How good ideas can be easily hijacked: microcredit

A few years ago, in an upper division course, I started including essays and news articles on microfinance as an innovative approach to economic development in the poorer countries of Asia and Africa.  It helped a lot when Muhammad Yunus and his Grameen Bank were recognized with the Nobel Prize for the pioneering efforts in micro finance and rural development.  Students seemed to be excited too--one of them a week or so after the class discussions sought my permission first to talk to the rest of the class about kiva.org that she had "discovered" on the web and used it ...

Slowly the idea spread in India.  And it was only a matter of time before a few Indians also decided to corrupt it as any good idea is almost always distorted in that country.  A classic example is Gandhi's message of civil disobedience and satyagraha, and fasting until corrective measures are implemented.  Within a few years of his death, every third rate politician started launching satyagrahas, and fasting photo-ops for every trivial pet cause one might imagine.  The end of the Gandhian ideas, so to say.

So, why should micro finance be exempt from such corruption in order to pursue most ulterior self-interests of profits, right? And that has what has happened in India over the last few years.  Unfortunately!  Yunus wrote in the NY Times:

I never imagined that one day microcredit would give rise to its own breed of loan sharks.

I am surprised that Yunus didn't know his fellow South Asians any better :(

Microcredit has morphed into the ugly loan shark modes, with all the typical attitudes that we knew about them.  The Hindu's caption for the photo below is:

There were reports of suicides, allegedly due to extreme harassment by loan recovery officials from MFIs. A family mourns one such death reported from Rolakal village, Nalgonda, Andhra Pradesh last October. Photo: Singam Venkata Ramana

Once again, it is a screw-the-poor, which is a tragic irony in a culture that talks a lot about helping the poor.  More on this in my earlier postings in the context of "Peepli Live"

As Yunus writes:

The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were being harmed. In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.
Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity.

Even while disagreeing with Yunus' argument, David Roodman has this important observation:

Credit is not an ordinary product. It is weighed down by millennia of baggage, for the good reason that it can do real harm. It is like a drug in that it is potentially healthy in small doses, but also potentially addictive. So it stands to reason that sellers of this product must take unusual steps to counteract its special problems of reputation and risk.

Things have taken quite a nasty turn, and Yunus is being compelled to defend those ideas and himself:

[In] his native Bangladesh Mr Yunus’s reputation is under attack. His supporters fear that the government plans to remove him from Grameen Bank, the microlender he founded, and take it over. In late December Mr Yunus had to issue a statement denying claims by some in the Bangladeshi government that he had resigned from his post as the managing director of Grameen. ...
Mr Yunus denies all the charges against him but has made powerful enemies among Bangladesh’s politicians. During a period of rule by a military-backed caretaker government a few years ago, he announced the formation of a political party, a project he soon dropped. Some reckon Sheikh Hasina is miffed that Mr Yunus and Grameen got the Nobel prize. It remains unclear how far the government, which already has three seats on Grameen Bank’s board, will go. Some fear that if the government succeeds in taking Grameen over it could turn its sights on other successful outfits, like BRAC. Bangladeshi microlenders can no longer consider themselves safe from the country’s messy politics.

The strange story of Yunus doesn't end there; he was hauled before the court, but not for any wrongdoings related to Grameen:

The current defamation charges against Yunus stem from comments he made in an interview with French news agency AFP four years ago, in which he reportedly criticized politicians and said they were only in "power to make money." The remarks came shortly after a military-backed interim government took over amid deadly political violence in Bangladesh.
A leftist politician in Mymensingh filed the defamation case on January 21, 2007, with a local magistrate court after Yunus' interview was published in local media.
The court last month asked Yunus to appear after a judicial probe found enough evidence to support the allegations, court inspector Md. Shahid Sukrana told CNN.
Nazrul Islam Chunnu, who filed the case, is a politician and district joint general secretary of the socialist party JSD. He charged that Yunus branded politicians as "corrupt and greedy" and said the politicians were "devoid of ideologies."
If Yunus is convicted of the charges, he faces a maximum two years in prison and/or a fine, said a court official.

That is right--all because Yunus aired in public the truth that is well known that politicians are corrupt and greedy!  How dare he, eh!

A Fistful Of Dollars: The Story of a Kiva.org Loan from Kieran Ball on Vimeo.