Yoshie Furuhashi wrote:
CARACAS, Venezuela Venezuelan President Hugo Chavez praised Nobel
Peace Prize winner Muhammad Yunus as a helper of the poor and called
the Bangladeshi economist and microcredit pioneer a friend.
Chavez paused during a televised speech Friday night to read a news
report on Yunus' selection for the prize along with his Grameen Bank.
"Let's give a round of applause to our friend," Chavez said, calling
him an "example in the fight against poverty."
Yoshie, you ruined my day...
26 October 2006
PAMBAZUKA NEWS 275: NIGER DELTA: BEHIND THE MASK
Pambazuka News is the authoritative pan African electronic weekly
newsletter and platform for social justice in Africa providing cutting
edge commentary and in-depth analysis on politics and current affairs,
development, human rights, refugees, gender issues and culture in Africa.
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FEATURED THIS WEEK
The Editors
FEATURE: With compelling evidence and historical insight, Ike Okonta
traces the origins of the Niger Delta Conflict.
COMMENT AND ANALYSIS:
- What is the problem with Madonna adopting a Malawian Child? Why all
the fury? Adotey Bing-Pappoe comments on the issue by analysing
carefully the possible pitfalls of inter-country adoption
- Dieu–Donné Wedi Djamba considers the options of bringing lasting peace
to the Democratic Republic of Congo
- Patrick Bond argues that the idea of microcredit, which won Muhammad
Yunus the 2006 Nobel Peace Prize, is based more on hype than substance.
BEYOND MICROCREDIT EVANGELISM
Patrick Bond
Muhammad Yunus is the founder of Grameen Bank which has promoted
microcredit for millions, loans to women too poor to qualify for
traditional bank loans. He is the 2006 Nobel Peace Prize for "…efforts
to create economic and social development from below." But there is more
hype than substance, says Patrick Bond, behind the claim that
micro-credit schemes have been effective in poverty alleviation. There
is ample evidence to challenge the claims for the alleged benefits of
micro-credit programmes.
What sort of dogmatic free-market ideologue would use poor people's
(often socially-constructed) desire for credit to justify shrinking the
already beleaguered welfare policies of wretched Third World states?
Consider this outlandish claim: 'I believe that "government", as we know
it today, should pull out of most things except for law enforcement and
justice, national defense and foreign policy, and let the private
sector, a "Grameenized private sector", a social-consciousness-driven
private sector, take over their other functions.'
Grameen is Bangladesh's 'barefoot bank' specializing in group loans to
low-income women. And the Vanderbilt University-trained economist who
made that statement, Muhammad Yunus (in his autobiography Banker to the
Poor), just won the Nobel Peace Prize.
Yunus immediately announced to a Dhaka press conference: 'Now the war
against poverty will be further intensified across the world. It will
consolidate the struggle against poverty through microcredit in most of
the countries.'
Yet this seemingly benign, three-decade old attempt to foster
entrepreneurship amongst impoverished women has attracted intense
grassroots – and also professional – criticism.
Not surprisingly, the establishment press loves Yunus, nearly as much as
do Bill and Hillary Clinton. The Financial Times made this argument,
backed by no evident research: 'Microfinance has played a central part
in Bangladesh's success in reducing poverty by almost 10 percentage
points over the past five years, to 40%, a rate that puts Bangladesh on
track to meet its Millennium Development Goal of halving poverty by
2015.' Moreover, 'Grameen's business model is in rude health.'
The Wall Street Journal profiled Yunus on its front page five years ago:
'To many, Grameen proves that capitalism can work for the poor as well
as the rich,' having 'helped inspire an estimated 7,000 so-called
microlenders with 25 million poor clients worldwide.'
Yet looking more closely, the Journal's reporters - including the late
Daniel Pearl (senselessly beheaded by Islamic extremists) - conceded the
prevalence of Enron-style accounting. A fifth of the bank's loans in
late 2001 were more than a year past-due: 'Grameen would be showing
steep losses if the bank followed the accounting practices recommended
by institutions that help finance microlenders through low-interest
loans and private investments.'
A typical Grameen gimmick is to reschedule short-term loans that are
unpaid after as long as two years, instead of writing them off, letting
borrowers accumulate interest through new loans simply to keep alive the
fiction of repayments on the old loans.
Not even extreme pressure techniques - such as removing tin roofs from
delinquent women's houses, according to the Journal report - improved
repayment rates in the most crucial areas, where Grameen had earlier won
its global reputation amongst neoliberals who consider credit and
entrepreneurship as prerequisites for development.
By then, even the huckster-filled microfinance industry felt betrayed:
'Grameen Bank had been at best lax, and more likely at worst, deceptive
in reporting its financial performance', wrote leading microfinance
promoter J. D. Von Pischke of the World Bank in reaction to the WSJ
revelations. 'Most of us in the trade probably had long suspected that
something was fishy.'
Agreed Ross Croulet of the African Development Bank: 'I myself have been
suspicious for a long time about the true situation of Grameen so often
disguised by Dr. Yunus's global stellar status.'
Several years earlier, Yunus was weaned off the bulk of his
international donor support, reportedly $5 million a year, which had
until then reduced the interest rate he needed to charge borrowers and
still make a profit. Grameen had become 'sustainable,' self-financing,
with costs to be fully borne by borrowers.
He had also battled backward patriarchal and religious attitudes in
Bangladesh, and his hard work extended credit to millions of people. The
secret was that poor women were typically arranged in groups of five:
two got the first tranche of credit, leaving the other three as
'chasers' to pressure repayment, so that they could in turn get the next
loans.
But at a time of new competitors, adverse weather conditions (especially
the 1998 floods) and a backlash by borrowers who used collective power
of nonpayment, Grameen imposed dramatic increases in the price of
repaying loans. And it is here that Grameen Bank's main philosophical
position – 'We consider credit as a human right' – was reduced merely to
an argument for access, not affordability.
In that regard, Yunus is entirely different from all the rights-based
social movements which have demanded 'rights' in terms of free lifeline
access to healthcare, education, housing, land, water, electricity and
the like.
'Microcredit is an almost perfect case of a phenomenon that has come to
characterise much of development assistance - a widening gap between
reality and propaganda,' argued microfinance consultant Thomas Dichter
in a SA Institute for International Affairs publication, 'Hype and Hope:
The Worrisome State of the Microcredit Movement': 'Much of Africa offers
an infertile context for borrowing as the only customers available to
the poorest are other very poor people. In such infertile economic
contexts, the people at the bottom are by definition the ones who "need"
credit the most, but can do the least with it.'
Dichter continued, 'In part because of what has been aptly called
"microfinance evangelism", the prospect of significant returns from
microcredit made available to solid enterprises has become less likely.
This is because those who can really leverage a small loan are not the
poorest or the most destitute… An additional limitation is that many
microcredit clients are reduced to "copycat" behaviour, everyone selling
the same thing, and more sellers saturating the market as more
microcredit is made available. In this sense, expanding microcredit can
actually lower incomes.'
What about the impact Yunus has made on his home turf? In Bangladesh,
according to Dichter, 'Microcredit is such a common development
intervention that many people borrow from one project to repay another.
In that context, even if a woman borrower increases her volume of sales
by 100% say from 10 bunches of bananas to 20, she is still limited by
her inability to add any value to what she sells, limited by her low
skills, and the copycat pattern that almost always prevails at the low
end of the informal sector.'
Although criticism of Grameen 'is still a minority view' and Yunus
performed 'miracles' in rolling out credit to the masses, according to
Munir Quddus, who chairs the Department of Economics and Finance at the
University of Southern Indiana, the hype needs more investigation than
apparently was given by the Nobel committee: 'The very nature of setting
up groups leaves out the very poor who would be perceived by fellow
members to have no ability to generate income and therefore high risk.'
Quddus continues: 'Others have pointed out that micro-credit simply
deepens the exploitation of the women since the rates of interest
charged by the bank in real [after inflation] terms are quite high;
consequently, credit often worsens the debt situation and gives the
husbands even more leverage.'
Gaining leverage over women – instead of giving them economic liberation
- is a familiar accusation. In 1995, New Internationalist magazine
probed Yunus about the 16 'resolutions' he required his borrowers to
accept, including 'smaller families'.
When New Internationalist suggested this 'smacked of population
control', Yunus replied, 'No, it is very easy to convince people to have
fewer children. Now that the women are earners, having more children
means losing money.'
In the same spirit of commodifying everything, Yunus set up a
relationship with Monsanto to promote biotech and agrochemical products
in 1998, which, New Internationalist reported, 'was cancelled due to
public pressure.'
As Sarah Blackstock reported in the same magazine the following year:
'Away from their homes, husbands and the NGOs that disburse credit to
them, the women feel safe to say the unmentionable in Bangladesh –
micro-credit isn't all it's cracked up to be… What has really sold
micro-credit is Yunus's seductive oratorical skill.'
But that skill, Blackstock explains, allows Yunus and leading imitators
'to ascribe poverty to a lack of inspiration and depoliticize it by
refusing to look at its causes. Micro-credit propagators are always the
first to advocate that poor people need to be able to help themselves.
The kind of micro-credit they promote isn't really about gaining
control, but ensuring the key beneficiaries of global capitalism aren't
forced to take any responsibility for poverty.'
Though I have never been to Bangladesh and have only discussed these
problems with Yunus once (more than a decade ago when he visited
Johannesburg), microfinance gimmickry certainly did damage in Southern
Africa.
For example, in 1998, when the emerging markets crisis raised interest
rates across the Third World, a 7% increase imposed over two weeks as
the local currency crashed drove many South African borrowers and their
microlenders into bankruptcy.
The highest-profile local proponent of microcredit is First Lady Zanele
Mbeki. But her Womens Development Banking project has not only financed
rural women, according to the oil company BP, a supporter. It has also
made 'investments in high-growth businesses' such as Ceasars Gauteng and
'Siza Water Company, the first privatised water company' in
KwaZulu-Natal – both of which, arguably, are counter-examples of poverty
eradication.
Next door in Zimbabwe, a $66 million flood of World Bank financing
during the 1980s (in lieu of land reform) revitalised a rural
microfinance sector initiated under late 1940s racist Rhodesian rule.
The Bank program ultimately reached 94,000 households. But within a
decade, the result was a peasant default rate of 80% in the impoverished
'Communal Areas' (equivalent to apartheid Bantustans).
Repayment affordability was a huge factor, since a typical lender's
overhead and collection costs represent 15-22% of the amount of a small
loan, including incorporation of a 4% default rate. In Zimbabwe,
servicing loans of even just a few hundred US dollars represented
enormous burdens when, according to one Agriculture Ministry survey in
1989, the average net crop profit per hour of labour was just $0.15.
Michael Drinkwater's detailed study of central Zimbabwe showed that
'improving farmers' access to credit has placed many of them in serious
difficulties' compounded by 'an overzealous launching of a group credit
scheme' and the 'doubtful viability of high cost fertiliser packages'
inappropriate for the erratic climate. 'The increase in credit use means
farmers have to market more to stay solvent... At the household level it
is commonly debts not profits that are on the rise.'
To address the crisis, in 1991 the World Bank unsuccessfully promoted
even more Grameen-style group credit, albeit with the caveat that
'Zimbabwe's experience to date with group lending has not been
favourable. The organisation of groups is initially expensive and
time-intensive', and 'major problems have become apparent.'
Not far away, in Lesotho, anthropologist James Ferguson studied a 1975
World Bank report that guided the country's development strategy: 'In a
"Less Developed Country", where the cash economy is on such a precarious
basis, there must be [according to the Bank] "a conspicuous lack of
credit for the purchase of farm inputs," and it is obvious that "credit
will play a critical role in all future major agricultural projects."'
Rebutted Ferguson, 'It is never explained exactly why the need for
credit is so critical. It is true that most Basotho invest very little
in agriculture probably due to their intelligent appreciation of the low
potential and high risks of capital intensive farming in Lesotho but
this is usually not a matter of being unable to obtain the cash to make
such an investment. Most families have access to wage-earnings or
remittances, and this money most commonly comes in large lumps which
could easily be used for agricultural inputs, but for the most part is
not. Yet in the "development" picture, the need for credit is almost an
axiom.'
Ugandan political economist Dani Nabudere has also debunked 'The
argument which holds that the rural poor need credit which will enable
them to improve their productivity and modernise production.' For
Nabudere, this 'has to be repudiated for what it is ─ a big lie.'
Even from inside the World Bank these lessons were by then obvious.
Sababathy Thillairajah reviewed the Bank's African peasant credit
programmes in 1993 and advised colleagues: 'Leave the people alone. When
someone comes and asks you for money, the best favour you can give them
is to say "no"... We are all learning at the Bank. Earlier we thought
that by bringing in money, financial infrastructure and institutions
would be built up ─ which did not occur quickly.'
But not long afterwards, Yunus stepped in to help the Bank with
ideological support, as it rejuvenated microfinance with a $200 million
global line of credit aimed at poor women in August 1995, just prior to
the Beijing gender conference.
The global justice movement's Attac group has an excellent Oslo branch,
which last week published a new book, Economic Apartheid. Its members
pointed out to me that that Yunus was strongly supported by his friends
in the Norwegian ruling class, including a former top finance ministry
bureaucrat and leading officials of Telenor, Norway's phone company.
Telenor owns 62% of GrameenPhone, which controls 60% of Bangladesh's
cellphone market.
At a time when the centre-left Norwegian government has a high profile
for partially cancelling illegitimate Third World debt and threatening
to defund the World Bank, both of which are applauded by local
activists, the people who make these decisions were conscious of how
important it is for Norway to project the possibility of capitalism with
a human face.
The question is whether they looked hard enough at conflicts generated
by credit, thus negating the meaning of the Nobel Peace Prize – and not
for the first time.
• Patrick Bond is director of the Centre for Civil Society at the
University of KwaZulu-Natal. His most recent book is Looting Africa: The
Economics of Exploitation, available from Zed Books and UKZN Press.)
• Please send comments to [EMAIL PROTECTED] or comment online at
www.pambazuka.org/
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