When we linked to some mild criticism of Nobel Peace Prizer Muhammed Yunus and his Grameen Bank of Bangladesh—and then expanded on these thoughts on an episode of WallStrip—the fans of microcredit went a bit berserk. So, of course, we’re coming back for more.
Today’s critique comes from Jeff Tucker of the Mises Institute. Now admittedly, Jeff has never been a fan of Grameen or Yunus. In the past he’s said that Grameen “is more of a cult than a financial institution” and said that “[a]t best, its operations are wasteful and Ponzi-like; at worst, they are parasitical, usurious, and communistic.”
So you won’t be surprised that Jeff hasn’t exactly been won over to Grameen by the Nobel Committee. Writing at the Mises Institute’s website, Jeff says:
We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?
Even if we can accept that he had some sort of entrepreneurial insight that no one else had, Grameen has been giving loans to poor women for thirty years. Are we really supposed to believe that conventional bankers were so stupid as not to spot this opportunity even after decades of demonstration? Yunus says that he discovered that the poor are "bankable" but if this were true in the way that he says, others would have discovered the same profit opportunities and done it without help from government.
Actually, Grameen is not really free enterprise at all. Yunus's first pile of cash came from the United Nations. Then he went to the Bangladesh government. Then he went to US foundations. In the 1980s and '90s, the bank received nearly $150 million in grants. At the same time, he started borrowing at low interest rates from governments around the world, and lending out the same money at higher rates. His institution keeps the difference.
Microcredit or Macrowelfare: The Myth of Grameen [Mises.org]