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The Rule of Yunus Is Ending Too

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The NYT reports that Muhammad Yunus has been forced out of his own Grameen Bank under allegations of fraud and mismanagement. He denies the charges but one paragraph from the article certainly raises questions about Grameen’s operations:

A Norwegian documentary alleged that the bank had improperly transferred $100 million donated by the Norwegian government for housing loans to another nonprofit affiliate of Grameen. A government investigation in Norway confirmed that the money had been improperly moved but said that it was returned to its rightful place and that no money had been stolen or misused.

It’s not easy to “improperly move” $100 million, and it takes some chutzpah to claim that there was no wrong doing since the money was subsequently returned to its rightful destination!

Regardless of the allegations, there is no question that the tide of public opinion has turned against him and the Grameen Bank. The Bank is judged as a kind of exploiter who hooks the poor on loans that they cannot afford and extracts interest in the name of promoting entrepreneurship. Many people who have studied this in detail note that the result of taking the Grameen money is not new businesses and booming capitalism for the poor but rather a huge diversion of cash from the women borrowers to the consumption goods market. Nor do the people become empowered through ownership but rather oppressed by indebtedness and in hock to the bank itself, which in turn rules their lives.

I’ve always found the whole Grameen thing to be rather creepy and shady – starting with the proposition that somehow micro-credit represents some kind of innovation that the regular commercial banking sector had never taken up. It’s crazy. The first microcredit institutions were in the United States, at the turn of the 20th century, when bankers started making consumer loans to the middle class. The idea that it had never occurred to anyone before Yunus to loan to the poor has always struck me as nuts. It seems pretty obvious that Grameen’s business model depended on subsidies, guarantees, and hype (which the Western press has provided by bucketfuls). And it was particularly pathetic to see libertarians celebrating Yunus’s Nobel Prize as if he somehow represented the epitome of capitalism.

In time, Grameen will be seen for what it is: just another failed experiment in “development planning” that attempts to bypass the age-old prescription for real development: saving, capital accumulation, real entrepreneurship, trade, and the expansion of the division of labor. Once again, paper money and debt declined to save the world.

Jeffrey Tucker is Editorial Director of the American Institute for Economic Research. He is author of It's a Jetsons World: Private Miracles and Public Crimes and Bourbon for Breakfast: Living Outside the Statist Quo. Send him mail.

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