POVERTY: Comment on resignation of Professor Yunus from Grameen Bank

Nick Stace 13 May 2011


In the wake of the piece I wrote yesterday, it seems the Bangladeshi government is in the process of taking over Grameen Bank. Professor Yunus's departure will shock his many admirers and supporters around the world. In his resignation letter, which followed the torture of the chairman of the Grameen Employee Association and multiple attempts to intimidate and bribe the female directors on the board, he has stated that he hopes his departure will help "to prevent undue disruption of the activities of Grameen Bank".


Professor Muhammad Yunus, who has resigned as managing director of Grameen Bank Photo: Sipa Press/Rex Features



Before the ink was dry on his letter of resignation, the finance minister Muhith yesterday set out his reforms of Grameen Bank. According to the minister, the poor women from the villages do not bring the required level of oversight to the board, announcing that they will be replaced by "competent" people. He also said that the shareholding of the government would increase, and the rest of the Grameen social businesses will be brought under review.
The fact that Grameen loans money to some of the poorest on terms they can repay and is governed by a board in touch with the world in which they operate, is a model of sustainability and effective governance. It is in contrast to much larger financial institutions whose flaws were exposed by the global financial crisis for their conflicted governance and the complexities of their business models. Grameen has also been a world away from Bangladeshi government incompetence and corruption that has infected the financial system and the running of state-owned banks.
It is also sending out a threatening message to the rest of civil society, NGOs, and the social businesses that vibrantly support the life of the poorest in the country, that they may be next. It has been thanks to the social movement in Bangladesh that there has been real progress on the UN's Millennium Development Goals, in particular to "eradicate extreme poverty by 2015". It seems the politicians in Dhaka couldn’t care less; perhaps explaining in the starkest of terms why it was Yunus, not prime minister Hasina, who received the Nobel Prize in 2006.
The government may win their battles, and in the process make themselves more powerful and personally wealthy, but the war they will unfortunately lose is the one Professor Yunus started 35 years ago: the war against poverty.
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8511461/Muhammad-Yunus-resigns-from-Grameen-Bank.html

POVERTY: Grameen Bank cleared of financial breaches by Bangladesh government

Reuters

guardian.co.uk,  25 April 2011

A Bangladeshi government probe has cleared microlender Grameen Bank of financial irregularities, the finance minister said, but the finding will not change the decision to fire Nobel laureate Muhammad Yunus.

Yunus, 70, was dismissed by a central bank order – upheld by the high court and supreme court – on the grounds that he had overstayed in his position and refused requests to quit.
Yunus, winner of the 2006 Nobel peace prize, set up Grameen, which means village in Bengali, and had been the bank's managing director since 2000.
Lauded at home and abroad by politicians and financiers as the "banker to the poor", he has been under attack by the government since late last year, after a Norwegian documentary alleged the bank was dodging taxes.
Yunus denied any wrongdoing and a Norwegian government investigation later also cleared him of any malpractice.
The Bangladeshi finance minister, Abul Maal Abdul Muhith, told reporters on Monday that a committee appointed by the government to investigate Grameen Bank's operations had also found no evidence of financial irregularities.
But officials and experts said the finding would have no impact on the government's decision to fire Yunus as the bank's managing director, because he had overstayed the official retirement age for bank managing directors in Bangladesh of 60 years.
Associates of Yunus say his removal was government retaliation after he briefly considered a political career to challenge the prime minister, Sheikh Hasina.
No comment from Yunus or the Grameen Bank was immediately available.
http://www.guardian.co.uk/world/2011/apr/25/grameen-bank-cleared-irregularities-bangladesh

POVERTY: BANGLADESH: Microfinance institutions pushed loans, admits major NGO

DHAKA, 20 April 2011 (IRIN) - Lack of regulation and a surplus of donor funds in Bangladesh’s microcredit industry have led to NGOs pushing loans to over-indebted borrowers, says BRAC, the world’s largest development organization and heavily involved in the country’s microfinance industry.


 Photo: Sam Sherrat/Flickr
Millions of Bangladeshi women received loans
Asked whether BRAC itself had pushed loans onto borrowers who could not afford them, Shameran Abed, programme head of microfinance at BRAC, told IRIN: “Yes,” citing “excess liquidity” and a lack of communication between lenders.
“In the mid 2000s, the microfinancing industry grew too fast. And yes, we did,” said Abed. “But I’ll tell you why we did - we didn’t have perfect information.”
In 2009, BRAC disbursed US$1.1 billion worth of loans to women throughout Bangladesh, and like many other microfinance institutions (MFIs), claimed that 99 percent of their borrowers paid back their loans, a win-win situation.
However, the industry has also come into disrepute. A Norwegian documentary, Caught in Micro Debt, sparked international outrage in 2010 by showing the difficulties people have under the burden of paying back a loan.
Some borrowers are even taking out more loans to meet repayments, experts say
Microcredit, the practice of loaning sums as small as US$20, was first pioneered in Bangladesh in the 70s and 80s by Nobel laureate and politically controversial figure Mohammad Yunus and the organization he founded, Grameen Bank.
Since then, the industry has mushroomed to over 500 registered MFIs in Bangladesh and has come under increasing scrutiny.
Women, who are the borrowers in most cases, are subject to high interest rates and aggressive debt recovery techniques, said Lamia Karim, associate professor of anthropology at the University of Oregon. She has been researching microfinance for more than 15 years.
But BRAC’s Abed said the popular belief that high interest rates are to blame for loan defaulting is wrong. The interest on a $140 loan, he explained, is 15 percent, with weekly installments of $3.40, of which about $0.40 is interest.
"Is that 30 taka [US $0.40] tipping you over the edge? I don't think so," he said.

Inadequate regulatory body
Despite having more than 20 million micro-borrowers, the Bangladesh government still has no effective system in place to protect microcredit lenders and clients, experts agree.

 Photo: Muhammadyunus.org
Professor Muhammad Yunus

The Microcredit Regulatory Authority (MRA) formed in 2006 after repetitive calls from the microcredit industry to establish control over smaller MFIs, is hamstrung by a lack of manpower and funds, according Prodip Chandra Roy, MRA assistant director of research.
Furthermore, Roy said the MRA’s authority is severely undermined by other organizations that offer registration.
“For us the biggest challenge is to control other authorities that also have the authority to register microfinance organizations,” he said.
To register with the MRA, an MFI has to show either that it has 1,000 members (potential borrowers), or $50,000-worth of dispersible funds. To date, the MRA has registered some 548 MFIs out of thousands operating in Bangladesh.

Strong-arm tactics
Many microcredit borrowers have little or no property to be used as collateral, which makes trust a key element of the loaning process.
“For our microfinance borrowers we do not have any collateral, so we cannot take anything back. The court system doesn’t work here. So, the only way you can get your money back is to keep pestering them,” Abed said.
However, BRAC, Grameen and other NGOs have been found to do much more than pester borrowers who missed payments, some claims suggest.
As an attack on a family’s honour, women are regularly shamed in public, an activity that can have grave social repercussions, Karim said.
Stronger measures are used if the borrowers default even after public humiliation.
“Grameen, BRAC, ASA and Proshika all strong-armed women into paying back. In extreme cases homesteads are taken apart and the timber and tin sold off,” said Karim.
Though the NGOs don’t actively take part in `ghar bhanga’ (house-breaking), community members do what NGO officers order them to do, out of fear of losing access to loans, she said.
However, despite numerous papers by independent researchers, the NGO community refuses to accept such allegations.
“I’ve not had one issue of complaints [of house-breaking] coming from borrowers, or the media or the society that we work in,” said Abed.
http://www.irinnews.org/report.aspx?reportID=92528

Microfinance struggles to restore its reputation

Mar 7, 2011

MUMBAI, India (AP) — Long heralded as a way to lift the downtrodden out of poverty, microfinance has come under a cloud.
The stories of lives being changed by a $27 microloan and picture perfect scenes of smiling women with colorful handlooms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide.
At best, microfinance seems to be failing to achieve its most noble goal: poverty alleviation. At worst, some lenders are contributing to a cycle of indebtedness and abuse, just like the loan sharks they sought to replace.
Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive.
The controversy has hit the heartland of microfinance in South Asia hard. As India prepares charges in 51 cases of suicide allegedly linked to coercive microfinance institutions, microfinance's founding father, Nobel laureate Muhammad Yunus, is fighting to hold onto his position as head of Grameen Bank in a Bangladeshi court.
Yet advocates for microfinance say it has achieved much despite the recent bad publicity. They argue that extending credit to the poor — in practice most of the borrowers are women — has fostered small businesses, helped promote gender equality, lifted incomes, and improved access to food and education for some of the world's most desperate citizens. The backlash could unwind all that progress, they warn.
"To stifle an entire industry is wrong," said Vikram Akula, chief executive of SKS Microfinance, whose listing on India's stock market last year sparked fierce debate about how much profit is justifiable when helping the poor. "It is the poor who will ultimately suffer the most if they have to return to village loan sharks for financial services."
As the industry indulges in a bout of soul searching over what has gone wrong, some say microfinance is suffering, in part, from its own success.
Microfinance has excelled at getting a lot of money to a lot of borrowers quickly, disrupting established networks of power and patronage in the process.
Some say that remarkable growth has prompted a backlash from vested political interests.
"The poor is a constituency politicians see as their own turf," said Alok Prasad, chief executive of India's Microfinance Institutions Network, whose 46 members represent about 85 percent of the lending in the sector in India. "Anything which leads to greater empowerment of the poor makes them insecure."
In Bangladesh, the government order dismissing Yunus — which he is now fighting in court — is widely seen as retribution for his 2007 attempt to form his own political party. Yunus, who in founding Grameen Bank in 1983 pioneered the concept of reducing poverty by making tiny loans to the poor, has himself been frequently critical of the commercialization of microfinance.
In India, some say pandering for voters, corruption and competition with a state-backed lending program helped spark a crackdown that has essentially frozen microlending in the southern state of Andhra Pradesh, India's most important microfinance market. The central bank had to step in to try and prevent microfinance institutions from going bankrupt.
Government lending programs for the poor in India have been losing ground to microfinance groups. In 2007, state-backed self-help groups, which link local borrowers with banks, sometimes at subsidized interest rates, added 8.5 million clients, while microfinance groups added 3.2 million. Two years later, self-help groups added just 6.7 million clients, while microfinance groups added 8.5 million, according to M-CRIL, an Indian micro-credit rating agency.
M-CRIL director Alok Misra said the gains by the private microfinance groups have shamed the government and unsettled politicians who believe the self-help groups are an important means of securing votes.
"It is showing the government its own inadequacy," Misra said. "That's a big challenge for the politicians. Politicians feel poverty-lending should be in the government's name."
R.Subrahmanyam, Principal Secretary of Rural Development in Andhra Pradesh dismisses charges of politicking as "a figment of the imagination of disgruntled elements."
"How can microfinance institutions step on political interests?" he said. "If poor are getting exploited and commit suicides by dozens, should government be a mute spectator?"
He said the state is preparing to prosecute 51 cases of suicide allegedly linked to coercive microfinance groups. Meanwhile the central bank is considering new regulations which would, among other things, cap microfinance interest rates.
"Irresponsible lending leading to multiple loans without due diligence, unproductive loans for consumption and consumer durables, lack of transparency in operations, usurious interest rates, coercive recovery practices, have all resulted in hyper-profits to microfinance institutions and impoverishment of the poor," Subrahmanyam said in an e-mail.
Many within the industry would agree with that assessment and welcome better regulation. The Microfinance Institutions Network plans to launch a microcredit bureau in India in a few weeks, which should help reduce the problem of borrowers taking on too many loans.
Evaluations which benchmark results against control groups so far haven't found evidence that microloans alone are enough to solve the complex problems of the deeply poor. Still, many warn that a world without microfinance would be much worse off.
"Microcredit is a good thing but has been oversold," said Yale professor Dean Karlan, who authored one such study. "It will not raise people out of poverty, certainly not single-handedly. But there are benefits that are important
http://www.google.com/hostednews/ap/article/ALeqM5gWkw5ZOkT3QYIBr3X3QhyLgBsliw?docId=4314a0557a664c3e8828571eb0e31079

POVERTY: Microfinance struggles to restore its reputation

MUMBAI, India (AP) — Long heralded as a way to lift the downtrodden out of poverty, microfinance has come under a cloud.
The stories of lives being changed by a $27 microloan and picture perfect scenes of smiling women with colorful handlooms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide.
At best, microfinance seems to be failing to achieve its most noble goal: poverty alleviation. At worst, some lenders are contributing to a cycle of indebtedness and abuse, just like the loan sharks they sought to replace.
Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive.
The controversy has hit the heartland of microfinance in South Asia hard. As India prepares charges in 51 cases of suicide allegedly linked to coercive microfinance institutions, microfinance's founding father, Nobel laureate Muhammad Yunus, is fighting to hold onto his position as head of Grameen Bank in a Bangladeshi court.
Yet advocates for microfinance say it has achieved much despite the recent bad publicity. They argue that extending credit to the poor — in practice most of the borrowers are women — has fostered small businesses, helped promote gender equality, lifted incomes, and improved access to food and education for some of the world's most desperate citizens. The backlash could unwind all that progress, they warn.
"To stifle an entire industry is wrong," said Vikram Akula, chief executive of SKS Microfinance, whose listing on India's stock market last year sparked fierce debate about how much profit is justifiable when helping the poor. "It is the poor who will ultimately suffer the most if they have to return to village loan sharks for financial services."
As the industry indulges in a bout of soul searching over what has gone wrong, some say microfinance is suffering, in part, from its own success.
Microfinance has excelled at getting a lot of money to a lot of borrowers quickly, disrupting established networks of power and patronage in the process.
Some say that remarkable growth has prompted a backlash from vested political interests.
"The poor is a constituency politicians see as their own turf," said Alok Prasad, chief executive of India's Microfinance Institutions Network, whose 46 members represent about 85 percent of the lending in the sector in India. "Anything which leads to greater empowerment of the poor makes them insecure."
In Bangladesh, the government order dismissing Yunus — which he is now fighting in court — is widely seen as retribution for his 2007 attempt to form his own political party. Yunus, who in founding Grameen Bank in 1983 pioneered the concept of reducing poverty by making tiny loans to the poor, has himself been frequently critical of the commercialization of microfinance.
In India, some say pandering for voters, corruption and competition with a state-backed lending program helped spark a crackdown that has essentially frozen microlending in the southern state of Andhra Pradesh, India's most important microfinance market. The central bank had to step in to try and prevent microfinance institutions from going bankrupt.
Government lending programs for the poor in India have been losing ground to microfinance groups. In 2007, state-backed self-help groups, which link local borrowers with banks, sometimes at subsidized interest rates, added 8.5 million clients, while microfinance groups added 3.2 million. Two years later, self-help groups added just 6.7 million clients, while microfinance groups added 8.5 million, according to M-CRIL, an Indian micro-credit rating agency.
M-CRIL director Alok Misra said the gains by the private microfinance groups have shamed the government and unsettled politicians who believe the self-help groups are an important means of securing votes.
"It is showing the government its own inadequacy," Misra said. "That's a big challenge for the politicians. Politicians feel poverty-lending should be in the government's name."
R.Subrahmanyam, Principal Secretary of Rural Development in Andhra Pradesh dismisses charges of politicking as "a figment of the imagination of disgruntled elements."
"How can microfinance institutions step on political interests?" he said. "If poor are getting exploited and commit suicides by dozens, should government be a mute spectator?"
He said the state is preparing to prosecute 51 cases of suicide allegedly linked to coercive microfinance groups. Meanwhile the central bank is considering new regulations which would, among other things, cap microfinance interest rates.
"Irresponsible lending leading to multiple loans without due diligence, unproductive loans for consumption and consumer durables, lack of transparency in operations, usurious interest rates, coercive recovery practices, have all resulted in hyper-profits to microfinance institutions and impoverishment of the poor," Subrahmanyam said in an e-mail.
Many within the industry would agree with that assessment and welcome better regulation. The Microfinance Institutions Network plans to launch a microcredit bureau in India in a few weeks, which should help reduce the problem of borrowers taking on too many loans.
Evaluations which benchmark results against control groups so far haven't found evidence that microloans alone are enough to solve the complex problems of the deeply poor. Still, many warn that a world without microfinance would be much worse off.
"Microcredit is a good thing but has been oversold," said Yale professor Dean Karlan, who authored one such study. "It will not raise people out of poverty, certainly not single-handedly. But there are benefits that are important."
http://www.google.com/hostednews/ap/article/ALeqM5gWkw5ZOkT3QYIBr3X3QhyLgBsliw?docId=4314a0557a664c3e8828571eb0e31079

POVERTY: Court upholds sacking of Grameen founder Muhammad Yunus

8 March 2011


The dismissal of Nobel laureate Muhammad Yunus from the Grameen microfinance bank he founded was legal, Bangladesh's High Court has ruled.
He was challenging his dismissal after the central bank sacked him. It argued that Prof Yunus was past his retirement age and was improperly appointed.
He said the attempt to remove him from the bank was politically motivated.
Grameen Bank has pioneered micro-lending to the poor by giving small loans to millions of borrowers.
In its ruling on Tuesday the court said that Prof Yunus was wrongly reappointed managing director of Grameen Bank in 1999 as that was a decision that should have been taken by the central bank.
It also supported the central bank's argument that Prof Yunus had violated the country's retirement laws by staying on as Grameen's head long past the mandatory retirement age of 60. Prof Yunus is 70.
The BBC's Anbarasan Ethirajan in Dhaka says that the ruling is a setback for Prof Yunus, even though he has the right of appeal to the Supreme Court.
http://www.bbc.co.uk/news/world-south-asia-12673293

POVERTY: Bangladesh: Women Find a Way Out of Poverty

Naimul Haq
 Munni working at her factory. Credit:Labid M Ishtiaque

DHAKA, Feb 24, 2011 (IPS) - Twenty-one years ago, Munni Akter and her husband Shafiuddin could hardly afford two meals a day.The couple lived in Savar, some 35 km from here, and had no income. That is, until they turned to the Bangladesh Rural Advancement Committee (Brac), the world’s largest non-government organization working to reduce poverty.
"I was almost lost and had no skill to earn. But a neighbour told me that Brac lent money for small businesses for which they required no guarantor," 37- year-old Munni recalled.
"My husband and I wasted no time and appeared at the local Brac office to borrow money. Soon we found ourselves with some money to start vending on the streets and make profit," Munni added.
From the initial 5000 taka (40 dollars) she borrowed in 1990, her business has grown. Today, Munni has a small factory on the first floor of her two- storey concrete home in Dashkkhin Krinshnapur in Savar making sweetened puffed rice which is sold as far as 300 km southeast to the port city of Chittagong.
She employs 26 workers, and after paying labour, electricity and other costs, she has a clean profit of 1,000 dollars.
Millions of poor women like Munni have used loan money to successfully run their own businesses and free themselves from the curse of poverty, thanks to microfinance institutions like Brac.
Founded and introduced in the late 1970s, microfinancing is Bangladesh’s success story. Recent studies suggest that over 11 million Bangladeshis have benefited from borrowings, making the country the global leader in the successful use of microfinance programmes.
Getting a loan from a microfinance institution (MFI) is hassle-free and client- friendly. These MFIs knock on the doors of their clients and require no formal paperwork. Anyone who lacks skills or assets will qualify for a beginner’s loan that can lead to an advanced stage and bigger loans.
In Munni’s case, after her first 5,000-taka loan, she took several more and successfully used them to expand her business selling sweetened puffed rice.
Since Munni paid back all her loans on time, she qualified for a second stage of borrowing known as Progoti where the borrower need not belong to a group. She was able to secure a loan of 450,000 taka (6,342 dollars) in three phases, the last tranche given in March 2010.
Despite debates about the differences between "getting out of poverty" and "staying out," numerous studies have revealed that this Bangladeshi invention designed for the poor has worked. More than 40 other countries now replicate the Bangladeshi microfinance models.
MFIs offer small loans at reasonable interest rates of up to 18 percent yearly, mostly to women who would not qualify for conventional loans.
Take the case of Urmi Begum and Raxmi Rani Dey. Being street beggars, no bank or moneylender would have loaned them money. But they managed to borrow from Bangladesh’s third largest microfinance institution, Association for Social Advancement (ASA) in Rajshahi district, some 300 km northwest of the capital.
Using the loan from ASA, they both set up small grocery shops in local markets.
"Now that I have paid back loans, the tin-shed-shop belongs to me, since June 2010. I make between 100 and 150 taka a day from selling vegetables, enough to look after my disabled husband and two sons," said Rani.
To help them start or improve small-scale businesses, women who participate in the microfinance programmes are organized in groups known as samity.
Each groups consists of about 20 to 30 members, and meets once a week or once a month to discuss various issues. The members also guarantee each other’s loans.
The group meetings are also an opportunity to educate women on various aspects of business. The women are also taught to save, which is an important part of microfinancing.
"In my group, a few of my fellow colleagues did not save money to repay loans, and so they had difficulties seeking fresh loans," said 40-year-old Sultana Razia, who runs a small dairy farm selling 36 litres of milk everyday.
Rezia started with a small, risk free loan of 120 dollars, and was trained on how to become a successful dairy farmer. After four years, Rezia is the only supplier of fresh milk in her neighbourhood in Madrashapara in Savar. She has repaid all loan installments and often lends money from her profit to her employees.
Most of the MFIs have good loan recovery rates ranging from 85 to 98 percent.
This is because majority of the MFIs also run advocacy and capacity-building programmes on the proper use of borrowed money and savings.
Today, microfinance, combined with health, education and other rights-based advocacy programmes, has significantly contributed to an increase in female enrolment in schools and colleges.
In many parts of the country, surveys show that over 90 percent of girls from borrower-families attend school, compared to less than 60 percent from non-participants of microfinance programmes.
More than 2,000 MFIs work with the poorest of the poor in Bangladesh. The lion’s share of the MFI’s activities is in big NGOs like microfinance founder Grameen Bank, Brac, and ASA and similar institutions.
According to Palli Karma Sahayak Foundation (PKSF), the body which disburses and monitors all loans to its partner organizations (POs), it disbursed 1.5 billion dollars to 195 POs from 1990 up to November last year.
"Microfinance has substantially helped improve the quality of life of the poor in Bangladesh," said Dr Salehuddin Ahmed, former Bangladesh Bank Governor and also former managing director of PKSF, an apex body of more than 250 microfinance institutions.
Salehuddin, who took part in several major researches on microfinance in Bangladesh, told IPS, "The impact of successful borrowings is evident. Wages, employment, food security, coverage in health, education, sanitation and other basic needs have increased many times in the rural areas."
http://ipsnews.net/news.asp?idnews=54599

POVERTY: Muhammad Yunus resists attempt to fire him

3 March 2011
Bangladeshi Nobel laureate challenge government order dismissing him as head of microfinance bank he founded


Nobel laureate Muhammad Yunus has challenged the legality of a Bangladeshi government order dismissing him as the head of the microfinance bank he founded.
Nine members of the Grameen bank's board of directors backed Yunus, an outspoken government critic, by filing a separate petition to the high court, his lawyer, Sara Hossain, said. The court heard arguments today and said it would rule on Sunday.
Bangladesh's central bank ordered Yunus out of the bank on Wednesday, arguing that the 70-year-old had violated a law that makes retirement mandatory at the age of 60. Grameen said it was exempt from the rule and Yunus would remain in his post.
The government owns a 25% stake in the bank, which gives small loans to the poor. The other 75% is owned by Grameen's borrowers.
Yunus told reporters outside the court that he was interested in handing his job to a successor.
"I, too, want to quit, but it has to be done honourably," he said. "If I've to leave because of malice, then people will lose faith in Grameen Bank. I don't want that to happen."
The demand for Yunus's removal as Grameen's managing director is the latest in a string of problems, including an apparently politically motivated defamation trial and accusations of an unauthorised bank transfer 15 years ago.
Yunus has long had frosty relations with the prime minister, Sheikh Hasina, who has publicly criticised the Grameen Bank, saying its interest rates are too high. Hasina was reportedly angered by Yunus's attempt in 2007 to form his own political party, backed by the country's army.
The move to oust Yunus from Grameen has prompted criticism from foreign donors.
"We are deeply troubled by the process here that is trying to remove Prof Yunus," US ambassador James F Moriarty told reporters after meeting the finance minister, Abul alMaal, abdul Muhith.
"It is an unusual way to handle a Nobel laureate who is considered outside the country as one of the greatest Bangladeshis," Moriarty said.

Muhith defended the government's decision.
"We knew very well it would tarnish our image globally," Muhith told reporters. "We had to do it in line with the law of the land."
Muhith said Yunus's removal would not harm Grameen operation.
Yunus founded the bank three decades ago, pioneering the concept of reducing poverty by making tiny loans to the poor. His work, which spurred a boom in such lending across the developing world, earned him and the bank the 2006 Nobel Peace Prize.


Recently, Yunus has been under pressure at home. In addition to his legal troubles, Sheikh Hasina has accused the bank and other microfinance institutions of charging high interest rates and "sucking blood from the poor borrowers".
Efforts to remove Yunus from Grameen have intensified in recent weeks.
Controversy surrounded Yunus after a Norwegian television documentary shown in December accused him of transferring Norwegian development funds from Grameen to another venture without prior approval in 1996. Pressure by the Norwegian embassy in Dhaka resulted in the funds being transferred back in 1998, and the Norwegian government has said there was no indication Grameen was engaged in corruption or embezzlement.
The bank, founded in 1983 in Bangladesh, has nearly 9 million borrowers, 97% of whom are women. Many use their small loans to make ends meet or to start small businesses.
In Washington, the head of the US Senate foreign relations committee, Senator John Kerry, expressed his concern about efforts to remove Yunus and said the international community would watch the situation closely. He said he hoped both sides could reach a compromise that maintained the bank's autonomy and effectiveness and that Yunus's "life-long work to reduce poverty and empower women through microloans has deservedly received worldwide attention and respect".
http://www.guardian.co.uk/world/2011/mar/03/muhammad-yunus-bangladesh-microfinance-grameen

POVERTY: Microcredit: sorting out where the problems lie

By David Korten : January 22, 2011.
David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His latest book is Agenda for a New Economy: From Phantom Wealth to Real Wealth.



 Patrick-Emil Zörner/Wikimedia Commons
Muhammad Yunus speaks at in Wiesbaden, Germany, in 2009.

The introduction of for-profit operations set the stage for problems. What happened in poor communities began to mirror troubles seen with the U.S. banking system.

For more than 20 years, microcredit has been widely heralded as the remedy for world poverty. Recent news stories, however, have sullied microcredit’s glowing reputation with reports on scandals, exorbitant compensation to managers, skyrocketing interest rates, and aggressive marketing schemes.
Once praised as a universal panacea, microlenders are now being widely attacked as predatory loan sharks. In December 2010, Sheik Hasina Wazed, the prime minister of Bangladesh and former microcredit advocate, accused microcredit programs of “sucking blood from the poor in the name of poverty alleviation.”

What happened?
It turns out there are two very different models of microcredit. As Muhammad Yunus, winner of the 2006 Nobel Prize, pointed out in his Jan. 15, 2011 New York Times op-ed, one type of microcredit program is designed to serve the poor; another to maximize financial returns to program managers and Wall Street investors.
The differences raise crucial questions for the future directions of microfinance. They also help us see where the banking system here in the United States went off course and how we must restructure it to support prosperous Main Street economies.
In 1983 Yunus founded the Grameen Bank, universally cited as the inspiration and model for the global microcredit movement. His purpose was to improve the lives of millions of poor Bangladeshis by making small loans to poor women to fund income-generating microbusinesses.
The basis for the Grameen Bank’s worldwide renown lies in a number of key characteristics that are not widely understood.
Most local branches are self-funded by deposits of their local members in taka, the Bangladesh national currency.
By serving as a depository for its members, Grameen Bank allows the poor to build their own financial asset base.
The bank extends loans to its members at a maximum interest rate of 20 percent, a fraction of what many other microlenders charge.
Operating on a cooperative model, profits are redistributed to the Grameen Bank’s owner-members or are invested in community projects.
These features root the Grameen Bank in the community it serves and keep money, including interest payments, continuously circulating locally to facilitate productive local exchange and build real community wealth.
Microcredit programs seeking to replicate the Grameen model have spread rapidly across the globe. Most, however, replicate only the loan feature. Few provide their members with depository services or replicate the Grameen Bank’s other defining features, though these features are central to its commitment to community wealth building.
As microlending programs became increasingly focused on repayment rates and growing the size of their loan portfolios, they looked for new sources of capital to expand their reach. With encouragement from foreign philanthropists, many turned to foreign commercial equity investors. Since private equity conflicts with the nonprofit model, sometime around 2005 many nonprofit microcredit programs changed their status to for-profit enterprises and converted their philanthropic nonprofit assets into private for-profit assets.
One such micro-finance program was Compartamos in Mexico, which in 2007 launched an initial public stock offering. According to a New York Times article, it charged its borrowers an annual interest rate of near 90 percent, producing a return on equity of more than 40 percent, nearly three times the 15 percent average for Mexican commercial banks. This made Compartamos highly attractive to private equity investors. The public offering brought in $458 million, of which “private Mexican investors, including the bank’s top executives, pocketed $150 million.”
For the groups that turned to Wall Street for financing, the line between social purpose microcredit and predatory loan sharking began to disappear.
Another example is SKS Microfinance in India, whose initial public offering in August 2010 raised $358 million from international investors and yielded its founders stock options worth more than $40 million.
Yunus describes the consequences of such conversions and public sales: To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared.
For the groups that turned to Wall Street for financing, the line between social purpose microcredit and predatory loan sharking began to disappear, with some programs charging annual interests rates of more than 100 percent. Programs that had raised philanthropic funding to help put money into poor communities became vehicles for sucking wealth out of them to generate financial profits for already wealthy people.
Apologists argue that so long as the Wall Street-funded microcredit programs charge interest rates lower than the local money lenders, they still benefit the poor.
Tara Thiagarajan, Chairperson of Madura Micro Finance, a for-profit microcredit program in India, followed the money and challenged this premise in a thoughtful and self-critical blog: The local moneylender … may charge a higher interest rate, but being local will probably spend most of that income in the village supporting the overall village economy. So potentially, local lending at higher rates could be more beneficial to the village if the money is in turn spent in the village, compared to lower rates where the money leaves the village.
Because foreign private equity investors expect to recover their investment plus a perpetual flow of profits, the contradictions go even deeper than what Thiagrarajan outlined.
Say an equity investor in the United States buys shares in a microcredit program in India. The investor pays for the shares in U.S. dollars and in turn expects to be paid in U.S. dollars. The microlender, however, does business in Indian rupees.
The dollars, therefore, are exchanged for rupees in the foreign exchange market and become part of India’s foreign exchange pool, which funds consumer imports, machinery, foreign scholarships, capital flight, arms imports, foreign travel, and whatever other uses India may have for dollars—virtually none of which benefit the poor.
A small short-term economic gain can come at a large long-term cost when it is funded with outside debt or equity.
If the microlender meets its profit projections, this creates claims by the foreign investors on India’s foreign exchange reserves potentially many times the amount of the original investment. To fulfill this obligation, India must produce goods and service for sale abroad or sell or mortgage additional assets to foreigners, which creates still greater claims against future foreign exchange earnings. The community in which the borrowers reside will be dealing only in rupees, but faces a similar external drain on its resources to meet the borrowers’ obligations to the lending organization.
Say the microlending supported an increase in village food production. Rather than improving the diets of the workers who produce it, however, a portion of their additional production must be sold to outsiders to generate the rupees to repay their debts.
In return for a short-term inflow of money, both India and the village bind themselves to a long-term outflow of money and real wealth. It is an insidious dynamic that supports a classic pattern of colonization and wealth concentration long characteristic of foreign equity investment and loan funded foreign aid. A small short-term economic gain can come at a large long-term cost when it is funded with outside debt or equity.
The microcredit experience brings to light a larger principle: The institutional structure of a financial system determines where money flows and who benefits. In short, structure determines purpose.
The transformation of microcredit institutions from a model that serves communities to a model that is “sucking blood from the poor in the name of poverty alleviation” mirrors a similar transformation of the U.S. banking system, which occurred through the process of banking deregulation that began in the United States in 1970s.
Throughout the 1940s, 50s, and 60s the United States had a system of locally owned and strictly regulated community banks, mutual savings and loans, and credit unions, many of them organized on a cooperative ownership model much like the Grameen Bank. They were organized and managed to serve the financial needs of the communities in which they were located and kept money flowing within the community in service to community needs.
Banking deregulation over the past 30 years led to a wave of banking mergers and acquisitions that created too-big-to-fail Wall Street banks devoted to maximizing financial returns to Wall Street bankers and financiers. Rather than supporting local wealth creation, the system now sucks money and real resources out of the community. Both the microcredit experience and the aftermath of the 2008 Wall Street financial crash vividly reveal that the values and interests of Wall Street stand in fundamental opposition to those of Main Street.
Financial institutions can serve communities in pursuit of a better life for all or they can serve global markets to maximize financial returns to Wall Street bankers and financiers. They cannot serve both.
The world does not need more predatory lenders in service to Wall Street. We all need more local, cooperatively owned community banks on the model of Grameen.

 http://crosscut.com/2011/01/22/econ-finance/20563/Microcredit:-sorting-out-where-the-problems-lie/

POVERTY: YUNUS: Sacrificing Microcredit for Megaprofits

MUHAMMAD YUNUS [Muhammad Yunus, the founder of Grameen Bank, received the Nobel Peace Prize in 2006.] Published NYT: January 14, 2011

IN the 1970s, when I began working here on what would eventually be called “microcredit,” one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor. In 1983, I founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty. At that time, I never imagined that one day microcredit would give rise to its own breed of loan sharks.
But it has. And as a result, many borrowers in India have been defaulting on their microloans, which could then result in lenders being driven out of business. India’s crisis points to a clear need to get microcredit back on track.
Troubles with microcredit began around 2005, when many lenders started looking for ways to make a profit on the loans by shifting from their status as nonprofit organizations to commercial enterprises. In 2007, Compartamos, a Mexican bank, became Latin America’s first microcredit bank to go public. And this past August, SKS Microfinance, the largest bank of its kind in India, raised $358 million in an initial public offering.
To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were being harmed. In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.
Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity.
There are serious practical problems with treating microcredit as an ordinary profit-maximizing business. Instead of creating wholesale funds dedicated to lending money to microfinance institutions, as Bangladesh has done, these commercial organizations raise larger sums in volatile international financial markets, and then transmit financial risks to the poor.
Furthermore, it means commercial microcredit institutions are subject to demands for ever-increasing profits, which can only come in the form of higher interest rates charged to the poor, defeating the very purpose of the loans.
Some advocates of commercialization say it’s the only way to attract the money that’s needed to expand the availability of microcredit and to “liberate” the system from dependence on foundations and other charitable donors. But it is possible to harness investment in microcredit — and even make a profit — without working through either charities or global financial markets.
Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh. It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program, to micro-enterprise loans of about $1,000. Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis. When borrowers join the bank, they open a savings account. All borrowers have savings accounts at the bank, many with balances larger than their loans. And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.
More microcredit institutions should adopt this model. The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor.
Stricter government regulation could help. The maximum interest rate should not exceed the cost of the fund — meaning the cost that is incurred by the bank to procure the money to lend — plus 15 percent of the fund. That 15 percent goes to cover operational costs and contribute to profit. In the case of Grameen Bank, the cost of fund is 10 percent. So, the maximum interest rate could be 25 percent. However, we charge 20 percent to the borrowers. The ideal “spread” between the cost of the fund and the lending rate should be close to 10 percent.
To enforce such a cap, every country where microloans are made needs a microcredit regulatory authority. Bangladesh, which has the most microcredit borrowers per square mile in the world, has had such an authority for several years, and it is devoted to ensuring transparency in lending and prevented excessive interest rates and collection practices. In the future, it may be able to accredit microfinance banks. India, with its burgeoning microcredit sector, is most in need of a similar agency.
There are always people eager to take advantage of the vulnerable. But credit programs that seek to profit from the suffering of the poor should not be described as “microcredit,” and investors who own such programs should not be allowed to benefit from the trust and respect that microcredit banks have rightly earned.
Governments are responsible for preventing such abuse. In 1997, then First Lady Hillary Clinton and Prime Minister Sheikh Hasina of Bangladesh met with other world leaders to commit to providing 100 million poor people with microloans and other financial services by 2005. At the time, it looked like an utterly impossible task, but by 2006 we had achieved it. World leaders should come together again to provide the powerful and visionary leadership to help steer microcredit back on course.
http://www.nytimes.com/2011/01/15/opinion/15yunus.html?_r=1&ref=opinion

POVERTY: Grameen Bank operation in question

Dhaka, Dec 23 (bdnews24.com)—A parliamentary watchdog has sought explanation why Grameen Bank is not yet being operated under the Microcredit Regulatory Act 2006.
"We've sought an explanation for Grameen Bank's operations from the finance ministry's banks and non-bank financial institution division," chairman of the standing committee on finance ministry A N H Mostafa Kamal told reporters on Thursday after a meeting of the committee.
He, however, refused to comment on the recent controversies over fund management saying that the government would probe the matter.
"The committee has been informed that a high-powered committee will investigate the matter and we'll comment only after the committee submits its report."
Replying to a query, Kamal said the committee would be formed within a few days.
He said the standing committee feels that microcredit operation in the country should be regulated properly. "The committee also believes that rules and regulations of the MRA [Microcredit Regulatory Authority] are weak to regulate the sector."
He added that the regulatory body's manpower should also be increased for strong monitoring activities. "The MRA needs to work at the country's grassroots-level."
http://www.bdnews24.com/details.php?id=182418&cid=4

POVERTY: Grameen Bank and Professor Yunus

 01 Dec 2010,
The reputation of a Nobel peace laureate, credited with helping to defeat global poverty through micro credit, hung in the balance Wednesday night after allegations that he had diverted £40 million (US$62.4 million) from a bank set up to help the poor.
Muhammad Yunus, internationally feted as banker to the world’s poor, now faces an investigation by the Norwegian government, which donated funds to him, according to The (London) Times.
It marks a further blow to the reputation of micro finance, once hailed as the most effective way to help the most needy out of poverty.
The model of extending small loans to help to stimulate entrepreneurial activity was pioneered by Yunus in Bangladesh. It won him the Nobel Peace Prize in 2006.
But letters obtained by a Norwegian filmmaker suggest that Oslo’s embassy in Dhaka was furious to discover that cash donated to his micro finance vehicle, Grameen Bank, for housing loans was diverted to another company without its knowledge or permission. The arrangement, which Yunus claimed was made for tax reasons, was not mentioned in Grameen Bank’s annual report.
When his actions were challenged in formal correspondence, Yunus wrote to the head of an aid agency, Norad, asking for its help.
“This allegation will create a lot of misunderstanding within the government of Bangladesh. If the people, within and outside government, who are not supportive of Grameen get hold of this letter, we’ll face real problem[s] in Bangladesh,” he wrote.
Yunus was ordered to return the money but while about £17.6 million was repaid, the rest of the funds were used for other social causes including victims of cyclones, according to the Norwegian government.
The chain of events -- which took place between 1996 and 1998 -- came to light this week after the letters were aired as part of a documentary on micro finance that was shown on Norwegian television.
Although it said that there was no suggestion of tax fraud, a minister in the current Oslo administration said that it was “totally unacceptable” that aid was used for purposes other than what was intended. A report into the matter has now been ordered by the International Development Minister after questions in the Norwegian parliament.
A statement released by Grameen Bank said that the claims were false and that a full explanation would be provided at the “earliest convenient time.”
The Norwegian Nobel Institute stood by Yunus Wednesday night, admitting that it was aware of “isolated incidents” relating to Grameen Bank when it awarded him the Peace Prize, but it does not plan to raise any further questions.
http://www.myfoxdetroit.com/dpps/news/nobel-peace-prize-winners-reputation-under-threat-dpgonc-20101201-bb_10895183

POVERTY: Assessing Grameen Foundation’s Progress Out of Poverty Index

November 8, 2010
The Net Impact session on "Beyond Microfinance: Investing in the Developing World" was timely in that it highlighted the certification program for the Grameen Foundation's Progress out of Poverty Index (PPI). I thought I would take this opportunity to highlight some of the potential strengths and possible shortcomings of the 5-month-old certification process.

What is the Progress out of Poverty Index?
According to the Grameen Foundation, "The PPI is a simple and accurate tool that measures poverty levels of groups and individuals. Using the PPI, MFIs can better determine their clients' needs, which programs are most effective, how quickly clients leave poverty, and what helps them to move out of poverty faster."
The tool is adapted to each country by using their national household survey (or another equivalent survey) to find the indicators most highly correlated with poverty. These indicators are then narrowed down to a set of 10 (see diagram below) that will be used to quickly evaluate movement out of poverty within MFIs.


(Source: Grameen Foundation PPI)
How is the PPI value proposition different from other evaluation methods?
Grameen Foundation promotes the PPI approach as a cost-effective, easy-to-use method for evaluating poverty. The tool requires measurement of only ten items, all of which are observable upon visiting the borrowers' households (i.e., type of flooring or roofing). Additionally, analysis of results may be done quickly by adding weighted values for each question, which total to a score of 100. Individuals' progress out of poverty is determined on a scale from 0 to 100. The measurement is conducted each year and any changes are compared over time.
Outside of the features highlighted on the Grameen website, one potentially beneficial impact of the PPI approach is that it could, if used appropriately and in a widespread fashion, standardize the process for how movement out of poverty is measured and create a large sample population for comparison. This standardization would enable interested parties to compare results over time and across groups, regions, organizations etc.
So what’s in store for microfinance in the next generation using the PPI approach?
Grameen Foundation aims to help MFIs across the world stay true to their mission to alleviate poverty. Groups using the PPI platform can define their measures for success in a systematic way, respond quickly when said measures are not showing documented results and provide feedback to their investors. While these organizations’ aims generally do not differ much from the objectives of any evaluation or impact assessment platform, Grameen Foundation’s certification program – in conjunction with its PPI assessment – has the potential to raise the bar of evaluation for some groups that are not currently conducting yearly assessments and potentially standardize the process.
Some final thoughts and questions for moving forward…
Regardless of the impact, Grameen Foundation’s support for a certification process in measuring movement out of poverty provides one coordinated effort for measuring impact among a growing number of suggested approaches (GIIN, GIRRS, IRIS etc.). While the tool is easy to use, transferrable and certified, there are some questions left unanswered about this approach. For instance, in an effort to better serve those at the BoP, how can we be sure that we are portraying a realistic picture, both successes and failures, associated with a particular poverty alleviation method?
One way to do this is to engage multiple models of assessment, viewing the movement out of poverty as a multifaceted change therefore needing a variety of quickly acquired outputs as well as robust outcomes. A helpful example to convey this point comes from the Grameen Foundation website. The PPI method “aims to measure changes in poverty through time. Thus, some powerful indicators (such as education of the female head/spouse) that are unlikely to change as poverty changes are omitted in favor of slightly less-powerful indicators (such as the number of radios) that are more likely to change.” I would argue this dichotomy is unnecessary, potentially harmful and something that appears to have staying power as we’ve been discussing for some time (See this article by Heather Esper).
If we focus primarily on measures that can be counted, easily observed and quantified in a shorter period of time as our standard method for assessment, we will potentially skew our timeframe for change and also simplify perceptions of relative successes and failures. As the old adage goes, usually the things worth doing in life are also often the most seemingly difficult to do. In the case of assessment this might mean spending more time on detail, measuring a greater number of diverse impacts and, overall, investing more time in the process. The results of in-depth assessments of this nature are potentially the greatest (and most accurate) indication of how individuals are being served by a program.
In this vein of thought, I propose that a better conversation to be having is how can we integrate both standardized methods for evaluating short-term changes related to poverty alleviation as well as powerful standardized long-term outcomes. And in doing so, how can we change our measurement model for social change to track and continually assess both short and long-term benchmarks? Additionally, what type of enabling environment needs to be in place to support multifaceted approaches to measure movement out of poverty?
http://www.nextbillion.net/blog/2010/11/08/assessing-grameen-foundations-progress-out-of-poverty-index