Microfinance - Grameen Bank under Threat

VSL meeting in a suburb of Accra, Ghana/Fjona Hill

Writing about development and humanitarian issues, I am well aware of the importance of microloans and how non-profit lenders and savings and loans associations can help change lives (see my recent post and article in the Economist on Village Savings and Loans Associations. Also, if you want a clear explanation of how microcredit works, see the excellent graphic at the end of this post).

So, I was alarmed reading this recent appeal from the global campaigning group Avaaz that the Grameen Bank is under threat.

The Grameen Bank is very different from traditional banks. They loan money to 8.4 million people, mostly women from the poorest villages in Bangladesh, so they can buy assets like cows or sewing machines and start earning money. These women borrowers also run the bank -- they are not only the majority shareholders, 9 out of 12 seats on the board are held by village women in saris.

I haven’t had time to verify Avaaz’s claims and I know that the Grameen Bank has come under criticism over the past few years for tax evasion. There were also accusations that microcredit can bring communities into debt from which they cannot escape and that the Grameen Bank was linked to exploitation and pressures on poor families to sell their belongings.  (That’s why I prefer the Village Savings and Loans model in which the money comes from the community itself.)

I don’t know what is behind the Bangladeshi government’s decision regarding the bank, but here is what Avaaz says:   “Prime Minister, Sheikh Hasina wants to end Grameen Bank as we know it.  She first stripped Dr. Yunus’ position as the bank’s managing director, and now just passed a law that would allow the government to bypass the people-elected board and handpick his successor. We fear that the government may use its newfound power to manipulate millions of members for votes in next year’s election.

“Grameen's downfall would be a disaster for Bangladesh and the larger microcredit movement that is working to improve lives across the globe.”  Avaaz is asking people to sign their urgent petition to PM Hasina.

Here is a very good graphic, which explains clearly the process of microloans and how microlending, if done correctly, can help millions of people around the world. The graphic is produced by CreditScore.net, a personal finance blog by a team of experts focusing on all things credit and debt related.