Microfinance flap keeps getting weirder

Muhammad Yunus

There is a crisis in the anti-poverty scheme microfinance, centered in India but reverberating globally.

I posted on the local implications of this mess in October, before it exploded in India but back when there were signs of trouble. I’ve tried to keep up as it has gotten more intense and weirder by the moment.

In the latest (even weirder) turn of events, the Nobel Peace Prize-winning pioneer of microfinance, Muhammad Yunus, has been accused of embezzling funds based upon allegations made by a Norwegian documentary filmmaker who has taken a critical look at the whole microcredit movement.

Many have come to Yunus’ defense. The renowned Bangladeshi economist has rebuffed the charges and himself called for an open audit of the financials. Today, the Norwegian government, which actually gives out the Nobel Peace Prize (Sweden doles out the other versions) also exonerated Yunus of any wrongdoing.

Alex Counts, of the Grameen Foundation, responded in detail to the allegations against Yunus, pointing out some distortion of facts in the media and by Indian officials, noting that there may be political or other kinds of motivations behind the accusations:

From the beginning, Prof. Yunus and other supporters of the Grameen approach have had to fight powerful vested interests threatened by the empowerment of the poor.

David Roodman, an analyst at the Center for Global Development who is not at all averse to looking at the dark side of microfinance, has also criticized the documentary as wrong-headed.

If you’re interested in learning more about how this is all playing out, and what it might mean for microfinance anywhere in the world, on Thursday Roodman and other experts will be discussing the broader implications of this crisis on a webcast. Here’s how the panel discussion is being billed:

The largest crisis in the history of microfinance is now unfolding in India….What is the reality of microcredit in India? Is the backlash an engineered campaign to protect a government-run (and World Bank–financed) finance program from private-sector competition? Or has the fast growth in credit ensnared the poor in debt? Some of each?

And what lessons does the crisis hold for actors worldwide, including microfinance institutions and investors ranging from the World Bank to Kiva users? When is microcredit—and investment in it—too much of a good thing?

For a sneak preview of what they are likely to discuss, you can read a new report from CGAP (the Consultative Group to Assist the Poor) called “Andhra Pradesh 2010: Global Implications of the Crisis in Indian Microfinance.”

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Editor Tom Paulson is founder and lead journalist at Humanosphere. Prior to operating this online news site, he reported on science,  medicine, health policy, aid and development for the Seattle Post-Intelligencer. Contact him at tom-at-humanosphere.org, follow him on Twitter @tompaulson and/or send a comment below.