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Bond, Patrick (2011) A run on Grameen Bank’s integrity. Eye on Civil Society column : -.

In Bangladesh, banking is turning rancid, and the stench is spreading far and fast, threatening the global microfinance industry.

At first glance we see an oppressive state’s prosecution of a courageous academic-turned-entrepreneur and 2006 Nobel Peace Prize laureate, a man aiming to uplift poor women’s socio-economic status across the world by bravely offering unsecured, group credit: Muhammad Yunus.

But at second glance, we note that the multinational corporation Burson-Marsteller (B-M) is doing his spin. As the insightful US social critic Rachel Maddow of MSNBC tv put it, “When Evil needs public relations, Evil has Burson-Marsteller on speed-dial.”

B-M was the PR corporation chosen by Three Mile Island nuclear operator after its meltdown; by the US tobacco industry to organize the ‘National Smoker's Alliance’; by the Argentine military dictatorship which killed 35,000, the Indonesian regime which committed East Timor massacres ten times worse, and Nigeria’s military regime; by Union Carbide to defend itself against residents of Bhopal killed in their thousands by the company’s chemical explosion; and by other hated tyrants such as the late Romanian president Nicolae Ceausescu and the Saudi royal family.

Last month, Mary Robinson, Ireland’s first woman president and the main public face of Friends of Grameen Bank, began working with B-M to defend Yunus, the Dhaka bank’s founder and long-time chief executive.

It didn’t work: Yunus was soon fired by the government of Sheikh Hasina Wazed, whose Awami League party won a landslide election in 2008, a year after Yunus launched an opposition party that quickly folded.

Robinson is known in Durban for her mid-2001 chairing of the World Conference Against Racism (WCAR). There, unfortunately, she turned down civil society summit demands that both reparations for slavery/colonialism/apartheid and Israeli racism be tabled. As a result, more than 10,000 people protested at the International Convention Centre.

Robinson now directs the Dublin-based Climate Justice Foundation and will be on hand in Durban later this year for the UN climate summit. According to a speech she gave earlier this month at the London School of Economics, Robinson aims to facilitate emissions trading at global scale and keep the carbon market alive.”

Uh oh: the rest of the world’s Climate Justice movement rejects carbon trading as an unjust ‘false solution’ that enriches bankers and polluters. So again, Robinson appears at odds with many in civil society, especially the Durban Group for Climate Justice, an international network founded at the Glenmore Pastoral Centre in 2004 specifically to fight this strategy.

It is emblematic of how state, market and civil society often work at cross-purposes, as differing interests collide. Grameen is just as urgent a case study of imploding power relations and ideology, ranging from Dhaka to Oslo to Washington.

Robinson is not the only leading feminist involved. Hasina was also Muslim-dominated Bangladesh’s prime minister from 1996-2001, and from 1975, she fought hard to restore democracy after the army assassinated her father – the Bangladeshi equivalent of Nelson Mandela – and her mother and brothers. Hasina and senior Awami League leaders have since been attacked, and several killed.

A third woman’s political icon, Hillary Clinton, has entered the fray on behalf of Yunus. Bangladesh’s famous ‘Hillary Village’ is under fire for microfinance failure, and last week her Assistant Secretary of State, Robert Blake, went to Dhaka to threaten that US-Bangladeshi bilateral relations would be ‘impacted’.

Amplifying Washington’s sentiment with big bucks, former World Bank President James Wolfensohn, another Friends of Grameen cofounder, visited Hasina last week. After his demands were apparently rejected, suddenly the Bank and International Monetary Fund cut $500 million in loans Hasina was expecting. (Another factor in that decision was the $756 million Hasina was charging Grameenphone for a 15-year license, similar to other cellphone providers based on marketshare. As New Age newspaper reported, the Bank considered this fee “far too high”.)

The current power struggle was catalysed, according to Hasina’s son, Sajeeb Wazed, when “massive financial improprieties at Grameen Bank under Yunus” were revealed by a documentary on Norwegian state television late last year. Tom Heinemann’s film “Caught in Micro Debt”$ showed how $100 million in Norwegian aid was irregularly moved from the (non-profit) Grameen Bank to a private firm controlled by Yunus, Grameen Kalyan.

Oslo was apparently furious and in 1997, demanded $30 million be returned. Yunus’ own personal correspondence about the matter is embarrassing, even damning. “In several cases,” Wazed argues, “this was completely illegal and constitutes embezzlement.”

Wazed also alleges usury after 1998: “Grameen Bank charges up to 30 percent in interest rate on loans and up to an additional 10 percent in ‘forced savings’ to the poorest sections of society. Their collection methods are draconian and collection officers who fail to collect payment have the uncollected amounts deducted from their pay. There are many documented cases which constitute abuse and the criminal offence of ‘molestation’ under Bangladesh law.”

Early this month, the country’s central bank and courts both ruled that Yunus must immediately leave Grameen, but on an ageist technicality: he is older than 60, hence supposedly disqualified to run a bank (a matter ignored the previous 11 years).

The Bangladesh crisis reflects the limits of overhyped microfinance, and comes on the heels of suicidally-high interest charged by lenders elsewhere in South Asia.

As London’s Guardian reported in early March, 30 million Indian households had borrowed more than $3 billion in microcredit since the mid-1990s. “In recent months, the industry has been thrown into crisis as it has become clear that a significant number of borrowers – between a tenth and a third, depending on the estimate – cannot afford to repay their loans.”

The reason parallels the 2007-09 ‘sub-primate mortgage bond’ crisis in the US, says the Guardian: “The past five years have seen the aggressive selling of loans to often illiterate villagers, followed by equally aggressive debt collection.”

As a result, the past decade witnessed more than 200,000 farm suicides in India, according to the country’s leading rural journalist, The Hindu’s P. Sainath. “Those who have taken their lives were deep in debt.”

After two decades of study, Milford Bateman of the London-based Overseas Development Institute concludes, “It is now becoming very widely understood, and not just in Bangladesh, that the microfinance model has been quite unable to produce any convincing evidence to confirm it has been making real and sustainable progress anywhere in reducing poverty and promoting ‘bottom-up’ economic and social development.”

For Clinton, Wolfensohn and Robinson, this may seem an appropriate time to defend Grameen. But looking more closely, it might just be better to move on, towards post-microfinance strategies that genuinely reduce poverty and empower women.

Such strategies are strongest if grounded in collective action, usually associated with social movements and organized labour. When aiming properly – for example, in SA struggles to end apartheid and to access AIDS medicines – they can truly shake governments out of their ordinarily pro-rich lethargy.

Instead, by joining the likes of the anti-poor US State Department, World Bank and Burson-Marsteller, Grameen’s dogmatic champions – even feminist legend Mary Robinson – could well face ridicule for being the last rats aboard a sinking, stinking ship.

(Patrick Bond is with the UKZN Centre for Civil Society.)

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