Banker to the Poor: Micro-Lending and the Battle Against World Poverty Banker to the Poor discussion

loan shark to the poor

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message 1: by Will (last edited Aug 25, 2016 11:36AM) (new)

Will I don't know about this book-- maybe the prose is beautiful-- but the author is a free market idealogue and his bank keeps its stats looking good through shady accounting. Yunus aggressively advocates cutting back the public sector, the safety net, etc, all the while cooking the books at Grameen, his flagship enterprise. Even The Wall Street Journal, which loves microlending as a solution to global poverty, noted that "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."

In his autobiography and elsewhere, Yunus proposes that government functions be reduced to law enforcement and national defense, and that the private sector take charge of all forms of social governance and welfare. These types of policies are in fact directly responsible for massive, endemic poverty in the developing world. Yunus's peace prize puts him in the company of Kissinger, which is fitting, but is an affront to MLK and other great leaders who've won it before, and who spent their lives protesting exactly the types of policies Yunus advocates.

Tyler Grameen's approach is simple, practical and open.

Yunus is an advocate for the poor, and supports what works. I would not call him an idealogue of any kind -- he mentions his distaste for grand theories and "isms" in the book.

The book highlights a successful approach to allevating poverty that has been replicated dependably.

I am not sure what else you could ask for from an organization who makes that their goal?

message 3: by Christine (new)

Christine I've actually worked in Uganda helping small banking cooperatives put Grameen funding practices into place and it has turned the cooperatives around (i.e. from being in the red to being in the black). Not to mention it has given the women members more equal standing. Now those coop members are less vulnerable to poverty because they each have their own business, and, if need be, can take out additional loans with the coop if necessary. How is that massive, endemic poverty?

message 4: by Joshua (new) - added it

Joshua Will, your comment is interesting and leads to a lot of criticism of the microcredit movement. That it leads to debt traps amongst the poor. That its accounting standards can be faulty and its banks thereby more liable to fail. That it merely improves cashflow but doesn't lead to replicable long-term development. These are empirical claims that are worthy of investigation.

Suzanne I'm amazed that anyone could feel remotely justified in criticizing Mr. Yunnus! Thank God someone is actually trying (and in this case succeeding) to do something to alleviate poverty rather than just siting around and talking about it. The number of projects that Grameen has taken on and successfully managed speaks for itself. I'd like to ask Mr. Yunnus' criticizers what have then done to improve the lives of others??????????

Paula "I'd like to ask Mr. Yunnus' criticizers what have they done to improve the lives of others?'

What a typical bleeding heart question. Someone finds the service I provide at my job useful enough to want to pay me for it, so I must be improving someone's life otherwise why would they shell out money for what I do. Why is working, taking care of yourself, and your family not consider the ultimate community service?

message 7: by Tyler (last edited Aug 25, 2009 06:06AM) (new) - rated it 5 stars

Tyler The answer is simple Paula. If you saw a child drowning -- not your child -- would you feel the need to help? Likewise many people in a position of privilege feel obligated to use that privilege for the advancement and benefit of others.

No, you don't have to save a drowning child but you might feel better if you do.

Paula Tyler, Don't get me wrong. I have no problem with philanthropy. I just think Dr. Yunnis's brand is misguided.

I was simply pointing out that saying I can't criticize Dr. Yunnis because I have not "improved the lives of others" was mistakenly forgetting that taking care of your self and your family does "improve the lives of others".

Tyler Exactly how is Yunnis's philanthropy misguided? He provides hard working women with loans to start profitable businesses so that they can as you say "take care of themselves, their family."

If you say this is the ultimate community service, then isn't Yunnis's brand of philanthropy helping people do exactly that (at a profit I might add).

Perhaps you could benefit from re-reading the book and reconsidering how it fits into your own value system. Maybe spend a few days in Bangladesh as well, so you can really understand the impact of this so-called "misguided philanthropy."

Or am I still getting you wrong?

Paula Capital is necessary for economic growth. Debt is NOT, and never will be capital. Capital comes from savings. What poor people need are wages so that they can accumulate savings. That is why I believe Dr. Yunnis is misguided in his belief that providing the poor with credit is a good way to end poverty. He has put to much emphasis on the idea of individual entrepreneurship and not enough on the need for jobs (wages). I will not deny that his model has helped some of the poor in Bangladesh and around the world, and that he should be applauded for that, I just have doubts to whether or not his model should be massively reproduced as a solution for the problem of poverty. Dr. Yunnis would better serve the poor by using his considerable fame and credibility to help end the things in Bangladesh that are truly limiting their economic growth, including barriers to trade, heavy taxes on foreign investments and a corrupt government.

Tyler Paula,

You demonstrate a decisive lack of understanding between macroeconomics and microeconomics. The beasts are very different. My point being that you are applying a conservative macroeconomic model to a microeconomic situation.

Please also brush up on the different definitions of debt. Not to be dismissive of your argument, but only a fool would dismiss the value of "venture capital" -- a form of debt. Yunis's argument is very different from other humanitarian's such as Jeffrey Sachs.

Check out Yunis's website. The data is all there. His program achieved remarkable success in Bangladesh, and even produced a profit for his banks (ie generated additional capital and savings). Grameen delivered money where people could use it most, and a particular disenfranchised segment of society was empowered with capital and jobs.

Only a fool would argue that one can generate profit without capital. Yunis provides capital. And the results he achieved were remarkably more efficient than other large scale projects

Not to be ad hominem, but I'm failing to see the merits of your argument. I empathize with your strong conservative approach to government. I myself am an economic conservative. However a careful reading of Yunis's methods will reveal that Grameen is not another nonsensical approach.

What Yunis stumbled upon is remarkable not because of its humanitarian ideals but because it generated and continues to generate RESULTS.

Success is a hard thing to argue against. I suggest you leave the Ron Paul or whatever it is your reading for a moment and actually read Yunis's book.

Paula I have read Yunis's book. Is is so hard for you to believe that someone could read the same thing as you and come to a different conclusion?

I have not denied that Grameen bank has had SOME success. (Although, there has been questions about whether or not that success has been exaggerated and about Grameen's creative bookkeeping.) I have also spent time on Grameen's website since the book left me with many questions.

I am arguing that this micro economic situation is unlikely to lead to a good macroeconomic picture for developing countries.

What if the resources Grameen has spent on these microloans were instead spent on building factories? I am of the opinion that this would have created better results. It is not hard to argue with success if that success comes at the expense of better, sustainable success.

Over the last two years we have seen what happens to an economy built on debt. It is not sustainable. Bangladesh needs the same thing every nation needs, economic freedom which will lead to jobs, wages, savings and eventually sustainable prosperity.

But, I guess until that happens people like Yunis are at least trying something, so as long as they do not steal money from me to do it, I am fine with Dr. Yunis.

Since you seem to think I am an idiot (your insults are subtle which makes them more insulting) and I have serious doubts about your ability to think critically, it seems that continued discussions is a waste of time. Feel free to have the last word

Tyler Paula,

My statements were not intended so much as insults, but rather as a slap behind the head -- a wake up call.

Again, I'm strongly suggesting you seek some training in Economics -- a real thorough understanding of Micro and Macro theory is a good start. Then read some books on economic success in the developing world.

You will find several books in my book list (and I can suggest several more, along with several interesting research papers).

Economic development of SE Asian, Africa, and surrounding areas has been an area of special interest for me and when I say you are missing the point -- you really are missing the point.

I'm not saying this to be mean. It's just that you insist on repeating the same arguments and building up a straw man where I can say with some certainty that you are clearly misunderstanding the situation.

This isn't intended as a last word, but if it need be then so be it. I can't change your mind for you.

message 14: by Paula (last edited Aug 29, 2009 09:33AM) (new) - rated it 3 stars

Paula So you assume that I have no training or education in economics because I do not agree with you? That is more than a little arrogant. I am not the first person to criticize microcredit as a means for ending poverty. Are all critics just misunderstanding the situation?

I have stated the same arguments because you have not refuted them, you have just said that I am wrong, so educate me.

If we look at historical economic development we see that working for wages and not self-employment was important to widespread economic growth. If this is true than wouldn't that be where we would want the focus to be for the developing countries now?

If many of these loans are being used for consumption (even Yunis said in his book that he does not care if they are used for consumption or business start-up) aren't we giving the poor a very dangerous opportunity to become involved in a debt trap that will hamper their ability to accumulate real savings? Do you deny the need for savings if we want to see real economic growth?

message 15: by Tyler (last edited Aug 30, 2009 09:18AM) (new) - rated it 5 stars

Tyler Paula,

You are completely misinterpreting my statements. I've already refuted your statements. You are right, that debt on a macroeconomic level is controversial. Debt on a microeconomic level is called: VENTURE CAPITAL. It is absolutely essential for a good, working economy. You cannot find an economist anywhere who will refute the reality that venture capital is an absolute necessity (even Ron Paul paid for medical school using loans).

The reason I suggested you read the book (again?) is because Yunis addressing the vast majority of your arguments in thorough detail. He isn't entrapping anyone. He demonstrates, effectively and thoroughly, that people take the venture capital he provides and put it to highly efficient economic use.

For the same reason banks are willing to loan medical students a 100,000 USD or more, Yunis is willing to give the women of Bangladesh a little capital with which to buy materials to start a business. In fact, for many people the only thing preventing them from starting businesses and creating profitable jobs is the lack of access to venture capital.

Here is a wikipedia entry that you may find useful:

And from the wikipedia entry on microeconomis:

"A firm is said to be making an economic profit when its average total cost is less than the price of each additional product at the profit-maximizing output. The economic profit is equal to the quantity output multiplied by the difference between the average total cost and the price."

Money that is not invested is wasted money. The primary reason why savings generates profit is because SAVINGS CAN BE INVESTED. Yunis INVESTS money in the poor -- a novel idea that was originally thought risky.

What Yunis proved is that the poor are actually LOW RISK investments with reasonably high returns. He demonstrates that this is actually a good allocation of money that has been SAVED.

This isn't debt in the macroeconomic sense that you keep ranting against. This is what I keep trying to explain to you, but you just get pissed off.

If you still have questions, I'm more than happy to explain why your arguments just don't work in this situation.

message 16: by Paula (last edited Aug 31, 2009 08:55AM) (new) - rated it 3 stars

Paula Tyler,

Can you please give me some examples of debt on the macroeconomic level?

Is all debt at the microeconomic level called venture capital?

Tyler Debt on the macroeconomic level includes deficit spending, unbalanced budgets, borrowing from international banks, or when the amount of credit given out is more than the expected payoff (what just recently happened here in the US).

Microeconomic debt shares a lot of similarities, and not all microeconomic debt is venture capital. For example, when people borrow to spend on consumption (non-investment spending such as buying a fancy car, clothes, or a television) this is not considered venture capital.

However, if I borrow money to pay for a degree that will likely add to my earning potential, or to buy a tractor to plow my field, or to purchase a company that I can improve to make a profit, or to purchase a website to sell my products -- this is all in a loose sense a kind of venture capital. Different terms can be used to describe each situation, but venture capital works as a kind of blanket term.

If I loan a woman $20 dollars, and she buys cloth and makes clothing that she sells for $40 dollars -- there is room for both of us to profit from this exchange. I would not have been able to make money if I just left my money in a savings account and she wouldn't have been able to purchase cloth.

This is why Grameen is a win-win situation. It distributes profit much more efficiently and people benefit more in these countries than they do from infrastructure spending and other high expense macroeconomic expenditures (like building roads or building power plants).

The net result of Grameen is not a deficit. Except for a very few years Grameen has turned a profit with reasonable loan rates (if they were a little greedier they could probably charge slightly more interest, but that is my only caveat).

The Grameen Bank is actually a very conservative institution except in the sense that it isn't as extremely self-interested as someone like Ayn Rand would want it to be. It is a conservative institution that seeks to empower people. For many people, this is a worthwhile venture -- particularly because it works.

message 18: by Paula (last edited Sep 01, 2009 09:02AM) (new) - rated it 3 stars

Paula Okay, now we are getting somewhere. I am not and have not ever been talking about macroecomomic debt during this discussion. Maybe in my attempt to explain my objections to microcredit as a means to ALLIEVIATE poverty in the most simplfied way possible I did not use concise enough language and caused you to be confused. I apologize.

I think you are using the term "venture capital" very, very loosely, but that is neither here nor there and is not really essential to this discussion.

So here is where we really disagree. I see microcredit as something that most definitely HELPS some of the poor in these countries. I do not think it lifts many people out of poverty and I am worried that it may hurt some of the poor by getting them into a debt trap.

I think it is true that it helps, particularly women, tap into their own labor so that they can perform "income generating activities". But, I have not found the evidence (statistical analysis, not just anecdotal evidence) that it moves many of the poor beyond sustenance activities. If you have this statistical analysis please share.

I will contend that microcredit most likely has its place in developing countries, but I still think that most people are NOT entrepreneurs and what they need is jobs. Okay, now I am going to talk about macroeconomic polices. Jobs will come when there is more of the economic freedom I have talked about previously. Until then, maybe, microcredit will make the poors' lives a little less terrible.

I would encourage you to read some papers that criticize microcredit. Others have done a better job explaining the concerns than I can. I would be happy to post links if you would like.

By the way, I am not a conservative.

message 19: by Tyler (last edited Sep 02, 2009 06:50AM) (new) - rated it 5 stars

Tyler Paula, I agree that microcredit has pitfalls. But please consider:

From the Forbes article criticizing microcredit:

"Microcredit advocates often claim impressively high repayment rates, averaging 90%, as proof that borrowers do use their loans to generate income. Otherwise they wouldn't be able to pay them back, they argue. "Can [microcredit:] be done badly? Absolutely," Daley-Harris says. "Can it make a massive difference in people's lives when it's done well? Absolutely.""

The problems in India are two-fold. The government pressures lenders to keep putting out money. People are often spending the loaned money on consumption (to buy food to eat, for example) or to pay off other loans. Most people aren't educated on how to use the money, or they are in a position where they don't really have a choice: go hungry or spend the money on food.

Microcredit does have flaws. But if implemented as well as it was in Bangladesh, microcredit can open doors for many people. It was the success story in Bangladesh that started the microcredit wildfire.

Your statistical analysis doesn't exist. But if you look at where microcredit failed, you will see a number of common themes:

1. Too much pressure from government and not enough control for private lenders (bureaucracy at its finest)
2. Little to no management (Grameen was successful because it was built from the bottom up for microcredit. Large banks or inexperienced lenders have trouble implementing the programs necessary to encourage success.)
3. Poor selection of recipients (This is related to too much pressure. Microcredit banks have to act like banks, and should have the means to assess the risk of a borrower).
4. Poor education of recipients. (If a borrower spends her money on food, then yes, they are entrapping themselves)

For an excellent paper that goes into more detail about why some programs succeed and why some programs fail:

I don't know if that link works, but the article is title: Microcredit: What we can learn from the past? by authors Adrian Hollis and Arthur Sweetman.

The reason why Grameen and Yunis received the Nobel Prize was that their program sustained itself over several decades. This test of time may be anecdotal, but several decades of profitability is about as good as anecdotal evidence gets. The Grameen program, particularly in Bangladesh was extraordinarily successful and well implemented.

Your critique paints with a broad brush. Perhaps your critique would be better honed to the specific programs or policies that fail. Microcredit is neither all good, nor all bad. A point that Yunis himself points to in his book (if I had the book right here I'd get you some page numbers, but I don't. Sorry).

Paula I will be patiently waiting for some statistical analysis before I am convince.

Good Day

message 21: by Vidyadhar (last edited Mar 23, 2013 06:56AM) (new) - rated it 5 stars

Vidyadhar Durgekar The bank did help many to come out of poverty.Book was interesting and the intention was good.

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