bank and forcing Prof. Yunus from his post as leader of an organization that has done so much good for so many people.
As the world has turned its focus to the situation in south Asia, responsible reporting about the situation in India and Bangladesh has begun to emerge. In mid-December, in the Financial Times (free registration required to access the story), a group of noted economists called for a thoughtful approach to microfinance reform in India. Last Wednesday, The New York Times ran a comprehensive and balanced analysis of the situation in both countries, while on Thursday columnist Nicholas Kristof wrote a spirited defense of Prof. Yunus. The Economist also has taken an objective look at the situation facing Prof. Yunus.
In addition, a recent study of Grameen Bank’s interest rates by Chuck Waterfield of MicroFinance Transparency (one of the leading authorities on microfinance interest rates) noted that “Grameen has an extremely simple and transparent pricing system” with a “transparency index” of 100% – which Chuck notes “can be considered a ‘perfect score,’ or a completely transparent price.” This means that Grameen Bank’s stated interest rate for its basic loan – which, at 20%, is already among the lowest among MFIs around the world – is exactly that amount, rather than the higher rates claimed by the maker of the documentary mentioned above.
India is a more complicated situation, one that is difficult to summarize, so I urge you to read the Times article noted above, as well as several pieces I’ve already written on the subject, including “A Thanksgiving Debate about the Best Microfinance Model” and an official statement we released about the situation in Andhra Pradesh. Both of those pieces contain links to more resources and information regarding microfinance in India and Grameen Foundation’s views about the correct approach to it. (Prof. Yunus recently defended what he sees as the correct approach to microfinance in an opinion piece that ran in the International Herald Tribune — you can find it on the Yunus Centre website.)
Over-indebtedness has reportedly been a problem for clients of for-profit MFIs in Andhra Pradesh. In the ideal model of microfinance, small loans are made to the poor – typically women – who use the funds to invest primarily in income-generating businesses, rather than using the funds primarily for consumption.
Despite the complexities of the situation, Grameen Foundation has clear, straightforward views about the best approach to microfinance in India – and around the world, for that matter – and we are taking concrete steps in India to support MFIs that have a clear mission to serve the poor. Simply put, we believe that microfinance works best when MFIs take a “double bottom-line” approach to their business – that is, that they focus as much (if not more) on their social bottom line as they do on their financial bottom line, and that they use tools like the Progress out of Poverty Index™ (PPI™) to measure and report on their effectiveness at reaching out to and serving the poor. This is a point I emphasize in the Times article mentioned above.
Because of certain politicians’ actions affecting the microfinance sector in Andhra Pradesh and a delay in the Reserve Bank of India’s response, sources of funding to MFIs throughout the country have been reduced. To support double-bottom-line institutions in India, we announced in December an $8 million loan-guarantee program that we believe will unlock and generate financing from local banks to poverty-focused MFIs that meet our investment criteria and are not affected by the AP situation (Grameen Foundation is not currently working with any MFI in AP). The guarantee funds consist of $4 million in guarantees each from Grameen Foundation (through our Growth Guarantee program) and Grameen-Jameel (our joint-venture social business based in the Middle East), and will be facilitated by our Mumbai-based partner, Grameen Capital India.
The Economic Times of India and the Financial Times both reported on the guarantees and, importantly, the Reserve Bank of India (RBI) followed our announcement with formal request to banks resume lending to MFIs (reported by Reuters). While I don’t presume to think that our action prompted the RBI to make this move, it certainly didn’t hurt, and it’s a good example of Grameen Foundation responding nimbly and providing leadership in this area.
A vibrant viable microfinance sector is essential in India, where more people live in poverty than in all of Africa. We see four elements as essential to a plan for rebuilding the sector into a force for poverty reduction and financial inclusion, and are working hard to promote these values:
Consumer Protection. Minimum standards for protecting consumers’ rights need to be set and enforced. This will need to be mandated and orchestrated by the federal government, but the system can be created and run primarily by the private sector. A cornerstone of a consumer-protection strategy would be the establishment of a nationwide credit bureau (as has been done for the microfinance sector in Peru). This would help MFIs ensure that borrowers do not have multiple loans, and are using the loans to fund income-generating business, rather than consumption.
Improved Transparency and Accountability. Though not all MFIs need to be “socially motivated,” all should meet standards for ethical behavior. Some taxation and regulatory benefits might even be available only to those MFIs that meet defined criteria for bringing socio-economic benefits to poor clients. To receive these benefits, socially-motivated MFIs should be required to meet defined standards, which could include using a recognized social-performance monitoring tool (like the PPI) and matching executive compensation (as well as dividends and other payouts to already-prosperous investors) to the MFI’s overall financial and social performance on a year-to-year basis.
Ensuring Adequate Finance. Regulators over time have closed down a variety of viable financing options for Indian MFIs, forcing them to borrow from Indian banks (which lend to MFIs at interest rates of 10-13%) and private-equity investors from overseas (who are usually eager for profitable exits within 3 to 5 years). MFIs should be able to access financing from a variety of sources, including savings (this is not currently the case in India, as most MFIs cannot offer savings accounts).
Regulatory Reform. While mentioned last, this is by no means the least of the elements. The Indian government should respond to the current crisis in a progressive, forward-looking way that advances financial inclusion and poverty reduction by centralizing and rationalizing the regulation of all types of Indian MFIs. Ideally this should be done at the federal level and by a regulator that does not have obvious conflicts of interest (as many state governments do, because they fund and manage “self-help groups” that compete with MFIs in giving loans to the poor). Peru’s approach to regulating microfinance has many positive lessons for India; we have shared the relevant parts with Indian regulators.
To sum up, the Indian and Bangladeshi microfinance sectors, which collectively account for more than 50% of the world’s microfinance clients, are important to the microfinance sector as a whole. If – as we are confident it will – India can come up with creative ways of promoting the sustainable growth of pro-poor microfinance while weeding out the “bad actors” in the sector and recasting an unworkable regulatory patchwork of laws, and if the Bangladeshi government backs away from moves to compromise the independence of Grameen Bank, it will provide a boost to microfinance not just within south Asia, but across the globe. Grameen Foundation will be there every step of the way, fighting for an approach to microfinance that never strays from its original purpose – to enable the poor to lift themselves and their families up out of poverty.
Ayesha Abbasi was an intern on Grameen Foundation’s Marketing and Communications team from August through November of this year. A senior at American University’s Kogod School of Business, Ayesha wrote this blog post as she was preparing to graduate in December.
As I walked into the Grameen Foundation office in Washington, DC on my first day back in August, I remember being captivated by the vibrant images of microfinance borrowers from around the globe. One by one, I closely examined the portraits hanging on the walls, trying to understand the relationship between the organization and these individuals with smiles of satisfaction on their faces. Now, having been at Grameen Foundation for more than three months, I am not only aware, but wholeheartedly passionate, about the organization’s noble influence in underprivileged communities around the world.
My role as the Marketing and Communications Intern this semester has been a rewarding experience through which I’ve gained invaluable insights into the microfinance sector. Despite its challenges and complexities, the underlying principle of microfinance – channeling small amounts of funds to those who can put it to a productive use and thereby achieve a better economic and social condition –continues to make it extraordinary way of helping the poor.
Through its innovative, strategic approach of reaching the poorest of the poor, Grameen Foundation is creating a positive ripple effect of microfinance’s benefits in diverse regions. While doing research and writing stories, I learned that the organization’s work goes above and beyond fostering entrepreneurial spirits among the poor. It’s amazing how, despite their harsh situations, these poor individuals maintain a positive attitude, dedicated work ethic, and willingness and desire to be entrepreneurs who think outside the box. All they need is an opportunity – a chance that Grameen Foundation and its partners provide – to take their ideas and turn them into action. In a global society that is becoming increasingly competitive and beset with economic disparities, the presence of institutions such as Grameen Foundation and its microfinance partners helps to eradicate inequalities by enabling the poor to advance.
So how does Grameen Foundation empower the poorest of the poor? Through my time here, I find it is the passionate employees and unique organizational culture that make this possible. Grameen Foundation is a dynamic, fluid organization with free-flowing ideas and collaboration between all individuals, who are dedicated to providing the poor with access to small loans, vital information, and viable business opportunities. All staff members work collectively to achieve the mission of alleviating worldwide poverty. While supporting the Marketing department, I have come to truly understand the Grameen Foundation brand and align myself with its core values and mission. Having come to the end of my internship, I am so grateful for all the new knowledge I have gained by contributing to Grameen Foundation’s microfinance- and technology-focused initiatives.
