Friday, December 08, 2006

Nobel Blogging

Grameen Bank is one of the most wonderful success stories of the last decade. The Bangladeshi microcredit institution has been responsbile for loans to 6.61 million borrowers (97% of which are women). Most strikingly, these borrowers own 94% of the total equity of the bank. It's a bank, in some sense, for and by the poor. Loan recover rate is close to 98%, and as Wikipedia notes, "more than half of Grameen borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan, as measured by such standards as having all children of school age in school, all household members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and the ability to repay a 300 taka-a-week (8 USD) loan."

So, in the wake of Grameen Bank and microcredit founder Mohammed Yunus's Nobel Peace Prize acceptance this Sunday, the New Republic has published an article that congratulates Yunus for his "deserve[d]" Prize, but has one rather significant criticism ... that Grameen, as a corporation, just doesn't extract enough profit. I'm no expert on these matters, but from I know, almost everything in this article is both flat-out wrong, and outright offensive.

The premise of the article is somewhat correct. Grameen Bank, just about like most things in this world, cannot be shy about making profits if they desire to an effective institution. "If small-scale financial services are to be a long-term solution to the problem of poverty, they need to embrace profit," the author, Andrew Curry, writes.

Fair enough, but what does this have to do with Grameen exactly? Here's where things truly fall apart. According to Curry, "
Yunus is firmly anti-profit." It's his "philosophy" (read: anticapitalist), we're told, that's the problem. And what is the philosophy of this heavily accomplished and innovative Nobel Peace Prize Winner? Curry thinks he captures it in a short paragraph:
The problem isn't Grameen's size or its borrowers, but its philosophy: Yunus is firmly anti-profit. "Maybe banks can make a profit from [loaning money to the poor]. ... But this is what loan sharks do," Yunus said after his Nobel win was announced in October. "We have enough enterprises generating money for profit. I would rather think that the rich can set up social enterprises." Yunus even objects to the term "microfinance," preferring the profit-neutral "microcredit."
Besides one reference later on to Grameen's low interest rates they charge (gasp!), Curry offers not a single statistic about Grameen, nor another quotation from Yunus. Instead, we get lots of statistics about microfinance (stick it to 'em, Andrew!) banks in Serbia and Bolivia, which by virtue of their being mentioned alongside "numbers" are somehow supposed to make them more appealing to toughminded, manly, realist men -- not those Gandhian types who think non-violence, or non-profit-driven banking, or whatever, is a real strategy.

The reason that so little actual statistics appear in reference to Grameen is that, at least when it comes to profit, Curry is dead wrong. Join me as we listen to arch-profit hater Yunus answer a question (about halfway through, around the 30th minute) about profits. Or, if you don't want to listen, I'll do a play by play:

Questioner: One of the comments made by participants particularly in the financial industry is that the cost to provide these loans ... is often too high. This doesn't seem to be an issue for Grameen, but maybe you can provide some insights to the larger financial...
Yunus: That's a trade secret! We don't have to give it up! You'll be competing with me."
[Audience laughs, as Yunus is clearly joking. Oh, that silly anticapitalist who doesn't take competition seriously. But wait! An answer!]
Yunus: We cover all our costs with the revenue that we generate. We make a surplus. Last year we had about $7 million of net profit. This year we're looking forward to some $20 million plus dollars in profit.... We're expanding, our profit is increasing, and people are happy.

You bet those italics are mine. Quite an answer from this anti-profit man whose actions are set to "Doom Microfinance." Yunus continues to answer this question by describing that they make a profit in spite of low loans, scholarships, housing subsidies, 0% interest student loans, etc. For a look at how the bank's profit has steadily grown and is now fastly increasing since 1976, you can find some statistics here.

I'm willing to hear arguments, based on empirical evidence, about whether Grameen and its followers in other countries should seek to raise interest rates in order to maximize their services. However, to be told that "Grameen is glorified philanthropy, not banking," and that this anti-profit slickster is about to drive the institution he created into the ground, is just a sick slap in the face to evidence, reason, and decorum. For the love of God, Mr. Curry, let's not take a successful banking organization that brings millions out of poverty and criticize it in the name of some anticapitalist bogeyman.


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