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Yunus Watch: Microfinance pioneer further piled on

Muhammad Yunus

Muhammad Yunus

I’m sorry to reveal a bias here, but all these attacks and critiques of the Bangladeshi economist and Nobel Peace Prize-winning pioneer of microfinance, Muhammad Yunus, appear to be so obviously opportunistic (if not an outright smear campaign), I can’t figure out why smart people just keep piling on.

As I’ve written about before on this blog, Yunus has come under heavy attack — accused of being a crook, of libeling politicians (is that possible?) and all sorts of wrong-doings — after publicly taking a stand against those who would make a profit off providing loans to the very poor.

The latest example of piling on comes from Matthew Bishop, a top business editor at The Economist and author of the popular book (and blog of the same name) “Philanthrocapitalism.”

Full disclosure here: I’m not an economist, a top business editor, a development expert or anything close to being an expert on microfinance … or megafinance, or really anything in finance. I’m just a journalist/blogger who sometimes has to cover this stuff.

But I think Bishop’s ongoing and quite popular, in the blogosphere, critique of Yunus seems to me to be premised on a pretty questionable assumption.

Economist

Matthew Bishop

So far as I can tell, Bishop seems to be arguing that the main thing microfinance needs is more money — and the best way to get more money to the poor is to allow those loaning the money to make more money off the poor.

Huh?

Here’s a little more background:

Yunus has spent 30 years building up microfinance as an anti-poverty scheme. For a long time, he was reluctant to criticize those who were doing microfinance using a for-profit approach. He believed (and told me once, in a Seattle interview) that the only thing that mattered were keeping the interest rates at a reasonable level and making sure most of the profits (or surpluses, in non-profit parlance) were repaid into the bank to provide for future loans.

But with a number of high-profile recent abuses in which individuals and organizations have made (and kept) substantial profits for themselves, like SKS in India, Yunus has become an outspoken critic of those microfinance organizations that seek to make big money by loaning to the poor.

Yeah, I know, right? That sounds like a pretty reasonable objection to me, too, since I thought this whole scheme was supposed to be about helping poor people.

But in the world of microfinance, this has made Yunus a target for all kinds of attacks and accusations.

Again, Bishop’s working assumption seems to be that what’s most important for the future success of microfinance is about increasing the size of the pie — the amount of money out there available to loan to the poor. And Yunus is standing in the way of the best way to do this, profit-seeking. Bishop writes:

Of the billion people living in poverty about 150 million currently have access to microfinance, so there is still plenty of unmet pent-up demand…. If Mr Yunus has his way, this supply of growth capital will be choked off and hundreds of millions of people will be left waiting for financial inclusion.

But Yunus has for 30 years been trying to expand microfinance and increase the poor’s access to capital. So why would he want to “choke off” this access now?

Simply, Yunus thinks the basic goal of microfinance, fighting poverty, is not compatible with those who would nudge microfinance further toward a purely market-based, profit-seeking approach. It’s a slippery slope, he says, toward loan-sharking.

Bishop’s attack on Yunus “choking off” the world’s poor did get some pushback, including their mention of this rebuttal from Reuters financial blogger Felix Salmon. But the philanthrocapitalists don’t publish Salmon’s rebuttal in total; rather, they quote from it selectively and slice at it with little knives, saying at the end:

Our complaint against Mr Yunus is not that he thinks mistakes are being made, or that he wants proper regulation of microfinance. We agree with him on those points. It is that rather than making a justified warning against mission drift by for-profit microfinance institutions, he is making sweeping generalisations that seem to be ideological rather than grounded in reality.

Well, the reality seems to be that the financial whizzes on Wall Street (remember them, the ones who caused global economic collapse?) are now ready to come in and help fight poverty by transforming Yunus’ non-profit-seeking, anti-poverty scheme into something better run by the big banks.

Does Bishop really believe that the same people who were entrusted with the “social good” of helping low-income people get affordable home mortgages — by, uh, lying about them and selling crap as gold — will be the ones to come save microfinance, and Yunus from himself?

News update: India moving to increase regulation, and limit interest rates, due to alleged abuses by microfinance industry.

And here’s another attack on Yunus from Dave Richards, formerly a board member for Unitus, a local for-profit microfinance firm that mysteriously closed its doors after coming into some big profits. (Thanks to Clay Holtzman for flagging this. I’d missed it).

Here’s a round-up of opinions on the “crisis in microfinance” as well.

l also highly recommend anything at the always-insightful Microfinance Blog by David Roodman at the Center for Global Development. Roodman basically thinks Yunus is right about the dangers of commercialization for microfinance, but a bit too narrow-minded.

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About Author

Tom Paulson

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 or follow him on Twitter @tompaulson.