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Bond, Patrick (2006) Unmasking the microcredit success lie. Centre for Civil Society : -.

The seemingly benign attempt to foster entrepreneurship among
impoverished women has attracted intense criticism, writes Patrick Bond

The central problem caused by the recent Nobel Peace Prize award, I
sense, is the enormous expectation now placed upon civil society to make
up for failing states in not only social service delivery, but also
basic financial survival.

Consider the advice of one free-market ideologue, who would use poor
people's desire for credit to justify shrinking already beleaguered
welfare policies of Third World states: I believe that 'government', as
we know it today, should pull out of most things except for law
enforcement and justice, national defence and foreign policy, and let
the private sector, a 'Grameenised private sector', a
social-consciousness-driven private sector, take over their other

Grameen is Bangladesh's barefoot bank specialising in group loans to
low-income women. And the Vanderbilt University-trained economist who
provided that brutal advice, Muhammad Yunus (in his autobiography Banker
to the Poor), has just won the Nobel Prize.

Yunus has a grand self-image, telling a Dhaka press conference last
week: Now the war against poverty will be further intensified across
the world. It will consolidate the struggle against poverty through
microcredit in most of the countries.

Yet this seemingly benign, three decade-old attempt to foster
entrepreneurship among impoverished women has attracted intense
grassroots - and also professional - criticism.

On the one hand, the Wall Street Journal profiled Yunus on its front
page five years ago: To many, Grameen proves that capitalism can work
for the poor as well as the rich, having helped inspire an estimated 7
000 so-called microlenders with 25 million poor clients worldwide.

On the other hand, looking more closely, the Journal's reporters -
including the late Daniel Pearl - conceded the prevalence of Enron-style
accounting. A fifth of the bank's loans in late 2001 were more than a
year past-due: Grameen would be showing steep losses if the bank
followed the accounting practices recommended by institutions that help
finance microlenders through low-interest loans and private investments.

A typical Grameen gimmick is to reschedule short-term loans that are
unpaid after as long as two years, instead of writing them off, letting
borrowers accumulate interest through new loans simply to keep alive the
fiction of repayments on the old loans.

Not even extreme pressure techniques - such as removing tin roofs from
delinquent women's houses, according to the Journal report - improved
repayment rates in the most crucial areas, where Grameen had earlier won
its global reputation among neoliberals who consider credit and
entrepreneurship as central prerequisites for development.

By then, even seasoned microfinance industry professionals felt
betrayed. Grameen Bank had been at best lax, and more likely at worst,
deceptive in reporting its financial performance, wrote leading
promoter J D Von Pischke of the World Bank in reaction to the Journal's

Agreed Ross Croulet of the African Development Bank: I myself have been
suspicious for a long time about the true situation of Grameen so often
disguised by Dr Yunus's global stellar status.

Several years earlier, Yunus was weaned off the bulk of his
international donor support, reportedly $5 million (R37 million) a year,
which had until then reduced the interest rate he needed to charge
borrowers and still make a profit. Grameen had become sustainable,
self-financing, with costs to be fully borne by borrowers.

He had also battled backward patriarchal and religious attitudes in
Bangladesh, and his hard work extended credit to millions. The secret
was that poor women were typically arranged in groups of five: two got
the first tranche of credit, leaving the other three as chasers to
pressure repayment, so that they could in turn get the next loans.
Click here!

But at a time of new competitors, adverse weather conditions and a
backlash by borrowers who used collective power of non-payment, Grameen
imposed dramatic increases in the price of repaying loans. And it is
here that Grameen Bank's main philosophical position - We consider
credit as a human right - was reduced merely to an argument for access,
not affordability.

In that regard, Yunus is entirely different from all the rights-based
social movements - especially in Durban - which have demanded rights
in terms of a decent environment and free lifeline access to healthcare,
education, housing, land, water, electricity and the like.

Although criticism of Grameen is still a minority view, according to
Munir Quddus, who chairs the Department of Economics and Finance at the
University of Southern Indiana, the hype needs more investigation: The
very nature of setting up groups leaves out the very poor who would be
perceived by fellow members to have no ability to generate income and
therefore high risk.

In 1995, the highly-regarded magazine New Internationalist probed Yunus
about the 16 resolutions he required his borrowers to accept,
including smaller families. When asked if this smacked of population
control, Yunus replied: No, it is very easy to convince people to have
fewer children. Now that the women are earners, having more children
means losing money.

In the same spirit that everything is a commodity, Yunus set up a
relationship with Monsanto to promote biotech and agrochemical products
in 1998, which generated a storm of criticism and resulted in Yunus
backing down.

As Sarah Blackstock reported in New Internationalist, Away from their
homes, husbands and the NGOs that disburse credit to them, the women
feel safe to say the unmentionable in Bangladesh - microcredit isn't all
it's cracked up to be . . . What has really sold microcredit is Yunus's
seductive oratorical skill.

But that skill, Blackstock explains, allows Yunus and leading imitators
to ascribe poverty to a lack of inspiration and depoliticise it by
refusing to look at its causes. Microcredit propagators are always the
first to advocate that poor people need to be able to help themselves.
The kind of microcredit they promote isn't really about gaining control,
but ensuring the key beneficiaries of global capitalism aren't forced to
take any responsibility for poverty.

Though I have never been to Bangladesh and have only discussed these
problems with Yunus once, more than a decade ago when he visited
Johannesburg, microfinance gimmickry certainly did damage in Southern

For example, in 1998, when the emerging markets crisis raised interest
rates across the Third World, a 7% increase imposed over two weeks as
the local currency crash drove many South African borrowers and their
microlenders into bankruptcy.

So why then did Norway's Nobel committee give Yunus the award?
Colleagues in Oslo point out to me that that he was strongly supported
by friends in the Norwegian elite, including a former top finance
ministry bureaucrat and leading officials of the national phone company,
Telenor, which owns 62% of lucrative GrameenPhone, a company in control
of 60% of Bangladesh's cellphone market.

Persistent poverty, shrinking states, accounting gimmicks and friends in
high places appear as crucial ingredients in Yunus's successful formula
- and all are threats to serious civil society activists.

Patrick Bond is Director of the Centre for Civil Society and author of
Looting Africa: The Economics of Exploitation, published recently by
UKZN Press.

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