“Financial Vandalism” in India, and a Way Forward

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

I was invited to give one of the closing keynote addresses to the Sa-Dhan conference, something I had been preparing for at least since I travelled to India in early July to work on an upcoming book about the latest trends in microfinance.  I had intended to arrive in time for the inaugural session on August 7, but travel delays prevented that.  (Word to the wise: when travelling to India on the non-stop flights from Newark, plan to arrive in Newark long before your onward flight is due to depart.)

Upon arrival, I was told that the conference’s mood on the first day alternated between “somber” and “angry.”  Just a few days earlier, the Reserve Bank of India (RBI) had announced new regulations affecting microfinance.  Though these policies rolled back some harmful policies announced a few months back and helpfully clarified others, they also introduced a controversial new rule saying that microfinance institutions over a certain size would be subject to smaller margins than they were currently allowed between the rates they borrowed and lent at.  The whipsaw nature of Indian microfinance policy at the national level, coming on the heels of the debilitating and draconian law passed in the state of Andhra Pradesh in late 2010, had justifiably enraged many of the practitioners in attendance – particularly as there had been no warning or explanation for many of the policies announced over the last 12 months.

Grameen Foundation President and CEO Alex Counts (left) speaks about the Indian microfinance sector at the Sa-Dhan Conference held earlier this month in that country. With him on stage are Jayshree Vyas (center), Managing Director of SEWA Bank, who served as the moderator, and Sujata Lamba of the World Bank.

The second day did not get off to a good start.  Sa-Dhan executive director Mathew Titus announced that a senior government official had canceled his opening address.  However, as the day got going, the overall mood improved.  Royston Braganza, CEO of Grameen Capital India, organized and moderated an excellent panel on “Overcoming the Barriers to Resource Flows” to the sector.  (Grameen Capital India is a joint venture between Grameen Foundation and affiliates of two major banks operating in India.)

I attended Royston’s panel and then caught the end of a concurrent panel on “business correspondent” (BC) models for MFIs working in partnership with, and essentially as agents of, fully licensed banks.  Though some recent policies about the BC model have cast doubt on the viability of MFIs being able to work effectively with banks, it was an invigorating discussion.  Mukul Jaisal, Managing Director of Indian microfinance institution (MFI) Cashpor, talked about his experience pioneering this model for providing savings services (which the MFI has been able to implement with support from Grameen Foundation).

Give and You Shall Receive: My Week in the Philippines

Estelle Martinson is a Bankers without Borders^® (BwB) volunteer who recently returned from a project in the Philippines. A Six Sigma Black Belt, Estelle began her career working as a business analyst in information technology, and is currently a credit risk manager at Standard Bank, where she has worked for 10 years. She also has experience in the fields of disability, computer literacy, adult education and community development.

As I sat sipping some lemongrass tea, one of the many gifts I brought back home with me from my trip to the Philippines, I reflected on the series of events that led me there, and what the experience meant to me.

On the plane, someone asked me, “What motivated you to go?” That was pretty easy to answer. I am a banker, and the vision of microfinance – a world without poverty – is something I support passionately, so I grabbed the opportunity to get involved with an organization working in microfinance when it presented itself.

My interest in microfinance started when I was exposed to Grameen Bank’s work during a leadership training session at my organization. I expressed my interest in microfinance to a friend who, three years later, e-mailed me a volunteer project, saying, “This is really you – have a look at it and see if you’re interested.” Of course I was interested!

BwB volunteer Estelle Martinson (second from right) rides by water back to town after visiting one of RSPI’s 25 branch offices with staff members (from left) Alice, Paul and Jeannette.

I joined BwB and signed up for a project with Rangtay sa Pagrang-ay, Inc. (RSPI), a 25-branch microfinance organization that has been operating in the Philippines for the past 25 years, to train their research department in reviewing operations through “process mapping.”

The Time to Defend Grameen Bank is Now

Todd Bernhardt is Director of Marketing and Communications at Grameen Foundation.

As you might have read in the news this week, the Bangladeshi government seems to be moving into the end game in its longtime effort to take over Grameen Bank, a move that has been widely criticized within Bangladesh and around the world.  To briefly summarize, the cabinet – presided over by Prime Minister Sheik Hasina – voted on Thursday to amend the Grameen Bank Ordinance of 1983, effectively removing the Board of Directors’ right to choose the Bank’s Managing Director, and vesting that power instead in the Board’s government-appointed (and aligned) chairman.

As troubling as that disenfranchisement of the Bank’s 8.3 million borrower-owners is (more than 8 million of these owners are poor women), equally troubling is a directive from the cabinet to the Finance Ministry to examine and report on the salaries and benefits that Grameen Bank founder Professor Muhammad Yunus received after he turned 60, which is the official age of retirement from the Bank. It also asked the Ministry to examine whether he earned foreign currency that was tax-exempt during his time as Managing Director.

(Prof. Yunus, who is 72 and going stronger than ever, was exempted from the retirement age by the Grameen Bank Board, whose decision was reviewed and accepted by the government for more than a decade before it suddenly decided that he was too old for the job; the post of Deputy Managing Director was also exempted. For more information on the government’s 21-month campaign against Prof. Yunus and the Bank, see this Fact Sheet developed by the Friends of Grameen organization. Grameen Foundation President and CEO Alex Counts also recently blogged about this issue.)

The women on Grameen Bank’s Board of Directors, who represent the Bank’s 8.3 million borrower-owners and are shown here with Prof. Yunus at the Nobel Peace Prize ceremony, are in danger of losing their ability to choose the Bank’s Managing Director.

Let’s look at the second part of the cabinet’s actions first.  The idea that Prof. Yunus would benefit financially from any of his activities advocating for the poor is patently absurd.  Throughout his career, he has had multiple opportunities to join corporate boards as a paid advisor or even to lead for-profit organizations, for great personal gain – yet he has declined.  He has consistently donated whatever money he has earned as a public speaker to social businesses dedicated to serving the poor or to other charitable causes – including Grameen Foundation, which began with $6,000 that he earned from one such speaking engagement.  He lives in a small apartment on the Grameen Bank campus.  All of his activities – either as leader of Grameen Bank or as leader of the Yunus Centre, which focuses on fostering social businesses – have been other-focused, rather than focused on personal gain.

As for the government’s moves to give the Bank’s chairman almost unlimited power to choose a new Managing Director and to sideline the poor women who own this successful, innovative, Nobel Prize-winning microfinance institution – well, to many, it smacks of pure desperation, and an attempt to shift public attention away from a number of public policy failures.  The government of Sheikh Hasina is facing a host of challenges and embarrassments at home, including the recent cancellation by the World Bank of a loan to fund the $1.2 billion Padma Bridge project – a huge infrastructure initiative that was going to be a hallmark of her administration – because of corruption within the government and contractors involved.  She herself has become more autocratic and combative, as noted by The Economist in several articles, and as demonstrated by a recent appearance on the BBC’s “Hard Talk” interview show, where – among other things – she argued with the presenter about accusing Prof. Yunus of “sucking blood from the poor in the name of poverty alleviation” (a well-documented quote from her referring to him) and misrepresented Grameen Bank’s interest rates, saying that it charges between 30 and 45%, when her own administration has confirmed studies showing that the Bank’s highest charge is roughly 20%, seven points below the maximum rate set by the government.

Professor Yunus, who was a surprised and disappointed as the rest of us by the cabinet decisions and directives, released the following statement on Friday:

I was very apprehensive about it for some time. Now my fear is becoming a reality. I am disappointed that we were not successful in stopping this process. It  makes me immensely sad to see the poor women being deprived of their rightful ownership and their rights as owners to exercise their power over the bank. I am so shocked by the turn of events that I am left without words. I request my fellow citizens who are as shocked as I am, to try to  persuade our government to realise that this is a very wrong step they are taking; they should refrain from proceeding with this. The decision of the government would destroy this well known bank for the poor, the bank that has made the country proud.  I urge our fellow countrymen to come forward and save this successful national enterprise owned by the poor women. I am also urging the poor owners of Grameen Bank to appeal to the government and the citizens  to come forward to help them safeguard  their rightful ownership of the Bank.

What can non-Bangladeshis do about these injustices?  You can take action by speaking up – Grameen Foundation has a petition that we plan to give soon to U.S. Secretary of State Hillary Clinton, asking her to reiterate the U.S. government’s strong support for the continued independence of Grameen Bank and the rights of the poor women who own it.  Microcredit Summit has its own petition on Change.org, also in support of the continued independence of the Bank, that it plans to give to Sheikh Hasina.  Please sign both petitions, and urge your friends, family and those on your social networks to do the same.

We would also ask that you contact your legislative representatives, and the media, no matter where you live, and let them know how important it is to you that the world’s flagship microfinance institution remain independent and able to continue its effective, innovative role in the ongoing battle against poverty. Time is short. The Bangladeshi government’s commission reviewing the Bank and the other Grameen social businesses is moving ahead quickly, and new actions against the Bank may be announced soon, so it’s essential that you act now to defend the rights of – and opportunities for – the world’s poorest.

In the meantime, we will keep you informed about developments as they occur.  Of course, with your support, we will continue our work around the world to provide the poor with access to appropriate financial services like microsavings and loans, as well as access to life-changing, real-time information about their health, crops, animals and finances. Working together, in the spirit of innovators like Grameen Bank, we can begin to realize Prof. Yunus’s vision of putting poverty where it belongs – in a museum.

The India Microfinance Crisis, Reconsidered

Alex Counts is President and CEO of Grameen Foundation. He recently wrote this  post on his own blog. We have included an excerpt below, followed by a link to the full post. 

I have already written about my impressions of Bangladesh, so let me turn now to India. Much has been written about the microfinance crisis there. For my part, I have made public statements about it, transcribed and released of my debate with SKS founder Vikram Akula at the Asia Society (which took place at the outset of the crisis), and addressed the issue in the opening section of my chapter in New Pathways out of Poverty (the Spanish and French versions of which are freely available, as they are not protected by copyright). David Roodman gave an impressive account of the crisis in his book Due Diligence, which I have reviewed (a review to which Roodman thoughtfully responded).

However, when I went to India I tried to free myself from preconceptions, and attempted to listen and observe with an open mind. I met with leaders of MFIs large and small, as well as other members of the ecosystem including consulting firms, industry associations, and the staff of Grameen Foundation’s wholly owned subsidiary Grameen Foundation India and our joint venture Grameen Capital India (both of which are organized as social businesses as per Professor Muhammad Yunus’ definition). Below is a list of eight things I learned that I did not know, or believe, before I arrived:

1. Despite recent progress in terms of returning the sector to normalcy outside AP, and in advancing legislation that is flawed but still a net positive, I heard from multiple sources that that state government of Tamil Nadu is considering an AP-type of ordinance that would throw the Indian microfinance sector into a new and probably much deeper crisis. Stay tuned!
2. At the height of the frenzied growth during the period 2007-10, many MFI field officers came to rely on so-called “agents” (also known as “ringleaders”) at the village level who took on many of the functions of staff. In effect, field staff were outsourcing their client recruitment and loan underwriting responsibilities. This was a ticking time bomb, as the MFIs effectively lost control of their own activities, most importantly in terms of their relationships with loan clients. The reasons for this probably include the lack of training given to the new recruits of fast-growing MFIs, and the impossibility of managing as many clients as staff were expected to serve (based on unrealistic targets that were the basis for awarding generous bonuses) using the traditional approach. It is not clear that MFI leaders were aware that this was going on, or whether they just turned a blind eye.
3. I was aware that most of the smaller AP MFIs who do not have operations outside the state have effectively gone bankrupt. What I learned from sitting down with four leaders of these now defunct institutions – who predictably though plausibly claim to have been largely innocent of the abuses committed by the larger MFIs based in the state – is that two AP MFI promoters (i.e., founders) who were distraught by their life’s work being ruined have recently committed suicide, and more are feared.

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