Muhammad Yunus: Probably Not a Fraud!

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Here's a game to start off the 4-day work week: A shiny dime to the first person who finds a point in this profile of Muhammad Yunus. Tom Bethell is a fine writer (John Nye reviewed Bethell's The Noblest Triumph in 1999) and The American is a smart magazine, but the points of this piece seem to be:

1: Muhammad Yunus's Grameen Bank doesn't turn a profit and couldn't thrive the way it does without deep-pocketed charitable supporters.

2: Bethell had some trouble finding this out.

Witness:

Jonathan Morduch, a professor of public policy and economics at New York University, writing in the Journal of Economic Literature, said in 1999 that "most [Grameen] programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors." The best-known microcredit programs "cover only about 70 percent of their full cost." Grameen, he wrote, "is in fact subsidized on a continuing basis."

So I guess that was what was on my mind. If you lend money at 20 percent and everyone repays, you don't need guilt-edged money from the West Coast. Microcredit is such a fashionable cause that maybe Yunus has all along been a high-class beggar himself, taking his bowl around to Bill Gates, Sergey Brin, and Larry Page, and using the proceeds to pretty up his balance sheets.

But what's the high crime? Bethell isn't suggesting that Yunus is getting rich off his high interest rates and covering it up, is he? The strongest allegation he makes is that (cue John Carpenter piano theme) the bank gets money from the U.N. Probably.

It has a United Nations feel to it, and as Jeffrey Tucker pointed out, the UN International Fund for Agricultural Development provided Grameen with its first major loan and "has consistently pumped money in ever since." When Yunus won his prize, the UN agency boasted in a press release that from 1981 to 1995 it had "provided capital to the Grameen Bank through three projects." I began to harbor dark suspicions that the Grameen Bank was a UN front, or at least may have started out that way.

The best counter-intuitive slam of Yunus is still Tucker's piece in The Free Market. It's 12 years old and it's not entirely persuasive (contrast the "Ponzi" scheme Tucker opposes with the options of your average Bangladeshi), but more so than Bethell's Inspector Clouseau investigation.

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  1. Just a dime?? Are you trying to make us do your work for you?? I’ll pass…

  2. Considering some of the other, explicitly anti-capitalist, anti-market, programs the money could be put into, I shall forego for the time being my rush to the barricades.

  3. The New World Order polluting purest charity with market incentives and capitalist-style lending? TO THE TINFOIL BATTLEMENTS!

  4. Maybe Bethel is suffering from a rit of fealous jage.

  5. I thought the whole point of the microcredit program is that it’s a way of helping the world’s poor attain self-sufficiency, and was considered a model for charity, not a model for business.

    Ain’t nothing wrong with building a better charity.

    (Insert all caveats about how the donations should be entirely voluntary contributions from private sources.)

  6. I know they work hard to avoid it but we shouldn’t be too surprised when the UN occasionaly slips up and gives to a worthy cause.

  7. Considering the fact that the alternative to microcredit is big-ticket World Bank development lending to state debtors, it’s OK with me if this guy’s shop doesn’t run at a profit.

    Just establishing a beachhead in some of these nations for the whole culture of credit and security is a plus. Those were certainly woefully absent, or deliberately suppressed, in many of these nations before.

    Consider it a loss leader.

  8. But if Yunus isn’t turning a profit, how can a libertarian possibly support him? And “deep pocketed charitable supporters” is nothing more than a nce way of saying “altruists,” who according to libertarian principles are evil.

    Fie on Mohammed Yunus, and fie on Weigal-with-an-A for being a shill for Big Charity. As well as a hack.

  9. Where’s all these libertarian statements that charity is bad?

    Perhap’s someone’s confusing libs with Ayn Rand. But even she thought that charity was an appropriate way of helping the poor as long as it was freely given.

  10. Bethell, a fine writer? The author of The Politically Incorrect Guide to Science, a disbeliever in evolution and global warming?

    You’ve got to be kidding me.

  11. Let me preface this by saying that I do not hold Bethel in high regard, nor am I a Randroid; however, I am suspicious of microcredit precisely because it WILL be massively subsidized by the government, most of these charities are angling for government handouts already.

    The best way to help the poor is economic development within a property rights regime. Having the poor to expect subsidized interest rates is no way to encourage a
    “culture of credit and security” Microcredit distracts from this objective by leading people to believe that credit should always be subsidized – as the microcredit rage increases, more poor people will want microcredit loans, the charities won’t be able to keep up with demand and eventually, microcredit will come to be viewed as a “right” provided by the government in these countries.

  12. I just attended the Chicago Microfinance Convention on Friday. This was the topic of discussion. The new generation of microfinance institutions is attempting to achieve sustainability by being profitable on its own. Check out SKS Microfinance for an organization that does in fact do that.

    As P Brooks says, the Grameen model is a very effective method of charity, and should be encouraged. But it’s not the only way to do microfinance.

  13. The author of The Politically Incorrect Guide to Science, a disbeliever in evolution and global warming?

    Well, sounds like he’s half right, anyway.

  14. There’s nothing wrong with charity. But the impression many Grameen enthusiasts have created is that this is a viable business model. If it were a viable business model — i.e., if it were a profitable way to lend money — that would be wonderful news, because we could expect to see thousands of indigenous imitators spring up in the 3rd World. If it’s just another charity, again, that’s fine, but it will continue to depend on wealthy outside sources willing to simply give money away, not native entrepreneurs who might profit by helping their neighbors.

  15. I’ve never heard anyone describe Grameen-style systems as anything but charities, myself.

  16. I guess, to recast the old saying, typical charity is giving a man a fish. Microcredit allows the recipient to buy a pole and a second-hand copy of the Complete Idiot’s Guide to Fishing on Amazon.

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