Over the past 40 years, the field of behavioral economics has emerged to explain why humans make irrational decisions. We talk with one of the pioneers of the field to find out what’s behind the choices we make, and how we can use this knowledge for good.
Muhammad Yunus is a Nobel Peace Prize winner and perhaps the most famous Bangladeshi in the world. He’s also fighting to keep his job, as the Central Bank of his country tries to force him to step down. We’ll look at the controversy and Yunus’ role running Grameen Bank, the pioneer in “microlending” for small-business loans to the poor.
- Alex Counts Founder and President of Grameen Foundation USA
- David Roodman Research Fellow, Center for Global Development; Project Manager, Commitment to Development Index
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, authoritarian rule in the nation, state and in the work place. We talk with Howard Ross about why so many managers still favor a heavy handed leadership style. But first, you win a Nobel prize and your job is secure, right? Not so, at least in the case of Muhammad Yunus. He's the head of Bangladeshi's Grameen Bank and is often called the father of microcredit. That's the system of small loans given to poor people to help them build businesses.
MR. KOJO NNAMDIHe's gotten a Nobel Peace prize and a Presidential Medal of Freedom for his work. But now, the government of Bangladesh is trying to force Yunus to step down from the helm of Grameen Bank. Yunus is challenging those efforts in court and a ruling is expected tomorrow. Joining us to talk about the controversy and the role of microcredit and fighting poverty is David Roodman, senior fellow at the Center for Global Development. David, thank you for joining us.
MR. DAVID ROODMANGreat to be back.
NNAMDIAlso with us is Alex Counts, President and CEO of the Grameen Foundation which is a non-profit based here in Washington, D.C. Alex, good to see you again, also.
MR. ALEX COUNTSThank you.
NNAMDIDavid, before we get into this current controversy, give us a bit of biography on Muhammad Yunus.
ROODMANOh, well, maybe Alex should answer that question. Alex knows Muhammad...
NNAMDIAlex, you have, in fact, trained under Muhammad Yunus.
NNAMDISo tell us a little bit about that experience and how your foundation here in Washington is related to Grameen Bank. Tell us a little more about Muhammad Yunus.
COUNTSSure. Our foundation, Grameen Foundation, tries to take some of the innovations that he developed in Bangladesh and spread them on a global scale. We've been doing that for about 14 years. But he -- I met him when I wrote him a letter -- when I was an intern here in Washington, D.C., still a college student. I asked him if I could come work with him to study what he was doing. The MicroFinance story was then developing and he took me under his wing. I lived in Bangladesh with him for six years and I would say people often describe him as soft spoken, as someone who's very modest. He lives extremely simply.
COUNTSIf you went to apartment, very small apartment in the Grameen complex, you'd see this is someone who maybe has a middle class lifestyle, lives in Bangladesh, has never owned anything outside of the country. Despite many offers of lucrative jobs with the U.N. -- and he's just simply focused on eliminating poverty in his country through various means. Started 40 organizations that he doesn't own a single share of any of them and then also, encouraging people like me around the world to try to take concrete action against poverty.
NNAMDIAnd the foundation was sparked by a $6,000 seed grant provided by Professor Muhammad Yunus; is that correct?
COUNTSWell, actually, he won a prize -- a cash prize honoring his work in the mid '90s and he dedicated that to poverty fighting in Bangladesh. But the interest he earned on it as he awaited government permission to bring it in, he gave that to us which became the seed capital for Grameen foundation. And we've raised more than $200 million since then to advance MicroFinance globally, not -- none of which have went to Bangladesh to Grameen Bank, but taking his idea to other countries.
NNAMDILast week, the Central Bank of Bangladesh said Yunus had violated retirement laws by staying on past the age of 60. I think he's 70 now. I think a lot of people who do not follow Bangladesh politics that closely were surprised to hear of this push to move Yunus out of his position. What are the politics at play here, David?
ROODMANWell, it's clear that this is part of a campaign, a vendetta one might even say, on the -- being led by the current Prime Minister of Bangladesh, Sheikh Hasina, against Muhammad Yunus. And the standard explanation for why she's out to get him and using every technical argument she can make to remove him is that about four years ago, when she was imprisoned by the military -- there was a military takeover, Muhammad Yunus attempted to start a political party and had the temerity to suggest that most of the political establishment was corrupt.
ROODMANWhich was actually true. And I think her fear was not that he would himself become a powerful politician, but he might agree to be a figure head for a military government. And I think that was mixed in -- I think her political theories are actually unrealistic. I don’t think he is a major political threat. And she's also a woman driven, in no small part, by spite and a long memory. I think of her as sort of Al Pacino in "The Godfather," you know, the heir to a very powerful and brutal political family.
ROODMANSo a documentary came out last fall. It's produced by a Danish guy who actually came to D.C. last summer and interviewed both Alex and me for it. And it was a very negative documentary. It just attacked -- sort of criticizing Muhammad Yunus and his Grameen Bank for suggesting that Microcredit is a guaranteed weapon against poverty and showing that there is a dark side, that some people do get in trouble with loans. But it was purely negative and that gave her the opening, the prime minister the opening to go after him now.
NNAMDIAnything you'd like to add to that, Alex?
COUNTSWell, you know, this guise of trying to remove him is really quite farfetched. But she does have the state apparatus to harass Grameen. It's really a very sad situation. He -- the laws about retirement, mandatory retirement at age 60, don't apply to Grameen Bank. But Professor Yunus, actually volunteered to step down when he reached that age, but the board, which includes both government representatives and the borrowers' representatives, asked him to stay on and gave him an indefinite, you know, a waiver to that.
COUNTSAnd for successive governments, including ones run by the current prime minister, endorsed that year after year and then now they're saying that that's invalid. And it really risks sending a message to civil society in Bangladesh, not just MicroFinance, that things are changing and things are getting much more tighter and much less friendly for civil society to solve problems like poverty, the environment, many things that government isn't always the best entity to try to solve.
NNAMDIIf you'd like to join this conversation, you can call us at 800-433-8850. We're talking about the attempt to push Muhammad Yunus into retirement in Bangladesh and the international ripple effects of that and whether or not it is a reflection of microcredit being a victim of its own success. You can call us, 800-433-8850, as we continue our conversation with Alex Counts, President and CEO of the Grameen Foundation, a non-profit based in Washington and David Roodman, senior fellow at the Center for Global Development. The number again, 800-433-8850.
NNAMDIBefore we talk about the international aspects of it, one specific charge being made by the Prime Minister Sheikh Hasina, she accuses Yunus of using Grameen Bank as his, quote, "personal property." Is there any indication of mismanagement on his part, David?
ROODMANAccentually, no. There was a controversy created by the documentary that money had been moved from the Grameen Bank to another Grameen company in violation of an agreement with the donor, which was the Norwegian government and -- so a big deal was made about that. You know, one of the Bangladeshi papers described this as Yunus tapping the Grameen Banks funds for private gain. But it was nothing of the sort.
ROODMANIt may have been inappropriate in the sense of violating an agreement, but it doesn't appear to have been nefarious in any way.
NNAMDIYunus started Grameen Bank as a sort of experiment in the 1970s and it now has more than eight million borrowers, most of whom are poor women. What impact, Alex, has Grameen Bank had in reducing poverty, in your view?
COUNTSWell, there again, Grameen Bank has been one of the most studied organizations in the world. Not all the studies have been of equal quality, but my view is that a number of those studies -- and we've actually commissioned two researchers to look at the global body of research around MicroFinance. It's quite encouraging. There are certainly some mixed outcomes, but if you just look in Bangladesh itself, and I've been off and on there for 20 years, you see a country that was kind of really stuck and almost heading towards kind of a Haiti type of status.
COUNTSAnd that is now one of the fastest growing economies in Asia, certainly not quite at the level of India and China. It has a self confidence about it and the economy, the social situation, so there's something really good happening there. And one of the biggest things -- and in fact, Jeffery Sachs, the Columbia economist who wrote "Columbia University Economist," who wrote, "The End of Poverty," said MicroFinance was one of the two major reasons that Bangladesh has made so much progress in the last ten years.
NNAMDIDavid, it seemed for a while that Microcredit was seen as a no-fail way to reduce poverty in the developing world. Now, the idea seems to have lost some of its luster. Why?
ROODMANMicroFinance has suffered a series of blows, just in the last two years. The first ones that came out were a couple of high quality, randomized academic studies looking at the impact of MicroFinance. And so they randomly offered some people access to Microcredit and not others like they do in the best drug safety trials. And they didn't find any difference, at least over the first 18 months, between those who got the Microcredit and those who didn't in things like household spending, number of children in school, health of the family and so on.
ROODMANSo it seemed that there was no clear impact on poverty and that really went against the popular perception. Another thing that's happened is that we've had some Microcredit booms and busts, sort of like the sub-prime crisis here in the United States where the money was too easy so there was over lending, poor people took on more loans than they could handle and then the thing collapsed. The biggest example of that was in India last fall, which I think we actually discussed here on the show.
NNAMDICertainly did. And which Alvin in Silver Spring, Md. would like to discuss. Alvin, you're on the air. Go ahead, please.
ALVINYes, good afternoon. I wanted to ask about the situation in India, that my impression was from the events of last fall, was that commercial banks were getting into Micro Lending and the collection practices were pretty horrendous, as I understood it. And a lot of people were like payday loans here in the United States, paying interest on interest and so on. And that seems to have affected the entire industry of Microcredit. And I wonder, if you could link that to what's going on in Bangladesh in terms of the reputation of Grameen and, you know, the other events that are surrounding his problems now.
COUNTSSure. Well, I think what you're seeing, you know, the MicroFinance -- not all organizations, including the ones that were studied that David mentioned, are of equal quality in terms of management, their ethics. It has become a boom and many people have gotten into it with a variety of objectives. But I think what you see in India and Bangladesh is this MicroFinance becomes a major part of the financial sector and a major part of a national poverty reduction strategy. It becomes a game for political football and political attack.
COUNTSIn India, what people have said that I think overstates it, that there's been a meltdown of the MicroFinance sector. It's actually only one of the 28 states in India that's been affected. And it's where the two political parties in that state, at the state level, kind of tried to outdo themselves with harassing MicroFinance to curry favor with voters. Again, a very shortsighted strategy which had collections go down because the people were scared to be involved with MicroFinance. In the rest of India, things have continued more or less as they have been all along.
COUNTSAnd as a result, you know, they just haven't been able to get the financing for growth. And so here you have again, kind of populous politicians seeing a way to kind of short term political favor at the expense of organizations that have been set up to make it -- try to make a long term impact on poverty.
NNAMDIThank you very much for your call, Alvin. We move onto Anne in Washington, D.C. Anne, you're on the air. Go ahead, please.
ANNEThank you for taking my call. I wouldn't justify the moves against Grameen, necessarily. I don't think they're motivated well. However, I also have the impression that one of the aspects of the serious downside of the MicroFinancing system is that it essentially undermines the self-sufficiency of a lot of these communities' interdependence of the trading relationship and the more holistic approach that most communities left to their -- you know, who are in control of their resources has in terms of making sure that all of their needs are met.
ANNEIt selects out certain individuals, even if it's in substantial numbers and gives them some avenues to enhance their well-being by connecting them to the global economy. But there's no -- it does that as an alternative to much broader base social movement for people to really control the resources of the region through political action. Thank you very much.
NNAMDIWhat do you say to that, David Roodman, that microcredit undermines the, I guess, movement for greater political democracy?
ROODMANWell, one can always set up hypothetical things that would happen. We can say what happened if microcredit weren't pursued, but I don't really see it that way. Most of what people are doing with microcredit is very locally oriented activities. They're husking rice and selling it. They're raising goats, this is kind of thing. I don't see it as connecting them to the global economy or undermining local power structures or -- except in a good way, providing alternative sources of credit, except not just from the money lender. I mean, if you turn around the pipe to yourself, would you say that the availability of mortgages and credit cards is undermining the local control of resources in the United States? These are useful financial services when used appropriately.
NNAMDII get the impression, though, that our caller was talking about really a broader picture, socioeconomic systems, and that what our caller would probably advocate is a different kind of socioeconomic system in those countries.
ROODMANI think one of the things that -- one of the most common methodologies in microfinance is actually bringing poor people together, forming solidarity groups which often didn't exist. You know, I lived in a village for more than two years observing microfinance work and wrote a book about that called "Small Loans, Big Dreams." And what you find is that people live a very isolated existence. The poorer they are, the more isolated they are. And microfinance, certainly some methodologies like Grameen's, brings them together, creates a kind of a support structure around them, finances them to do businesses, which are -- again, almost all of it is the goods are sold and produced in the local market.
ROODMANSo I think this critique that microfinance is somehow promoting globalization and undermining kind of the other local approaches to solving problems, it really doesn't hold water. In fact, what's interesting is many of the poor in most recent local elections, 12,000 Grameen borrowers or family members were elected to local posts. And these were -- almost none of them had been families that have been elected to the local village councils. But this report people stepping forward economically empowered and then building on that, developing more of a political power base to demand a more adequate sharing of the local resources across the broad society.
NNAMDIHere is Jay in Gaithersburg, Md. Jay, you're on the air. Go ahead, please.
JAYYeah, my name is Jay, but you could call me Jake, call me a taxi, whatever. Yeah, I think there is a very legitimate point that has to be looked at and that is what is the second stage to microeconomics? In terms of what it's done, it's brilliant and in essence has provided sips of water to drought a stricken group of people. But you do have this huge amount of classicism and structure, which people who are a few levels higher are going to really feel frightening. And what's really missing from this is that there is no second story. There is no third story.
JAYFor instance, why don't you link up all of this group that you're helping -- and somehow the word poor, I think, is very (word?) . I just think there had to be a better word -- with, you know, with the $100 computer so they could be a part of the global economy, that they could be intellectually mined and developed. I want to point to your guests that the most brilliant mathematician in the world came from a very, very similar background in India. His name is Ramanujan and his story is just absolutely incredible. And I'd like to know how you can use this as a lever to really get to a next level.
ROODMANWell, I agree that microfinance only gets people so far. Though, it is, I think, the Grameen Bank and the other institutions in Bangladesh deserve a lot of credit for providing this useful service to millions of people and for having given them new ways to work together in groups. But I would disagree with -- to answer your question, I would disagree with the quote that Alex Counts offered earlier from Jeffrey Sachs who said that microfinance is one of the key forces driving economic improvement in Bangladesh.
ROODMANI would say the two biggest forces are the jobs that are created coming out of the textile factories, the ability to export those to the rest of the world. They're making clothes, right? And immigration, lots of Bangladeshis have been working in the Middle East. And of course, we see it on TV now in Libya, where they've been earning good salaries and sending home money. Those are major stimulants. And they point to the -- they're reminders that what really reduces poverty in the long run is industrialization that creates jobs. That's what happened in the United States and what's happening in China.
NNAMDIAlex Counts, how much of Grameen banks' future tie to Muhammad Yunus' future if he is forced out, is the bank itself on shaky ground?
COUNTSWell, the bank is -- actually what's been really encouraging to see is that the 26,000 staff professionals, the 8 million borrowers, during this whole period of hostility from the government -- and a government that won in a landslide and has a lot of power, much more so than neither the Democrats or Republicans have in this country -- that they've stood firm, repaid their loans. There's been no run on the savings. They've gone about their work and I think that that's going to continue. But if the government is, you know, intent on bringing Grameen Bank down, you know, they have a lot of ways to do that.
COUNTSBut so far, and I think that what we're looking for here, is some compromise where Professor Yunus could put into force. And he's, in fact, proposed a succession plan, finding someone that's very qualified to run it, a next generation of leadership. There's a way to do that that I think would be a real win for the government, for the poor borrowers of Grameen, for Dr. Yunus' legacy and that's what we're hoping for in the Supreme Court ruling. Hopefully, we'll head in that direction.
NNAMDIFinal word, David.
ROODMANWell, I'm a little bit more pessimistic about the Grameen Bank, although I don't know what will happen. But think about Bear Stearns, think about Lehman Brothers, financial institutions that look strong can fall apart really fast if there's a loss of faith. Actually, the deposit base did shrink in January. People are removing their money from the Grameen Bank. Not in large amounts yet, but it's happening. Both the savings and the credits are driven by faith. If I'm worried that the Grameen Bank is going down because the prime minister doesn't like it, I'll take my money out. I might also stop repaying my loans because I'm no longer thinking, well, if I repay now, I'll get another loan in the future. So both sides can disintegrate very quickly.
NNAMDIDavid Roodman is senior fellow at the Center for Global Development. David, thank you for joining us. Alex Counts is president and CEO of the Grameen Foundation. Alex, thank you for joining us.
NNAMDIWe're going to take a short break. When we come back, Howard Ross joins us to talk about top-down leadership and how it's challenged by today's environment. I'm Kojo Nnamdi.
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