The Grameen Myth

8 November 2006 at 12:47 pm 4 comments

| Peter Klein |

Jeff Tucker makes several interesting points today about Muhammed Yunus and the Grameen Bank. As you may know, microfinance in general, and Grameen in particular, have taken several hits here at O&M.

Some issues raised by Tucker and others he cites:

  • The bulk of the wildly enthusiastic literature on Grameen — Tucker calls it “an echo chamber of hurrahs” — comes from the bank itself. Even the Nobel announcement cites not a single external source.
  • The idea that the poor can best escape poverty through self-employment, rather than working for wages, goes against all historical experience. Rising living standards for the poor, in all other countries and historical episodes, has come from wage increases driven by increases in labor productivity.
  • The claim that the binding constraint on entrepreneurial activity in countries like Bangladesh is credit, rather than management or entrepreneurship, has become a mantra that is asserted but never demonstrated.
  • Yunus himself has founded 16 companies other than the Grameen Bank, all of which went bankrupt. Critics think he funds these projects via the Bank, siphoning off the huge government and philanthropic grants that fund the Bank’s activities. Because the bank does not publish audited financial statements, no one knows for sure.
  • Bangladesh consistently ranks near the bottom of the standard indexes of economic freedom. The main obstacles to development in Bangladesh are high trade barriers, a vast array of state-owned enterprises, high taxes, corruption, political violence, etc. The claim that microfinance, rather than fundamental institutional reform, is the key to growth strains credulity.

Entry filed under: - Klein -, Entrepreneurship, Institutions.

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4 Comments Add your own

  • 1. Brian A'Hearn  |  10 November 2006 at 10:37 am

    It might be closer to the truth to say that O&M have thrown several punches than that Grameen has taken several hits. And if Grameen is capable of getting so many people (even O&M!) to pay so much attention to the plight of the poor in Bangladesh, that would seem to go some way toward justifying an award for promoting international peace (in some broadly-construed sense).

  • 2. Peter Klein  |  10 November 2006 at 5:01 pm

    Ouch!

    A reasonable point, I concede, but simply drawing attention to the plight of the Bangladeshi poor is not the way Yunus’s accomplishment is usually described….

  • 3. Mark E Hoffer  |  14 November 2006 at 4:26 am

    Personally, I find it curious that Grameen, and, seemingly, the whole sphere of “microfinance”, overlooks microequity. It would seem to me that if these people wanted to nurture self-reliance, as opposed to more dependency, they would endeavor to create microequity exchanges that would, by their very nature, illuminate and, thereby, illustrate, the nature of the economy around them. At the very minimum, in a traditional “banking” transaction, much of that information is held from public view, limiting its educational potential.

  • 4. Nizam Ahmad  |  25 October 2008 at 7:06 am

    Grameen’s micro concept is not new in Bangladesh but internationally glorified for international attraction and a hollow claim to poverty alleviation supported by useless organisations as the World Bank.
    Bangladesh is surrounded by countries as Myanmar, India, Nepal and if ‘open border trade’ instead of micro credit operated freely poverty would have been far less than it is today with Micro credit.
    The people of Afghanistan – the Kabuliwallahs who all fled during the war in 1971, previously did micro credit or non-collaterised small loans.

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