Challenging Dr. Yunus

Muhammad Yunus has sparked a new round of debate. In a January 15, 2011 New York Times opinion piece, "Sacrificing Microcredit for Megaprofits," the Nobel Peace Prize winner and founder of the Grameen Bank assails microfinance institutions seeking profit, likening them to the moneylenders he had meant to stamp out. Going a step further, Yunus calls for stricter government regulation to cap interest rates and protect the poor.

Yunus’s arguments take a swipe at mainstream orthodoxy within microfinance.  Dogma these days holds that interest rate caps should be resisted, and profit should be pursued in the bid to attract outside investors.

I’ve been spending the past weeks wrapping up an essay on “Social Investment and Microfinance” for the Annual Review of Financial Economics, written together with Hunter’s Jonathan Conning. Yunus’s essay arrived just in time.  Here’s part of what we say:

Yunusasserts that it is “possible to harness investment in microcredit — and even make a profit — without working through either charities or global financial markets.” Yunus is right that neither a strictly philanthropic path nor a fully-commercial path can deliver institutions that serve most of the people most of the time. But neither theory nor evidence supports his assertion that charities and global financial markets should be side-lined. To the contrary, experience suggests that the future of microfinance rests with the ability to combine forces.  

What’s amazing is that Yunus dismisses charity, even though Grameen Bank itself grew with a great deal of help from the kindness of foundations and foreign governments. Does he think that no one was paying attention?
The Economist's Matthew Bishop pushes back from a different angle. With financial gaps so wide, he asks, how can resisting outside capital be a step in the right direction?

At the end of the op-ed, Yunus offers a friendly shout-out to Bangladesh’s Prime Minister, Sheik Hasina – despite the fact that she is currently on a rampage against Yunus. A brilliant bit of politics? I give Yunus only a grade of B for the economic content of his essay, but he may have just earned an A for politics.

Here’s the rest of the round-up on Yunus:
Felix Salmon pushes back on Bishop's pushback.  In a soberly reasoned entry, he makes as good a defense of Yunus as can be mustered. The Opportunity Foundation's Jonathan Lewis enters the fray, navigating a path between the two, pushing a vision for social investment, combining the muscle of financial markets with the do-good spirit of philanthropic capital.  Meanwhile, David Roodman, offers a characteristically smart assessment, threading the pieces together and offering a convincing political analysis.