Don't make profits from micro finance - says Yunus

In the 11th annual Microcredit Summit Campaign conference being held in Bali, Indonesia, Grameen Bank's Muhammad Yunus has said:

If you are making profits you are moving into the same mental mind-set as loan sharks.

However, the trend is going to be different. More private equity players and big banks are getting into the micro credit field, hoping to earn significant profits. I had already linked to The Economist article on CompartamosBanco, a micro credit institution which became an aggressive for-profit company a while back, raising hackles across.

Changes to Grameen Bank's structure

Thanks to the Military backed Government currently running Bangladesh, Grameen Bank has achieved certain relaxation in the norms governing its functioning. It has to be noted that it was during the time of General Ershad, the military dictator, that Grameen Bank came into being. The current changes are:

• Grameen Bank allowed to operate branches in urban areas. Earlier they could open branches only in the rural areas.
• Government stake cut down from 25% to 15%. Note that when the Bank started, Government had a stake of 60%.
• Number of Government nominated directors brought down to 2 from 3.
• Chairman of the bank will be appointed by the board instead of Government nomination which existed until now.

This move will strengthen Muhammad Yunus to be at the helm of the bank for quite a while to come. When Yunus decided to run for elections, the political parties got quite antsy. Of course, all legislations can be amended again by newly elected Government, but there could be a lot of resistance form People if such moves are seen as inimical to them.

Grameen Bank goes to USA

Mohammad Yunus has set up Grameen America, based at Queens, New York.

The Grameen office, where the door is always open in the Bangladeshi tradition, is a modest room down a flight of stairs under a doctor's office. Every day, Newaz walks along Jackson Avenue, going into one storefront after another, asking shop owners if they know groups of women who might want to borrow money.

Yunus has already started his operation in Mumbai, India.

Review of BANKER TO THE POOR

The Hindu has a review of this book - Indian edition brought out by Penguin Books here. It is pertinent to quote the last paragraph from the review here:

The book, first published in 1998, has just been published here in India. This is nine years too late. Perhaps, if it had come sooner we would not be seeing the Micro-Finance Sector (Development and Regulation) Bill 2007 in its current shape. The Bill seems to be a travesty of the original intentions of the micro-finance movement and takes a top down approach to supplying credit to the poor. Yunus has clearly specified a bottom up approach to make the scheme work “as intended”. The Bill, in the name of increasing the supply of credit to the poor, could actually put the deposits of the poor at risk and open the way for unscrupulous “charities” to manipulate the thrift market for their own ends. What this will do to the existing thousands of crores of deposits that self-help groups have in the commercial banking sector is anyone’s guess. One hopes a better assessment of consequences is made and more caution exercised before gifting the sector to so called micro-finance institutions. Please read the book Mr.Chidambaram.

Business shouldn't be Govt. Business - Yunus

Nepali Times has an interview with Mohammad Yunus here. Here is Yunus on privatised, free market economy...

What relationship do you advise a government to have with the private sector?

First, the only thing any government can do is have the humility to accept that it cannot change people’s lives, and that it can only help people who are changing their own lives. But most governments simply mess up people’s lives, something they are good at. My experience is that business should not be the business of government. Business should be in the hands of the private sector, which produces jobs and services. I define private sector broadly to include both businesses that make profits and do good for society at large such as by building schools, hospitals and the like.

Also interesting is Yunus' views on government run micro-credit program.

In Nepal, government promoted microcredit programs through five regional grameen banks, all of which failed. Is microcredit an area in which a government can play an active role?

I explained to your finance ministers that running microcredit programs through the government would never work. Things get politicised. Loans are given to friends and supporters, who do not pay back. Political supporters are hired as bank officers, and they do no work. I have seen this happen in every country where the government runs micro credit programs. So, the first principle is: no matter what sort of micro credit program you run, do it away from the government. Choosing partners such as NGOs or socially-oriented private businesses comes next. I define a socially-oriented private business as a business that can get its investments back from a socially useful venture but earns no dividend.

Would Grameen be the target of political parties?

Asif discusses what the political parties - Awami League and BNP - target Yunus' Grmaeen Bank in this blog entry: Yunus’ Foray and the Image of Microcredit.

Yunus abandons political plans

Nobel Peace Prize winner Muhammad Yunus had started a political party couple of months back, called Nagorik Shakti. As the general election was getting closer in Bangladesh, the bickering between the two main political parties - BNP and Awami League - resulted in a political stalemate. Upset with this situation Yunus felt he could convert the groundswell of support he had into a political movement.

However he has now decided to call it off, after finding that he is not getting sufficient support from those who initially welcomed his move.

I wouldn't take the simplest of the explanations, as offered by Yunus. His plans to scrap the party may have something to do with the current military backed interim administration. More truth may come out in the days to come.

Interest rate charged by Grameen Bank

With Muhammad Yunus entering Bangladesh politics, the politicians have found an easy way of trashing him by talking of the 'exorbitant' interest rate charged by Grameen Bank.

Stung by criticism, the Deputy Managing Director of Grameen Bank Dipal Chandra Barua writes in "The New Nation", the different loans and interest rates charged by his bank.

• Basic Loan: Income generating loan of Tk. 1,000 for borrowers with a year-end interest of Tk. 100 equivalent to 10% at flat rate. Due to the loan being paid in weekly installments the interest rate stands at 20% on declining balance.
• Housing Loan: Interest rate on housing loans is 8% (declining basis) with a payback period of five years. This interest rate is halved, when calculated at flat rate. Around seven hundred thousand homes have been built using this loan scheme.
• Higher Education Loan: Interest is 0% i.e. no interest is charged while students are studying. A 5% is charged as service charge after graduation. This scheme allows children of our members to obtain higher education in various fields like healthcare, engineering enabling them to finish their honours and masters degrees.
• Struggling Member Programme: This special programme is designated for beggars, charging 0% interest. As of December 2006, about 90,000 beggars have received loans under this programme.
• Village Centre Construction Loan: Members take this loan for constructing local village centers. No interest is charged i.e., interest rate is zero.

He also states that "Government financed agencies like PKSF and their affiliated NGOs provide loans at a flat interest rate of 12.50% that becomes 25% when calculated on a declining basis."

See also the article in The Daily Star Yunus, politics and interest rates by Safi Khan.

Academics criticise Yunus

In the aftermath of Mohammad Yunus deciding to start a political party in Bangladesh, several academics and ex-staff of Grameen Bank have crticised some of his views in a meeting organized for launching a book "Grameen Bank and Dr Yunus: In the View of a Witness" written by former Grameen Bank official Sardar Amin.

The criticisms range from

1. Yunus entering politics shows microcredit alone cannot solve poor people's problems
2. Yunus can only help capitalists, not poor people
3. Out and out privatization is not good for Bangladesh
4. GrameenPhone is only notionally owned by the poor people but in reality it is owend by a Norwegian company
5. Yunus may misuse his clout with the Grameen Bank to his own advantage in politics

Yunus starts a political party

Nobel winner Mohammad Yunus is starting a political party in Bangladesh, named "Nagorik Shakti" (meaning "Citizen Power").

The political system is quite messy in Bangladesh. The two main parties BNP and Awami League are feudal, corrupt and violent in nature. Yunus, I hope, does something better.

However, I am also very skeptical about well meaning individuals jumping into politics in the hope that people would support them simply because they are 'well meaning celebrities'. This happens a lot in India. It takes a lot of organizational work to build a grassroots political party and win elections consistently. If Yunus doesn't build a strong political organization (hopefully in an ethical way), he will lose out to experienced politicians like Sheikh Hasina and Begum Khaleda Zia.

News from Daily Star

Vinod Khosla on his involvement in microlending

Vinod Khosla interviewed in PBS, talks about four of the institutions he has invested in that are involved in microlending. The page contains a video interview. Khosla says he is happy about his friend Yunus getting Nobel, and that microcredit institutions are quite self sufficient.

Three of the entities he has invested in are in India and one in Africa, says Khosla. I know only of SKS Microfinance in which he has invested.

Create legislation for setting up micro-credit banks - Yunus

Yunus has asked India to set up legislation allowing creation of micro-credit banks.

As of now, micro-credit institutions come under NBFC (Non-banking finance corporations) and as such are severely restricted in their operations including their ability to collect deposits and access low-cost funds. Reported in Financial Express:

Although India is booming, it cannot neglect those who are left without credit availability. He made an obvious reference to the Tata-Corus deal and said, "One side of India is looking up and the other not catching up. Grameen Bank, which lent to 7 million poorest of the poor in Bangladesh, has set the target of reaching out to every household by 2010. On these lines, India should try to reach out to the poorest of the poor," he opined. Yunus praised the self-help group model for providing credit linkage but asserted that it does not cover all poor but other segments also.

SHG model in India is quite restricted and it is important for India to come up with legislation for micro-credit banks. However, I have a feeling that there is no lobby pushing for this and as such no one is going to look at this space for a long time to come.

Also reported in Economic Times is that RBI's CS Murthy that RBI is not for creating banking regulations for micro credit institutions since the regulations are stringent and micro credit institutions may not be able to handle that. This argument sounds dodgy. One can always come up with reasonably relaxed norms specifically for micro credit banks, if one wants it.

Yunus has also suggested that micro credit institutions be regulated with an upper limit for the rate of interest on lending. However the formula he is proposing may have to be looked at carefully. A regulator like TRAI who constantly looks at the prevailing situation and modifies the limit on rate of interest could be useful rather than strict legislation for the upper limit.

Danone, Grameen and Yogurt in Bangladesh

A lot is being made out of the Grameen, Danone joint venture in Bangladesh which will produce fortified yogurt for the malnourished children in Bangladesh.

A detailed article from Fortune appears in cnnmoney.com: Saving the world with a cup of yogurt

The modus operandi is as follows:

Danone will invest $500,000 in the venture. Grameen will supply the rest. Three years down the line, Danone will take back the initial investment and keep ploughing the rest of the profits back into the venture. (I think Telenor also said the same!)

Grameen borrowers will supply milk to the venture. Danone will make yogurt and sell them in cups priced $0.07 (approximately Rs. 3, or Taka 5). Grameen members will buy these cups and will sell them across their villages. The plant manufacturing yogurt will also employ women.

What is surprising is that such a venture actually requires french technology and investment. In India, plenty of local milk cooperatives make milk, yogurt and derivative products. The largest player in India is Gujarat Co-operative Milk Marketing Federation, which owns the brand name Amul. The multinationals Nestle or Danone or nowhere in the game. Yunus could have easily obtained technology at near zero cost or free from Amul, and could have run the plant with his own money.

The story of Danone's involvement is over-romanticised in the Fortune article. The $500,000 investment is probably just a fraction of what the CEO of Danone spends on his travel around the world.

We hope the malnourished children of Bangladesh get their nutrition quickly.

Give microcredit to 160 million in India - Yunus

Muhammad Yunus was in India in connection with the Satyagraha centenary celebrations. (For those who do not know, Mohandas Gandhi launched the Satyagraha movement - a novel way of non-violent mass protest - in South Africa to get more rights for Indian immigrants in White-ruled South Africa, 100 years back. Later on, he came back to India to lead the country to freedom from the British rule. The function has been organized by India's Congress Party, the leading partner in the ruling coalition.)

Yunus addressed the gathering and has also been talking to press otherwise. He has talked about financial apartheid - of financial institutions not providing credit to poor. He says 16 million people in Bangladesh have been provided with micro-credit. If the same percentage is extended in India, then at least 160 million people should be given micro-credit in India.

Financial Express Article

Yunus upsets Bangladeshi politicians

This had to happen.

Muhammad Yunus has now succeeded in uniting the two warring political parties in Bangladesh - for one cause. To criticise Yunus.

Yunus, with his global fame after the Nobel Peace Prize, told AFP that politicians in Bangladesh as a class are dishonest and they are in politics only for money. (Which, I think is entirely true, not only in Bangladesh, but also in India and Pakistan and most other countries.) However, certain truths should not be told publicly, and bluntly.

BNP and Awami League - the two main political parties, aggressively fighting each other (I mean, not just ideologically but also with knives and stones!) to win the next general elections, have both criticised Yunus for being unfair and "jingoistic".

For more details: One | Two | Three

Yunus was recently offered the post of the caretaker chief of the country (a tradition in Bangladesh when one Government leaves and the elections have to be held for choosing the next Government), but declined.

The work Yunus is doing in Bangladesh still requires some support from those in power. If not anything, the Government has the ability to harm the good work microcredit can do, by simply bringing in more and needless regulation.

Yunus should be wiser in deciding what to say aloud and what not.

A defamation suit has also been filed against Yunus. Gulf News says, "Advocate Nazrul Islam Chunnu, joint general secretary of Jatiya Samajtantrik Dal (JSD) in Mymensingh in northern Bangladesh, filed a defamation suit against Younus, the New Age newspaper reported."

Bush is a terrible leader - Yunus

Nobel laureate Muhammad Yunus has told a newspaper that George Bush, the President of USA is a terrible leader who "has led the world on a dangerous path and it will take a lot of time to take it back on the right one."

Reported in The Australian.

Microfranchising: the next big thing

Microfranchise is the next great idea after microfinance, writes Swaminathan Anklesaria Aiyar, in The Economic Times.

There is only one serious example quoted - GrameenPhones of Bangladesh. Aiyar cleverly bats for Telenor. ("Without the financial and technical clout of Telenor, GrameenPhones could not have gone far.")

The other examples - Scojo (Spectacles) and HP (Marriage photos and video) have a fair way to go. ITC is not in the same franchise model; it outsources Agarbathi production and few other similar activities.

Aiyar wants Anil Ambani of Reliance Infocomm to unleash a revolution like what Yunus did in Bangladesh through the 'Phone Women', rather than looking at taking over Hutch.

Microfranchise ideas look a bit farfetched at this stage.

Yunus praised ... and slammed

The Time Magazine honours Muhammad Yunus as People Who Mattered: Muhammad Yunus, Banker to the Poor, while Countercurrents.org writer Omar Tarek Chowdhury finds Yunus in secret collusion with all the ugly capitalists of the world and is all set to sell Bangladesh's poor cheaply to the global finance capital. Take your pick.

Vandana Shiva debates with Susan Davies of Grameen Foundation in Democracy Now! (also available in video) about microcredit and obliquely refers to Yunus at one time wanting to work out a joint venture with Monsanto. Shiva doesn't seem to like microcredit - it is so capitalistic, and worse that it appears to help the poor. That would rob the entire platform of the left.

While at it, you can also look at (or read) Vandana Shiva's take on farmer's suicides in India, Indo-US nuclear deal, foreign investment in retail trading in India and several other of her pet subjects.

At the other end, Jon Entine writes in American Enterprise Institute on Public Policy Research that microfinance at best can take the daily income of people from $2 to $3, whereas massive investment in building factories that can provide thousands of jobs is the way to go - because that is what happened in developed countries once upon a time.

Yunus on BBC HardTalk

I couldn't find the video or transcript of this in BBC HardTalk site at this stage. This was telecast in India on Sunday (10th Dec 2006).

Stephen Sackur queried Yunus on some uncomfortable questions. One was about Yunus joining politics. Yunus was categorical in stating that he will not be joining the politics, that he understands the problems faced by his country in the political space but he doesn't know the answers. He said he is better at his current job but could be a total failure if he goes to politics. It was however clear that Yunus felt uncomfortable in dealing with this question.

Yunus found himself weak again dealing with questions on whether credit should be considered a 'human right'. Sackur quoted another economist and former microcredit proponent who now believes that education and training are far more important that microcredit. Yunus did not deal with this question as good as he should have.

I missed the early part of this interview, so need to wait until the transcript comes up in the BBC site.

Nobel Acceptance Speech by Yunus

Muhammad Yunus spoke in detail about how to tackle poverty, setting up social businesses, a mild critique of capitalism and globalization during his acceptance speech after receiving the Nobel Peace Prize yesterday.

The complete text of the speech is here.

There is also a video (somewhat funny because half the time the picture is turned upside down, though you would only want to listen to the audio!) at the Nobel site.

Yunus ensured that he mentioned about Telenor of Norway and his intention to convert GrameenPhones to a company owned by the poor people in Bangladesh.