The battle is on not only for the heart and soul of Bangladesh’s Grameen Bank, but also for the future of the microfinance industry, as the legal fight by Grameen founder Mohammed Yunus reached a climax.
The seventy-year-old Yunus was in the Supreme Court in Dhaka on Monday, making a final appeal against a ruling which, if denied, could end up with the world’s first and most famous microfinance institution (MFI) nationalised, directionless and potentially bankrupted by the Bangladeshi government. A ruling could come as early as today.
“I want to see Grameen Bank remain in good hands,” Yunus told Emerging Markets in an exclusive interview. “It’s my lifetime’s work, and I don’t want to see its legacy disintegrate.
“Now I am about to be pushed out. It is very difficult for Grameen staff, borrowers, and the global microfinance community to accept.”
Grameen Bank, many feel, is being scapegoated by the Bangladeshi government. Prime minister Sheikh Hasina Wazeb is believed to resent Yunus, who was awarded the Nobel Peace Prize in 2006 before making a short-lived but high-profile foray into politics.
Yunus is being pushed out of Grameen on a legal technicality. Under local law, no one can run a Bangladeshi financial company over the age of 60. Yunus points out that he has been running Grameen bank for the past decade aged 60 and over – he turns 71 this summer.
Microfinance didn’t exist when Yunus founded the micro lender in 1983. Since then it has become the country’s most respected institution, emulated the world over.
Yunus said he is happy that Grameen Bank could create a global movement. “It became a flagship microlender that was something the rest of the world could admire,” he said. “It became a Bangladeshi company, a Bangladeshi bank, that the world could respect and aspire to be. I was so proud of that fact.”
The future of microlending is now at a crossroads. Broadly speaking the industry breaks down into two camps. In the first, including countries like India and Bangladesh, MFIs say they are pilloried and shunted aside by the state, which resents better-run and private microlenders favoured by borrowers and investors over state-run cooperatives. In the second, including Indonesia, MFIs are respected, regulated and largely left to their own devices by governments.
Vidar Jorgensen, president of Grameen America, the US arm of Grameen Bank, said the industry’s future, despite its troubled present, is rosy. “I think micro finance is clearly here to stay,” he said. But he recognised the resentment state cooperatives feel toward their private MFI counterparts. Some MFIs charge extortionate rates of interest and allow customers to take out multiple loans, creating crushing debt burdens.
“Microfinance is like any banking or financial service,” Jorgensen said. “It can be abused for political and other reasons.”
But, mirroring Yunus’ concerns, Jorgensen said the main threat now would arise if the government starts to appoint their own managers at Grameen. This would likely lead to politically motivated decisions, such as cutting interest rates on loans to ridiculously low rates in order to win votes.
That would have no repercussion for the government, but would probably bankrupt Grameen and other MFIs.