This article may be too technical for most readers to understand. Please help improve this article to make it understandable to non-experts, without removing the technical details. The talk page may contain suggestions. (January 2010)

Community-based savings bank in Cambodia. There is a rich variety of financial institutions which serve micro-entrepreneurs and small businesses.

Microfinance is usually understood to entail the provision of financial services to micro-entrepreneurs and small businesses, which lack access to banking and related services due to the high transaction costs associated with serving these client categories. The two main mechanisms for the delivery of financial services to such clients are (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

In some regions, for example Southern Africa, microfinance is used to describe the supply of financial services to low-income employees, which however is closer to the retail finance model prevalent in mainstream banking.

For some, microfinance is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."^[1] Many of those who promote microfinance generally believe that such access will help poor people out of poverty. For others, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses.

Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Although microcredit is one of the aspects of microfinance, conflation of the two terms is endemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.^[2]

Challenges[link]

Traditionally, banks have not provided financial services, such as loans, to clients with little or no cash income. Banks incur substantial costs to manage a client account, regardless of how small the sums of money involved. For example, although the total gross revenue from delivering one hundred loans worth $1,000 each will not differ greatly from the revenue that results from delivering one loan of $100,000, it takes nearly a hundred times as much work and cost to manage a hundred loans as it does to manage one. The fixed cost of processing loans of any size is considerable as assessment of potential borrowers, their repayment prospects and security; administration of outstanding loans, collecting from delinquent borrowers, etc., has to be done in all cases. There is a break-even point in providing loans or deposits below which banks lose money on each transaction they make. Poor people usually fall below that breakeven point. A similar equation resists efforts to deliver other financial services to poor people.

In addition, most poor people have few assets that can be secured by a bank as collateral. As documented extensively by Hernando de Soto and others, even if they happen to own land in the developing world, they may not have effective title to it.^[3] This means that the bank will have little recourse against defaulting borrowers.

Seen from a broader perspective, the development of a healthy national financial system has long been viewed as a catalyst for the broader goal of national economic development (see for example Alexander Gerschenkron, Paul Rosenstein-Rodan, Joseph Schumpeter, Anne Krueger). However, the efforts of national planners and experts to develop financial services for most people have often failed in developing countries, for reasons summarized well by Adams, Graham & Von Pischke in their classic analysis 'Undermining Rural Development with Cheap Credit'.^[4]

Because of these difficulties, when poor people borrow they often rely on relatives or a local moneylender, whose interest rates can be very high. An analysis of 28 studies of informal moneylending rates in 14 countries in Asia, Latin America and Africa concluded that 76% of moneylender rates exceed 10% per month, including 22% that exceeded 100% per month. Moneylenders usually charge higher rates to poorer borrowers than to less poor ones.^[5] While moneylenders are often demonized and accused of usury, their services are convenient and fast, and they can be very flexible when borrowers run into problems. Hopes of quickly putting them out of business have proven unrealistic, even in places where microfinance institutions are active.^{[citation needed]}

Over the past centuries practical visionaries, from the Franciscan monks who founded the community-oriented pawnshops of the 15th century, to the founders of the European credit union movement in the 19th century (such as Friedrich Wilhelm Raiffeisen) and the founders of the microcredit movement in the 1970s (such as Muhammad Yunus) have tested practices and built institutions designed to bring the kinds of opportunities and risk-management tools that financial services can provide to the doorsteps of poor people.^[6] While the success of the Grameen Bank (which now serves over 7 million poor Bangladeshi women) has inspired the world, it has proved difficult to replicate this success. In nations with lower population densities, meeting the operating costs of a retail branch by serving nearby customers has proven considerably more challenging. Hans Dieter Seibel, board member of the European Microfinance Platform, is in favour of the group model. This particular model (used by many Microfinance institutions) makes financial sense, he says, because it reduces transaction costs. Microfinance programmes also need to be based on local funds. Local Roots

Although much progress has been made, the problem has not been solved yet, and the overwhelming majority of people who earn less than $1 a day, especially in the rural areas, continue to have no practical access to formal sector finance. Microfinance has been growing rapidly with $25 billion currently at work in microfinance loans.^[7] It is estimated that the industry needs $250 billion to get capital to all the poor people who need it.^[7] The industry has been growing rapidly, and concerns have arisen that the rate of capital flowing into microfinance is a potential risk unless managed well.^[8]

As seen in the State of Andhra Pradesh (India), these systems can easily fail. Some reasons being lack of use by potential customers, over-indebtedness, poor operating procedures, neglect of duties and inadequate regulations.^[9]

History[link]

The history of microfinancing can be traced back as long to the middle of the 1800s when the theorist Lysander Spooner was writing over the benefits from small credits to entrepreneurs and farmers as a way getting the people out of poverty. Independently to Spooner, Friedrich Wilhelm Raiffeisen founded the first cooperative lending banks to support farmers in rural Germany.^[10]

The modern use of the expression "microfinancing" has roots in the 1970s when organizations, such as Grameen Bank of Bangladesh with the microfinance pioneer Muhammad Yunus, were starting and shaping the modern industry of microfinancing. Another pioneer in this sector is Akhtar Hameed Khan.

Boundaries and principles[link]

Poor people borrow from informal moneylenders and save with informal collectors. They receive loans and grants from charities. They buy insurance from state-owned companies. They receive funds transfers through formal or informal remittance networks. It is not easy to distinguish microfinance from similar activities. It could be claimed that a government that orders state banks to open deposit accounts for poor consumers, or a moneylender that engages in usury, or a charity that runs a heifer pool are engaged in microfinance. Ensuring financial services to poor people is best done by expanding the number of financial institutions available to them, as well as by strengthening the capacity of those institutions. In recent years there has also been increasing emphasis on expanding the diversity of institutions, since different institutions serve different needs.

Some principles that summarize a century and a half of development practice were encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight leaders at the G8 Summit on June 10, 2004:^[6]

1. Poor people need not just loans but also savings, insurance and money transfer services.
2. Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks.
3. "Microfinance can pay for itself."^[11] Subsidies from donors and government are scarce and uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
4. Microfinance means building permanent local institutions.
5. Microfinance also means integrating the financial needs of poor people into a country's mainstream financial system.
6. "The job of government is to enable financial services, not to provide them."^[12]
7. "Donor funds should complement private capital, not compete with it."^[12]
8. "The key bottleneck is the shortage of strong institutions and managers."^[12] Donors should focus on capacity building.
9. Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit.
10. Microfinance institutions should measure and disclose their performance – both financially and socially.

Microfinance is considered as a tool for socio-economic development,and can be clearly distinguished from charity. Families who are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan, should be recipients of charity. Others are best served by financial institutions.

Debates at the boundaries[link]

There are several key debates at the boundaries of microfinance.

Practitioners and donors from the charitable side of microfinance frequently argue for restricting microcredit to loans for productive purposes–such as to start or expand a microenterprise. Those from the private-sector side respond that because money is fungible, such a restriction is impossible to enforce, and that in any case it should not be up to rich people to determine how poor people use their money.

Perhaps influenced by traditional Western views about usury, the role of the traditional moneylender has been subject to much criticism, especially in the early stages of modern microfinance. As more poor people gained access to loans from microcredit institutions however, it became apparent that the services of moneylenders continued to be valued. Borrowers were prepared to pay very high interest rates for services like quick loan disbursement, confidentiality and flexible repayment schedules. They did not always see lower interest rates as adequate compensation for the costs of attending meetings, attending training courses to qualify for disbursements or making monthly collateral contributions. They also found it distasteful to be forced to pretend they were borrowing to start a business, when they were often borrowing for other reasons (such as paying for school fees, dealing with health costs or securing the family food supply).^[13] The more recent focus on inclusive financial systems (see section below) affords moneylenders more legitimacy, arguing in favour of regulation and efforts to increase competition between them to expand the options available to poor people.

Modern microfinance emerged in the 1970s with a strong orientation towards private-sector solutions. This resulted from evidence that state-owned agricultural development banks in developing countries had been a monumental failure, actually undermining the development goals they were intended to serve (see the compilation edited by Adams, Graham & Von Pischke).^[4] Nevertheless public officials in many countries hold a different view, and continue to intervene in microfinance markets.

There has been a long-standing debate over the sharpness of the trade-off between 'outreach' (the ability of a microfinance institution to reach poorer and more remote people) and its 'sustainability' (its ability to cover its operating costs—and possibly also its costs of serving new clients—from its operating revenues).^[14] Although it is generally agreed that microfinance practitioners should seek to balance these goals to some extent, there are a wide variety of strategies, ranging from the minimalist profit-orientation of BancoSol in Bolivia to the highly integrated not-for-profit orientation of BRAC in Bangladesh. This is true not only for individual institutions, but also for governments engaged in developing national microfinance systems.

Microfinance experts generally agree that women should be the primary focus of service delivery. Evidence shows that they are less likely to default on their loans than men. Industry data from 2006 for 704 MFIs reaching 52 million borrowers includes MFIs using the solidarity lending methodology (99.3% female clients) and MFIs using individual lending (51% female clients). The delinquency rate for solidarity lending was 0.9% after 30 days (individual lending—3.1%), while 0.3% of loans were written off (individual lending—0.9%).^[15] Because operating margins become tighter the smaller the loans delivered, many MFIs consider the risk of lending to men to be too high. This focus on women is questioned sometimes, however. A recent study of microenterpreneurs from Sri Lanka published by the World Bank found that the return on capital for male-owned businesses (half of the sample) averaged 11%, whereas the return for women-owned businesses was 0% or slightly negative.^[16]

Microfinancial services may be needed everywhere, including the developed world.^{[citation needed]} However, in developed economies intense competition within the financial sector, combined with a diverse mix of different types of financial institutions with different missions, ensures that most people have access to some financial services.^{[citation needed]} Efforts to transfer microfinance innovations such as solidarity lending from developing countries to developed ones have met with little success.^[17]

Financial needs of poor people[link]

In developing economies and particularly in the rural areas, many activities that would be classified in the developed world as financial are not monetized: that is, money is not used to carry them out. Almost by definition, poor people have very little money. But circumstances often arise in their lives in which they need money or the things money can buy.

In Stuart Rutherford’s recent book The Poor and Their Money, he cites several types of needs:^[18]

• Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding, widowhood, old age.
• Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death.
• Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings.
• Investment Opportunities: expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc.

Poor people find creative and often collaborative ways to meet these needs, primarily through creating and exchanging different forms of non-cash value. Common substitutes for cash vary from country to country but typically include livestock, grains, jewelry, and precious metals.

As Marguerite Robinson describes in The Microfinance Revolution, the 1980s demonstrated that "microfinance could provide large-scale outreach profitably," and in the 1990s, "microfinance began to develop as an industry" (2001, p. 54). In the 2000s, the microfinance industry's objective is to satisfy the unmet demand on a much larger scale, and to play a role in reducing poverty. While much progress has been made in developing a viable, commercial microfinance sector in the last few decades, several issues remain that need to be addressed before the industry will be able to satisfy massive worldwide demand. The obstacles or challenges to building a sound commercial microfinance industry include:

• Inappropriate donor subsidies
• Poor regulation and supervision of deposit-taking MFIs
• Few MFIs that meet the needs for savings, remittances or insurance
• Limited management capacity in MFIs
• Institutional inefficiencies
• Need for more dissemination and adoption of rural, agricultural microfinance methodologies

Ways in which poor people manage their money[link]

Saving up

Rutherford argues that the basic problem poor people as money managers face is to gather a 'usefully large' amount of money. Building a new home may involve saving and protecting diverse building materials for years until enough are available to proceed with construction. Children’s schooling may be funded by buying chickens and raising them for sale as needed for expenses, uniforms, bribes, etc. Because all the value is accumulated before it is needed, this money management strategy is referred to as 'saving up'.^{[citation needed]}

Often people don't have enough money when they face a need, so they borrow. A poor family might borrow from relatives to buy land, from a moneylender to buy rice, or from a microfinance institution to buy a sewing machine. Since these loans must be repaid by saving after the cost is incurred, Rutherford calls this 'saving down'. Rutherford's point is that microcredit is addressing only half the problem, and arguably the less important half: poor people borrow to help them save and accumulate assets. Microcredit institutions should fund their loans through savings accounts that help poor people manage their myriad risks.^{[citation needed]}

Saving down

Most needs are met through mix of saving and credit. A benchmark impact assessment of Grameen Bank and two other large microfinance institutions in Bangladesh found that for every $1 they were lending to clients to finance rural non-farm micro-enterprise, about $2.50 came from other sources, mostly their clients' savings.^[19] This parallels the experience in the West, in which family businesses are funded mostly from savings, especially during start-up.

Recent studies have also shown that informal methods of saving are unsafe. For example a study by Wright and Mutesasira in Uganda concluded that "those with no option but to save in the informal sector are almost bound to lose some money – probably around one quarter of what they save there."^[20]

The work of Rutherford, Wright and others has caused practitioners to reconsider a key aspect of the microcredit paradigm: that poor people get out of poverty by borrowing, building microenterprises and increasing their income. The new paradigm places more attention on the efforts of poor people to reduce their many vulnerabilities by keeping more of what they earn and building up their assets. While they need loans, they may find it as useful to borrow for consumption as for microenterprise. A safe, flexible place to save money and withdraw it when needed is also essential for managing household and family risk.^{[citation needed]}

Current scale of microfinance operations[link]

No systematic effort to map the distribution of microfinance has yet been undertaken. A useful recent benchmark was established by an analysis of 'alternative financial institutions' in the developing world in 2004.^[21] The authors counted approximately 665 million client accounts at over 3,000 institutions that are serving people who are poorer than those served by the commercial banks. Of these accounts, 120 million were with institutions normally understood to practice microfinance. Reflecting the diverse historical roots of the movement, however, they also included postal savings banks (318 million accounts), state agricultural and development banks (172 million accounts), financial cooperatives and credit unions (35 million accounts) and specialized rural banks (19 million accounts).

Regionally the highest concentration of these accounts was in India (188 million accounts representing 18% of the total national population). The lowest concentrations were in Latin American and the Caribbean (14 million accounts representing 3% of the total population) and Africa (27 million accounts representing 4% of the total population, with the highest rate of penetration in West Africa, and the highest growth rate in Eastern and Southern Africa ^[22] ). Considering that most bank clients in the developed world need several active accounts to keep their affairs in order, these figures indicate that the task the microfinance movement has set for itself is still very far from finished.

By type of service "savings accounts in alternative finance institutions outnumber loans by about four to one. This is a worldwide pattern that does not vary much by region."^[23]

An important source of detailed data on selected microfinance institutions is the MicroBanking Bulletin, which is published by Microfinance Information Exchange. At the end of 2009 it was tracking 1,084 MFIs that were serving 74 million borrowers ($38 billion in outstanding loans) and 67 million savers ($23 billion in deposits).^[24]

As yet there are no studies that indicate the scale or distribution of 'informal' microfinance organizations like ROSCA's and informal associations that help people manage costs like weddings, funerals and sickness. Numerous case studies have been published however, indicating that these organizations, which are generally designed and managed by poor people themselves with little outside help, operate in most countries in the developing world.^[25]

Help can come in the form of more and better qualified staff, thus higher education is needed for microfinance institutions. This has begun in some universities, as Oliver Schmidt describes. Mind the management gap

Domestic microfinance[link]

Microfinance, while well known as an international concept, has also been applied to the domestic context throughout North America and Europe. In Canada and the US, domestic microfinance organizations target marginalized populations unable to access mainstream bank financing. Most of these institutions are structured as nonprofit organizations.^[26]

History of domestic microfinance in USA[link]

In the late 1980s microfinance institutions developed in the US. They served low income and marginalized minority communities. By 2007 there were 500 microfinance organizations operating in the US with 200 lending capital.^[26]

There were three key factors that triggered the growth in domestic microfinance.

1. Change in social welfare policies and focus on economic development and job creation at the macro level.
2. Encouragement of employment, including self-employment, as a strategy for improving the lives of the poor.
3. The increase in the proportion of Latin American and Asian immigrants who came from societies where microenterprises are prevalent.

These factors incentivized the public and private supports to have microlending activity with in the United States.^[26]

History of domestic microfinance in Canada[link]

Microfinance history in Canada took shape through the development of credit unions. These credit unions provided financial services to the Canadians who could not get access to traditional financial means. Two separate branches of credit unions developed in Canada to serve the financially marginalized segment of the population. Alphonse Desjardins introduced the establishment of savings and credit services in late 1900 to the Quebecois who did not have financial access. Approximately 30 years later Father Moses Coady introduced credit unions to Nova Scotia. These were the models of the modern institutions still present in Canada today.^[27]

Principles[link]

The mission of microfinance institutions is to increase access to credit. Microfinance institutions serve entrepreneurs who live or work in low-income neighborhoods, who are unable to receive traditional financing from banks.^[28] Organizations may target new immigrants, aboriginals, mental health and addiction populations^[29] and other marginalized groups.

Microfinance in the U.S. context is defined as the extension of credit up to $35,000.^[26] In Canada, CRA guidelines restrict microfinance loans to a maximum of $25,000. ^[30]

Principle differences from international microfinancing[link]

Unlike international microfinancing, domestic microfinance institutions have historically financed a lower number of borrowers. International institutions average 9,610 borrows while domestic only average 337 borrowers.^[26] Another key difference between domestic and international institutions is the average loan size. According to reports by Microenterprise FIELD, the average domestic microfinance loan size is US$9,732. This is ten times the size of an average international microfinance loan (US$973).^[26]

Impact[link]

Common areas of impact considered by microfinance organizations operating in developing countries include:

• Increase of personal income
• Empowerment of women
• Improvement in nutrition
• Increased education of the borrower’s children
• Access to clean water
• Increased access to medicine

These are different from the common areas of impact in domestic microfinance organizations:

• Creation of jobs
• Business growth
• Increased income to the business owner
• Improved credit rating
• Graduating from social support programs (ODSP and OW in Canada)
• Overall improvement of quality of life.

The domestic microfinance organizations are impacting the above aspects of the lives of the borrowers as well as their communities. Domestic microfinance has created jobs as research has found 60% of borrowers are able to hire others.^[31] According to reports every domestic microfinance loan creates 2.4 jobs.^[32] These entrepreneurs also provide wages that are, on average, 25% higher than minimum wage.^[33] Small business loans eventually allow small business owners to make their businesses their primary source of income with 67% of the borrowers showing a significant increase in their income as a result of their participation in certain micro-loan programs.^[31] In addition, these business owners are able to improve their housing situation, 70% indicating their housing has improved.^[31] Ultimately, many of the small business owners that use social funding are able to graduate from government funding.^[31]

Domestic microfinance institutions[link]

Canada[link]

• Rise Asset Development

Founded by Sandra Rotman in 2009, Rise is a Rotman and CAMH initiative that provides small business loans, leases, and lines of credit to entrepreneurs with mental health and/or addiction challenges.

• Alterna Savings

Formed in 2005 through the merging of the Civil Service Savings and Loan Society and the Metro Credit Union, Alterna is a financial alternative to Canadians. Their banking policy is based on cooperative values and expert financial advising.

• Access Community Capital Fund

Based in Toronto, Ontario, ACCESS is a Canadian charity that helps entrepreneurs without collateral or credit history find affordable small loans.

• Montreal Community Loan Fund

Created to help eradicate poverty, Montreal Community Loan Fund provides accessible credit and technical support to entrepreneurs with low income or credit for start-ups or expansion of organizations that cannot access traditional forms of credit.

• Momentum

Using the community economic development approach, Momentum offers opportunities to people living in poverty in Calgary. Momentum provides individuals and families who want to better their financial situation take control of finances, become computer literate, secure employment, borrow and repay loans for business, and purchase homes.

• Vancity

Founded in 1946, Vancity is now the largest English speaking credit union in Canada.

United States[link]

• Accion USA

ACCION USA, an affiliate of ACCION International, offers microloans and other financial services to low- and moderate-income entrepreneurs for their small businesses who cannot get financial support through traditional means. Accion Chicago Accion Texas-Louisianna

• Project Enterprise

Founded in 1997 in New York City, Project Enterprise provides support to entrepreneurs and small businesses in lower income communities through access to business loans, business development services, and networking opportunities.

• Grameen America

Based in New York and founded by Muhammed Yunus, Grameen America provides micro-loans, savings programs, financial education, and credit establishment to low-income entrepreneurs.

"Inclusive financial systems"[link]

The microcredit era that began in the 1970s has lost its momentum, to be replaced by a 'financial systems' approach. While microcredit achieved a great deal, especially in urban and near-urban areas and with entrepreneurial families, its progress in delivering financial services in less densely populated rural areas has been slow.

The new financial systems approach pragmatically acknowledges the richness of centuries of microfinance history and the immense diversity of institutions serving poor people in developing world today. It is also rooted in an increasing awareness of diversity of the financial service needs of the world’s poorest people, and the diverse settings in which they live and work.

Brigit Helms in her book 'Access for All: Building Inclusive Financial Systems', distinguishes between four general categories of microfinance providers, and argues for a pro-active strategy of engagement with all of them to help them achieve the goals of the microfinance movement.^[34]

Informal financial service providers

These include moneylenders, pawnbrokers, savings collectors, money-guards, ROSCAs, ASCAs and input supply shops. Because they know each other well and live in the same community, they understand each other’s financial circumstances and can offer very flexible, convenient and fast services. These services can also be costly and the choice of financial products limited and very short-term. Informal services that involve savings are also risky; many people lose their money.

Member-owned organizations

These include self-help groups, credit unions, and a variety of hybrid organizations like 'financial service associations' and CVECAs. Like their informal cousins, they are generally small and local, which means they have access to good knowledge about each others' financial circumstances and can offer convenience and flexibility. Grameen Bank is a member-owned organization. Since they are managed by poor people, their costs of operation are low. However, these providers may have little financial skill and can run into trouble when the economy turns down or their operations become too complex. Unless they are effectively regulated and supervised, they can be 'captured' by one or two influential leaders, and the members can lose their money.

NGOs

The Microcredit Summit Campaign counted 3,316 of these MFIs and NGOs lending to about 133 million clients by the end of 2006.^[35] Led by Grameen Bank and BRAC in Bangladesh, Prodem in Bolivia, and FINCA International, headquartered in Washington, DC, these NGOs have spread around the developing world in the past three decades; others, like the Gamelan Council, address larger regions. They have proven very innovative, pioneering banking techniques like solidarity lending, village banking and mobile banking that have overcome barriers to serving poor populations. However, with boards that don’t necessarily represent either their capital or their customers, their governance structures can be fragile, and they can become overly dependent on external donors.

Formal financial institutions

In addition to commercial banks, these include state banks, agricultural development banks, savings banks, rural banks and non-bank financial institutions. They are regulated and supervised, offer a wider range of financial services, and control a branch network that can extend across the country and internationally. However, they have proved reluctant to adopt social missions, and due to their high costs of operation, often can't deliver services to poor or remote populations. The increasing use of alternative data in credit scoring, such as trade credit is increasing commercial banks' interest in microfinance.^[36]

With appropriate regulation and supervision, each of these institutional types can bring leverage to solving the microfinance problem. For example, efforts are being made to link self-help groups to commercial banks, to network member-owned organizations together to achieve economies of scale and scope, and to support efforts by commercial banks to 'down-scale' by integrating mobile banking and e-payment technologies into their extensive branch networks.

Microcredit and the web[link]

Due to the unbalanced emphasis on credit at the expense of microsavings, as well as a desire to link Western investors to the sector, peer-to-peer platforms have developed to expand the availability of microcredit through individual lenders in the developed world. New platforms that connect lenders to micro-entrepreneurs are emerging on the Web, for example Kiva, Zidisha and the Microloan Foundation. Another WWW-based microlender United Prosperity uses a variation on the usual microlending model; with United Prosperity the micro-lender provides a guarantee to a local bank which then lends back double that amount to the micro-entrpreneur. In 2009, the US-based nonprofit Zidisha became the first peer-to-peer microlending platform to link lenders and borrowers directly across international borders without local intermediaries.^[37]

The volume channeled through Kiva's peer-to-peer platform is about $100 million as of November 2009 (Kiva facilitates approximately $5M in loans each month). In comparison, the needs for microcredit are estimated about 250 bn USD as of end 2006.^[38] Most experts agree that these funds must be sourced locally in countries that are originating microcredit, to reduce transaction costs and exchange rate risks.

There have been problems with disclosure on peer-to-peer sites, with some reporting interest rates of borrowers using the flat rate methodology instead of the familiar banking Annual Percentage Rate.^[39] The use of flat rates, which has been outlawed among regulated financial institutions in developed countries, can confuse individual lenders into believing their borrower is paying a lower interest rate than, in fact, they are.^{[citation needed]}

Evidence for reducing poverty[link]

Research on the effectiveness of microfinance as a tool for economic development remains mixed, in part owing to the difficulty in monitoring and measuring this impact.^[40] At the 2008 Innovations for Poverty Action/Financial Access Initiative Microfinance Research conference, economist Jonathan Morduch of New York University noted there are only one or two methodologically sound studies of microfinance's impact.^[41]. Grameen Foundation has released two papers summarizing the state of research on the impact of microfinance on poverty: "Measuring the Impact of Microfinance, Taking Stock of What We Know" by Nathanael Goldberg^[42] (now with Innovations for Poverty Action) and an update, "Measuring the Impact of Microfinance: Taking Another Look" by Professor Kathleen Odell. These two papers identify scores of findings indicating positive impact in research conducted over the last twenty years, as well as some findings that suggest limited or negative impact in some cases.

The BBC Business Weekly program reported that much of the supposed benefits associated with microfinance, are perhaps not as compelling as once thought. In a radio interview with Professor Dean Karlan of Yale University, a point was raised concerning a comparison between two groups: one African, financed through microcredit and one control group in the Philippines. The results of this study suggest that many of the benefits from microcredit are in fact loaned to people with existing business, and not to those seeking to establish new businesses. Many of those receiving microcredit also used the loans to supplement the family income. The income that went up in business was true only for men, and not for women. This is striking because one of the supposed major beneficiaries of microfinance is supposed to be targeted at women. Professor Karlan's conclusion was that whilst microcredit is not necessarily bad and can generate some positive benefits, despite some lenders charging interest rates between 40-60%, it isn't the panacea that it is purported to be. He advocates rather than focusing strictly on microcredit, also giving citizens in poor countries access to rudimentary and cheap savings accounts.^[43]

To further the point stated by Prof Karlan, microfinancing begets the general tendency of a small business initially supported on credit to gain profits with time and generate micro savings. In his latest study, the famous two time pulitzer prize winner, Nicholas Donabet Kristof states that there is no evidence of any negative influence of micro financing but countless examples of people now looking at the bigger picture and saving for better things have surfaced. The example of BancoSol(Bolivia), where the number of savers has grown to twice as much as the number of borrowers, further strengthens his theory.^[44][45]

Sociologist Jonathan H. Westover, Ph.D. found that much of the evidence on the effectiveness of microfinance for alleviating poverty is based in anecdotal reports or case studies. He initially found over 100 articles on the subject, but included only the 6 which used enough quantitative data to be representative, and none of which employed rigorous methods such as randomized control trials similar to those reported by Innovations for Poverty Action and the M.I.T. Jameel Poverty Action Lab. One of these studies found that microfinance reduced poverty. Two others were unable to conclude that microfinance reduced poverty, although they attributed some positive effects to the program. Other studies concluded similarly, with surveys finding that a majority of participants feel better about finances with some feeling worse.^[46]

Microfinance and social interventions[link]

There are currently a few social interventions that have been combined with micro financing to increase awareness of HIV/AIDS. Such interventions like the "Intervention with Microfinance for AIDS and Gender Equity" (IMAGE) which incorporates microfinancing with "The Sisters-for-Life" program a participatory program that educates on different gender roles, gender-based violence, and HIV/AIDS infections to strengthen the communication skills and leadership of women ^[47] "The Sisters-for-Life" program has two phases where phase one consists of ten one-hour training programs with a facilitator with phase two consisting of identifying a leader amongst the group, train them further, and allow them to implement an Action Plan to their respective centres.

Microfinance has also been combined with business education and with other packages of health interventions.^[48] A project undertaken in Peru by Innovations for Poverty Action found that those borrowers randomly selected to receive financial training as part of their borrowing group meetings had higher profits, although there was not a reduction in "the proportion who reported having problems in their business".^[49]

Other criticisms[link]

Most criticisms of microfinance have actually been criticisms of microcredit, delivered in the absence of other microfinance services such as savings, remittances, payments and insurance.

For example, there has been much criticism of the high interest rates charged to borrowers. The real average portfolio yield cited by the sample of 704 microfinance institutions that voluntarily submitted reports to the MicroBanking Bulletin in 2006 was 22.3% annually. However, annual rates charged to clients are higher, as they also include local inflation and the bad debt expenses of the microfinance institution.^[50] Muhammad Yunus has recently made much of this point, and in his latest book^[51] argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.

Milford Bateman, the author of Why Doesn't Microfinance Work?, argues that microcredit offers only an "illusion of poverty reduction". "As in any lottery or game of chance, a few in poverty do manage to establish microenterprises that produce a decent living," he argues, but "these isolated and often temporary positives are swamped by the largely overlooked negatives." Bateman concludes that "The international development community is now faced with the reality that, overall, microfinance has been a development policy blunder of quite historic proportions."^[52]

The role of donors has also been questioned. The Consultative Group to Assist the Poor (CGAP) recently commented that "a large proportion of the money they spend is not effective, either because it gets hung up in unsuccessful and often complicated funding mechanisms (for example, a government apex facility), or it goes to partners that are not held accountable for performance. In some cases, poorly conceived programs have retarded the development of inclusive financial systems by distorting markets and displacing domestic commercial initiatives with cheap or free money."^[53]

There has also been criticism of microlenders for not taking more responsibility for the working conditions of poor households, particularly when borrowers become quasi-wage labourers, selling crafts or agricultural produce through an organization controlled by the MFI. The desire of MFIs to help their borrower diversify and increase their incomes has sparked this type of relationship in several countries, most notably Bangladesh, where hundreds of thousands of borrowers effectively work as wage labourers for the marketing subsidiaries of Grameen Bank or BRAC. Critics maintain that there are few if any rules or standards in these cases governing working hours, holidays, working conditions, safety or child labour, and few inspection regimes to correct abuses.^[54] Some of these concerns have been taken up by unions and socially responsible investment advocates.

For example, BusinessWeek reported that some Mexicans are stumbling with terms of newly available funding.^[55][56]

Other criticism was raised by the IPO (Initial Public Offering) of a Mexican MFI Banco Compartamos in 2007. As the company put its shares on Mexican Stock Exchange it was able to generate very high profits that were achieved by rising interest rates on their micro-loans that at some point reached 86% per year.^[57] In July 2010 India's biggest MFI, SKS Microfinance also went public. In both instances Muhammad Yunus publicly stated his disagreement, saying that the poor should be the only beneficiaries of microfinance.^[58][59]

Microcredit has been blamed for many suicides in India: aggressive lending by microcredit companies in Andhra Pradesh is said to have resulted in over 80 deaths in 2010.^[60]

Some problems with microcredit are mistakenly alleged in The Micro Debt, a film by the Danish journalist Tom Heinemann.^[61] After a thorough investigation in December 2010 by the Norwegian Foreign Ministry, the alleged problems have been proven to be false and no further actions against the Grameen Bank and its founder, Muhammad Yunnis, have been taken.^[62]

The documentary by Heinemann also looks at the effectiveness of Grameen Bank and alleges that it has little impact on poverty by highlighting the purported continued poverty of Sufiya Begum, the original loan recipient of Grameen, in Jobra Village. This allegation is disputed, since documentary maker Gayle Ferraro found the woman alive and well, confirming the original Grameen story.^[63]

Bibliography[link]

• Adams, Dale W., Douglas H. Graham & J. D. Von Pischke (eds.). Undermining Rural Development with Cheap Credit. Westview Press, Boulder & London, 1984.
• de Aghion, Beatriz Armendáriz & Jonathan Morduch. The Economics of Microfinance, The MIT Press, Cambridge, Massachusetts, 2005.
• Branch, Brian & Janette Klaehn. Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings. PACT Publications, Washington, 2002.
• Christen, Robert Peck, Jayadeva, Veena & Richard Rosenberg. Financial Institutions with a Double Bottom Line. Consultative Group to Assist the Poor, Washington 2004.
• Dichter, Thomas and Malcolm Harper (eds). What’s Wrong with Microfinance? Practical Action, 2007.
• Dowla, Asif & Dipal Barua. The Poor Always Pay Back: The Grameen II Story. Kumarian Press Inc., Bloomfield, Connecticut, 2006.
• Gibbons, David. The Grameen Reader. Grameen Bank, Dhaka, 1992.
• Helms, Brigit. Access for All: Building Inclusive Financial Systems. Consultative Group to Assist the Poor, Washington, 2006.
• Hirschland, Madeline (ed.) Savings Services for the Poor: An Operational Guide. Kumarian Press Inc., Bloomfield CT, 2005.
• Khandker, Shahidur R. Fighting Poverty with Microcredit, Bangladesh edition, The University Press Ltd, Dhaka, 1999.
• Ledgerwood, Joanna and Victoria White. Transforming Microfinance Institutions: Providing Full Financial Services to the Poor. World Bank, 2006.
• Mas, Ignacio and Kabir Kumar. Banking on mobiles: why, how and for whom? CGAP Focus Note #48, July, 2008.
• Raiffeisen, FW (translated from the German by Konrad Engelmann). The Credit Unions. The Raiffeisen Printing & Publishing Company, Neuwied on the Rhine, Germany, 1970.
• Robinson, Marguerite S., The microfinance revolution, The World Bank, Washington D.C., 2001.
• Rutherford, Stuart. The Poor and Their Money. Oxford University Press, Delhi, 2000.
• Wolff, Henry W. People’s Banks: A Record of Social and Economic Success. P.S. King & Son, London, 1910.
• Sapovadia, Vrajlal K., Micro Finance: The Pillars of a Tool to Socio-Economic Development. Development Gateway, 2006.
• Maimbo, Samuel Munzele & Dilip Ratha (eds.) Remittances: Development Impact and Future Prospects. The World Bank, 2005.
• Wright, Graham A.N. Microfinance Systems: Designing Quality Financial Services for the Poor. The University Press, Dhaka, 2000.
• United Nations Department of Economic Affairs and United Nations Capital Development Fund. Building Inclusive Financial Sectors for Development. United Nations, New York, 2006.
• Yunus, Muhammad. Creating a World Without Poverty: Social Business and the Future of Capitalism. PublicAffairs, New York, 2008.

See also[link]

Sustainable development portal

Notes[link]

External links[link]

• Microfinance at the Open Directory Project

Muhammad Yunus
মুহাম্মদ ইউনুস

Welfare economics , Development economics , Public Health , Gender Studies , Political Philosophy , Utilitarianism
Muhammad Yunus at World Economic Forum in Davos, Switzerland, 25 January 2012
Born	(1940-06-28) 28 June 1940 (age 71) Chittagong, Bangladesh
Nationality	Bangladeshi
Institution	Chittagong University Shahjalal University of Science and Technology Middle Tennessee State University
Field	Microcredit, Welfare economics, ethics
Alma mater	University of Dhaka Vanderbilt University
Contributions	Grameen Bank Microcredit
Awards	Independence Day Award (1987) World Food Prize (1994) Nobel Peace Prize (2006) Presidential Medal of Freedom (2009)
Information at IDEAS/RePEc

Muhammad Yunus (Bengali: মুহাম্মদ ইউনুস, pronounced Muhammôd Iunus; born 28 June 1940) is a Bangladeshi economist and founder of the Grameen Bank, an institution that provides microcredit (small loans to poor people possessing no collateral) to help its clients establish creditworthiness and financial self-sufficiency. In 2006 Yunus and Grameen received the Nobel Peace Prize "for their efforts through microcredit to create economic and social development from below".^[1] Yunus himself has received several other national and international honors.

He is a member of advisory board at Shahjalal University of Science and Technology. Previously, he was a professor of economics at Chittagong University where he developed the concepts of microcredit and microfinance. These loans are given to entrepreneurs too poor to qualify for traditional bank loans. He is the author of Banker to the Poor and two books on Social Business Models, and a founding board member of Grameen America and Grameen Foundation. Grameen Intel is just one of hundreds of public and private partnerships now mediated through Youth & Yunus. In early 2007 Yunus showed interest in launching a political party in Bangladesh named Nagorik Shakti (Citizen Power), but later discarded the plan. He is one of the founding members of Global Elders.

Yunus also serves on the board of directors of the United Nations Foundation, a public charity created in 1998 with entrepreneur and philanthropist Ted Turner’s historic $1 billion gift to support UN causes. The UN Foundation builds and implements public-private partnerships to address the world’s most pressing problems, and broadens support for the UN.^[2]

In March 2011, after months of government attack, the Bangladesh government controversially fired Yunus from his position at Grameen Bank, citing legal violations and an age limit on his position.^[3] Bangladesh's High Court affirmed the removal on 8 March. Yunus and Grameen Bank are appealing the decision, claiming Yunus' removal was politically motivated.

Professor Yunus was chosen by Wharton School of Business for PBS documentary, as one of 'The 25 Most Influential Business Persons of the Past 25 Years'.^[4] In 2006, Time magazine listed him under "60 years of Asian Heroes" as one of the top 12 business leaders.^[5] In 2008, in an open online poll, Yunus was voted the 2nd topmost intellectual person in the world on the list of Top 100 Public Intellectuals by Prospect Magazine (UK) and Foreign Policy (United States).^[6]

Early life and education[link]

Early years[link]

Muhammad Yunus at Chittagong Collegiate School, while visiting the school in 2003.

The third of nine children,^[7] Yunus was born on 28 June 1940 to a Muslim family in the village of Bathua, by the Boxirhat Road in Hathazari, Chittagong, in Bangladesh.^[8][9] His father was Hazi Dula Mia Shoudagar, a jeweler, and his mother was Sufia Khatun. His early childhood years were spent in the village. In 1944, his family moved to the city of Chittagong, and he was shifted to Lamabazar Primary School from his village school.^[8][10] By 1949, his mother was afflicted with psychological illness.^[9] Later, he passed the matriculation examination from Chittagong Collegiate School securing the 16th position among 39,000 students in East Pakistan.^[10] During his school years, he was an active Boy Scout, and traveled to West Pakistan and India in 1952, and to Canada in 1955 to attend Jamborees.^[10] Later when Yunus was studying at Chittagong College, he became active in cultural activities and won awards for drama acting.^[10] In 1957, he enrolled in the department of economics at Dhaka University and completed his BA in 1960 and MA in 1961.

After graduation[link]

Following his graduation, Yunus joined the Bureau of Economics as a research assistant to the economical researches of Professor Nurul Islam and Rehman Sobhan.^[10] Later he was appointed as a lecturer in economics in Chittagong College in 1961.^[10] During that time he also set up a profitable packaging factory on the side.^[9] He was offered a Fulbright scholarship in 1965 to study in the United States. He obtained his PhD in economics from Vanderbilt University in the United States through the graduate program in Economic Development (GPED) in 1971.^[11] From 1969 to 1972, Yunus was an assistant professor of economics at Middle Tennessee State University in Murfreesboro, TN.

During the Bangladesh Liberation War in 1971, Yunus founded a citizen's committee and ran the Bangladesh Information Center, with other Bangladeshis living in the United States, to raise support for liberation.^[10] He also published the Bangladesh Newsletter from his home in Nashville. After the War, Yunus returned to Bangladesh and was appointed to the government's Planning Commission headed by Nurul Islam. He found the job boring and resigned to join Chittagong University as head of the Economics department.^[12] He became involved with poverty reduction after observing the famine of 1974, and established a rural economic program as a research project. In 1975, he developed a Nabajug (New Era) Tebhaga Khamar (three share farm) which the government adopted as the Packaged Input Programme.^[10] In order to make the project more effective, Yunus and his associates proposed the Gram Sarkar (the village government) programme.^[13] Introduced by then president Ziaur Rahman in late 1970s, the Government formed 40,392 village governments (gram sarkar) as a fourth layer of government in 2003. On 2 August 2005, in response to a petition filed by Bangladesh Legal Aids and Services Trust (BLAST) the High Court had declared Gram Sarkar illegal and unconstitutional.^[14]

Early career[link]

Grameen Bank Head Office at Mirpur-2, Dhaka

In 1976, during visits to the poorest households in the village of Jobra near Chittagong University, Yunus discovered that very small loans could make a disproportionate difference to a poor person. Jobra women who made bamboo furniture had to take out usurious loans for buying bamboo, to pay their profits to the moneylenders. His first loan, consisting of US$27.00 from his own pocket, was made to 42 women in the village, who made a net profit of BDT 0.50 (US$0.02) each on the loan. Accumulated through many loans, this vastly improving Bangladesh's ability to export and import as it did in the past, resulting in a greater form of globalization and economic status.^[8]

Dr. Akhtar Hameed Khan, founder of the Pakistan Academy for Rural Development (now Bangladesh Academy for Rural Development), is credited alongside Yunus for pioneering the idea.^[15] From his experience at Jobra, Yunus, an admirer of Dr. Hameed,^[15] realized that the creation of an institution was needed to lend to those who had nothing.^[16] While traditional banks were not interested in making tiny loans at reasonable interest rates to the poor due to high repayment risks,^[17] Yunus believed that given the chance the poor will repay the borrowed money and hence microcredit could be a viable business model.

Yunus finally succeeded in securing a loan from the government Janata Bank to lend it to the poor in Jobra in December 1976. The institution continued to operate by securing loans from other banks for its projects. By 1982, the bank had 28,000 members. On 1 October 1983 the pilot project began operations as a full-fledged bank and was renamed the Grameen Bank (Village Bank) to make loans to poor Bangladeshis. Yunus and his colleagues encountered everything from violent radical leftists to the conservative clergy who told women that they would be denied a Muslim burial if they borrowed money from the Grameen Bank.^[9] As of July 2007, Grameen Bank has issued US$ 6.38 billion to 7.4 million borrowers.^[18] To ensure repayment, the bank uses a system of "solidarity groups". These small informal groups apply together for loans and its members act as co-guarantors of repayment and support one another's efforts at economic self-advancement.^[13]

The Grameen Bank started to diversify in the late 1980s when it started attending to unutilized or underutilized fishing ponds, as well as irrigation pumps like deep tubewells.^[19] In 1989, these diversified interests started growing into separate organizations, as the fisheries project became Grameen Motsho (Grameen Fisheries Foundation) and the irrigation project became Grameen Krishi (Grameen Agriculture Foundation).^[19] Over time, the Grameen initiative has grown into a multi-faceted group of profitable and non-profit ventures, including major projects like Grameen Trust and Grameen Fund, which runs equity projects like Grameen Software Limited, Grameen CyberNet Limited, and Grameen Knitwear Limited,^[20] as well as Grameen Telecom, which has a stake in Grameenphone (GP), biggest private sector phone company in Bangladesh.^[21] The Village Phone (Polli Phone) project of GP has brought cell-phone ownership to 260,000 rural poor in over 50,000 villages since the beginning of the project in March 1997.^[22]

The success of the Grameen model of microfinancing has inspired similar efforts in a hundred countries throughout the developing world and even in industrialized nations, including the United States.^[23] Many, but not all, microcredit projects also retain its emphasis on lending specifically to women. More than 94% of Grameen loans have gone to women, who suffer disproportionately from poverty and who are more likely than men to devote their earnings to their families.^[24] For his work with the Grameen Bank, Yunus was named an Ashoka: Innovators for the Public Global Academy Member in 2001.^[25] In the book,^[26] Grameen Social Business Model, Rashidul Bari shows how Grameen Social Business Model(GSBM)- has gone from being theory to become an inspiring practice adopted by leading universities (e.g., Glasgow), entrepreneurs (e.g., Franck Riboud) and corporations (e.g., Danone) across the globe. Through Grameen Bank, Rashidul Bari claims that Yunus demonstrated how Grameen Social Business Model can harness the entrepreneurial spirit to empower poor women and alleviate their poverty. One of the conclusions of Yunus' concepts is that the poor are like a “bonsai tree,” and they can do big things if they get access to the social business that holds the potential to redeem the failed promise of free-market enterprise.

Recognition[link]

Muhammad Yunus was awarded the 2006 Nobel Peace Prize, along with Grameen Bank, for their efforts to create economic and social development. In the prize announcement The Norwegian Nobel Committee mentioned:^[1]

Muhammad Yunus at the Grand Hotel in Oslo, Norway

Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries. Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty.

Muhammad Yunus was the first Bangladeshi and third Bengali to ever get a Nobel Prize. After receiving the news of the important award, Yunus announced that he would use part of his share of the $1.4 million award money to create a company to make low-cost, high-nutrition food for the poor; while the rest would go toward setting up an eye hospital for the poor in Bangladesh.^[27]

Former U.S. president Bill Clinton was a vocal advocate for the awarding of the Nobel Prize to Muhammed Yunus. He expressed this in Rolling Stone magazine^[28] as well as in his autobiography My Life.^[29] In a speech given at University of California, Berkeley in 2002, President Clinton described Dr. Yunus as "a man who long ago should have won the Nobel Prize [and] I’ll keep saying that until they finally give it to him."^[30] Conversely, The Economist stated explicitly that Yunus was a poor choice for the award, stating: "...the Nobel committee could have made a braver, more difficult, choice by declaring that there would be no recipient at all."^[31]

Muhammad Yunus at the Annual Meeting 2009 of the World Economic Forum in Davos, Switzerland.

He is one of only seven persons to have won the Nobel Peace Prize, Presidential Medal of Freedom,^[32] and the Congressional Gold Medal.^[33] Other notable awards include the Ramon Magsaysay Award in 1984,^[34] the World Food Prize,^[35] the International Simon Bolivar Prize (1996), ^[36] the Prince of Austurias Award for Concord ^[37] and the Sydney Peace Prize in 1998,^[38] and the Seoul Peace Prize in 2006. Additionally, Dr. Yunus has been awarded 50 honorary doctorate degrees from universities across 20 countries, and 113 international awards from 26 different countries including state honours from 10 countries.^[39] Bangladesh government brought out a commemorative stamp to honor his Nobel Award.^[40]

Professor Yunus was named by Fortune Magazine in March 2012 as one of 12 greatest entrepreneurs of the current era.^[41] In its citation, Fortune Magazine said ″Yunus' idea inspired countless numbers of young people to devote themselves to social causes all over the world.″

In January of 2012, Professor Yunus featured in "Transformative Entrepreneurs: How Walt Disney, Steve Jobs, Muhammad Yunus and Other Innovators Succeeded" a book by Jeffrey Harris.^[42]

Professor Yunus was named "Nobel-Laureate-in-Residence" at Universiti Kebangsaan Malaysia (National University of Malaysia) on July 15, 2011.^[43]

Professor Yunus delivered the Seventh Nelson Mandela Annual Lecture.^[44]

In January 2008, Houston, Texas declared 14 January as "Muhammad Yunus Day".^[45]

On 15 May 2010, Yunus gave the commencement speech at Rice University for the graduating class of 2010. On 16 May 2010, Yunus gave the commencement speech at Duke University for the graduating class of 2010. During this ceremony, he was also awarded an honorary degree, Doctor of Humane Letters.

Professor Yunus was invited and gave the Wharton School of Business commencement address on 17 May 2009,^[46] the MIT commencement address on 6 June 2008,^[47], Adam Smith Lecture at Glasgow University on 1 December 2008^[48] and Oxford's Romanes Lecture on 2 December 2008.^[49]

He received the Dwight D. Eisenhower Medal for Leadership and Service from the Eisenhower Fellowships at a ceremony in Philadelphia on 21 May 2009. He was also voted 2nd in Prospect Magazine's 2008 global poll of the world's top 100 intellectuals.^[50]

Yunus was named among the most desired thinkers the world should listen to by the FP 100 (world's most influential elite) in the December 2009 issue of Foreign Policy magazine.^[51] On 1 March 2010, Yunus was awarded the prestigious Presidential Award from the University of Illinois at Urbana–Champaign. This is the highest honor available from the University.

A documentary on Yunus' work titled To Catch a Dollar was shown at the 2010 Sundance Film Festival and is due to be released in theaters in the US on September 2010.

In 2010, The British Magazine New Statesman Listed Muhammad Yunus at 40th in the list of "The World's 50 Most Influential Figures 2010".^[52]

In October 2010, He received the Social Entrepreneur of the Year Award at The Asian Awards^[53]

On September 22, 2011 the documentary film, "Bonsai People – The Vision of Muhammad Yunus", the first documentary film that looks his full body of work from microcredit to social business, premiered at the United Nations.

Yunus received 50 honorary doctorate degrees from universities from Argentina, Australia, Bangladesh, Belgium, Canada, Costa Rica, India, Italy, Japan, Korea, Lebanon, Malaysia, Russia, South Africa, Spain, Thailand, Turkey, UK, USA and Peru.^[54]

United Nations Secretary General, Ban Ki-Moon, invited Professor Yunus to serve as an MDG Advocate. Professor Yunus sits on the Board of United Nations Foundation, Schwab Foundation, Prince Albert II of Monaco Foundation, Grameen Credit Agricole Microcredit Foundation. He has been a member of Fondation Chirac's honour committee,^[55] ever since the foundation was launched in 2008 by former French president Jacques Chirac in order to promote world peace.

Professor Yunus has appeared on The Daily Show with Jon Stewart and Oprah Winfrey Show in 2006, The Colbert Report in 2008, Real Time with Bill Maher in 2009 and The Simpsons in 2010.

On Google+, Professor Yunus is one of the most followed person worldwide, with over 1.7 million followers.^[56]

Political activity[link]

In early 2006 Yunus, along with other members of the civil society including Professor Rehman Sobhan, Justice Muhammad Habibur Rahman, Dr Kamal Hossain, Matiur Rahman, Mahfuz Anam and Debapriya Bhattchariya, participated in a campaign for honest and clean candidates in national elections.^[57] He considered entering politics in the later part of that year.^[58] On 11 February 2007, Yunus wrote an open letter, published in the Bangladeshi newspaper Daily Star, where he asked citizens for views on his plan to float a political party to establish political goodwill, proper leadership and good governance. In the letter, he called on everyone to briefly outline how he should go about the task and how they can contribute to it.^[59] Yunus finally announced that he is willing to launch a political party tentatively called Citizens' Power (Nagorik Shakti) on 18 February 2007.^[60][61] There was speculation that the army supported a move by Yunus into politics.^[62] On 3 May, however, Yunus declared that he had decided to abandon his political plans following a meeting with the head of the interim government, Fakhruddin Ahmed.^[63]

On 18 July 2007 in Johannesburg, South Africa, Nelson Mandela, Graça Machel, and Desmond Tutu convened a group of world leaders to contribute their wisdom, independent leadership and integrity together to the world. Nelson Mandela announced the formation of this new group, The Global Elders, in a speech he delivered on the occasion of his 89th birthday.^[64][65] Archbishop Tutu is to serve as the Chair of The Elders. The founding members of this group include Machel, Yunus, Kofi Annan, Ela Bhatt, Gro Harlem Brundtland, Jimmy Carter, Li Zhaoxing, and Mary Robinson. The Elders are to be independently funded by a group of Founders, including Richard Branson, Peter Gabriel, Ray Chambers; Michael Chambers; Bridgeway Foundation; Pam Omidyar, Humanity United; Amy Robbins; Shashi Ruia, Dick Tarlow; and The United Nations Foundation. Yunus is a member of the Africa Progress Panel (APP), an independent authority on Africa launched in April 2007 to focus world leaders’ attention on delivering their commitments to the continent. The Panel launched a major report in London on Monday 16 June 2008 entitled Africa's Development: Promises and Prospects.^[66]

In July 2009, Yunus became a member of the SNV Netherlands Development Organisation International Advisory Board to support the organisation's poverty reduction work.^[67]

Since 2010, Yunus has served as a Commissioner for the Broadband Commission for Digital Development, a UN initiative which seeks to use broadband internet services to accelerate social and economic development.^[68]

He also serves on the advisory board of the Holcim Foundation for Sustainable Construction, a foundation supporting initiatives that combine sustainable construction solutions with architectural excellence.^[69]

Controversies[link]

This section's factual accuracy is disputed. Please help to ensure that disputed facts are reliably sourced. See the relevant discussion on the talk page.

The examples and perspective in this article may not include all significant viewpoints. Please improve the article or discuss the issue. (March 2011)

Since late November 2010, several allegations have been made against Yunus. These allegations started when a documentary, titled “Caught in Micro Debt”,^[70] was aired on Norwegian television on 30 November 2010, criticizing microcredit and blaming Grameen Bank on several points .^[71] They developed during a time when larger questions were being raised about the benefits of microfinance and its effects on poverty alleviation, particularly in regards to several microfinance institutions (MFIs) in India^[72] and Mexico .^[73]

The allegations against Yunus turned political in nature when the government of Bangladesh – led by ^[74]Sheikh Hasina Wajed, who reportedly has viewed Yunus as a political rival since he looked into setting up a political party in 2007^[75] – suddenly turned against him and the concept of microfinance (which she had formerly championed ^{[citation needed]}), accusing it of “sucking blood from the poor” .^[76] In the book,^[77] Grameen Social Business Model, Rashidul Bari wrote that the political vendetta in Bangladesh by Sheikh Hasina against Muhammad Yunus^[78] could be understood as a modern-day replay of the famous conflict between Pope Urban VIII and Galileo Galilei.^[79][80]

"Pope Urban VIII put 70-year-old Galileo in prison in 1632 for condemning and rejecting Ptolemy's geocentric model, which was adopted by the early Christian Church. In the same spirit, Sheikh Hasina who labeled Yunus as a “blood sucker of poor people^[81]”—unleashed her propaganda machine (e.g., AMA Muhith) to remove Yunus from Grameen—and used the High Court and Supreme Court to justify her decision. Why did Pope Urban VIII insult the Father of Astronomy? Because Galileo rejected the accepted Christian Church view, that the earth is the center of the universe, and that all other celestial objects orbit around it.^[82]

The Government announced a review into the activities of Grameen Bank on 11 January 2011 ;^[83] this review is currently ongoing. In February, several international leaders, such as Mary Robinson, stepped up their defense of Yunus through a number of efforts, including the founding of a formal network of supporters known as “Friends of Grameen” .^[84]

On 15 February 2011, the Finance Minister of Bangladesh, Abul Maal Abdul Muhith, declared that Muhammad Yunus should “stay away” from Grameen Bank while it is being investigated.^[85]

On 2 March 2011, Muzammel Huq – a former employee of Grameen Bank and vocal critic of Yunus ^{[citation needed]} whom the government had appointed Grameen Bank chairman in January^[86] – announced to the media that Yunus had been fired as Managing Director of the Bank .^[87] Jannat-E Quanine, General Manager of the Grameen Bank issued a Grameen Bank Statement clarifiying that Yunus was “continuing in his office” pending review of the legal issues surrounding the controversy .^[88]

On 3 March 2011, Muhammad Yunus filed himself a writ at the High Court challenging the legality of the decision from the Bangladeshi Central Bank to remove him as Managing Director of Grameen Bank .^[89] The same day, nine elected directors of Grameen Bank filed a second writ petition .^[90] The High Court hearing on these petitions, initially planned on 6 March 2011, was postponed. On 8 March 2011, the Bangladeshi Court finally confirmed the dismissal of Yunus as Grameen Bank Managing Director .^[91]

Following Hillary Clinton, John Kerry expressed his support to Yunus in a statement released on 5 March 2011 and declared that he was “deeply concerned” by this affair. In Bangladesh, thousands of people protested and formed human chains on 5 March 2011 to support Yunus .^[92]

Disproved allegations from a Danish documentary[link]

A Danish documentary called Caught in Micro Debt,^[70] produced and directed by journalist Tom Heinemann, aired on Norwegian national television NRK on 30 November 2010. It made a number of allegations against Muhammad Yunus and Grameen Bank. Those allegations have been disproved by later inquiries.

The documentary falsely accused Yunus and Grameen Bank of:

• Diverting 7 billion taka (about 100 million dollars) given by the Norwegian Agency for Development Cooperation (NORAD) from Grameen Bank to another organization called Grameen Kalyan in 1996 – an allegation widely spread in the Bangladeshi electronic media on December 1, 2010.^[93] Nonetheless, on 6 December, NORAD published an official statement^[94] clearing Yunus and Grameen Bank from any wrongdoing on this point, following a comprehensive review of NORAD’s support commissioned by the Minister of International Development.

However, the allegations quickly spread through the Bangladesh media. To quote a leading Bangladeshi economist Rehman Sobhan,^[95] “Rather than first seeking clarification and response from Grameen Bank as to the validity of the TV program, some sections of the media and society pounced on it with unseemly enthusiasm, using it as an opportunity to cite wrongdoing in a widely respected organization.” Muhammad Yunus asked for consistent and transparent investigations on these matters.

Questioning microfinance – the ‘loan sharks’ issue[link]

The allegations against Muhammad Yunus and Grameen Bank have been made in a context where some people have begun to question the effectiveness of microfinance, prompted by the actions of some for-profit MFIs in India^[96] and Mexico.^[97] Coercion, peer pressure and physical harassment have been reportedly used as loan repayment practices in some specific microfinance institutions.^[98] Commercialization of microcredit^[99] prompted Muhammad Yunus to state that he “never imagined that one day microcredit would give rise to its own breed of loan sharks.”^[100]

The lure of profits has attracted some for-profit microfinance institutions to hold Initial Public Offerings (IPOs), including the largest Indian microfinance institution, SKS Microfinance, which held an IPO in July 2010.^[101] In September 2010, Yunus and Vikram Akula, founder of SKS, debated during the Clinton Global Initiative meeting,^[102] where Yunus made his position on the SKS IPO clear: “Microcredit is not about exciting people to make money off the poor. That's what you're doing. That's the wrong message completely.”

It is widely assumed that the government of Bangladesh is exploiting this “moral crisis around microcredit” to oust Muhammad Yunus.^[103]

Political motivations behind the allegations[link]

Though Grameen Bank was quickly cleared by the Norwegian government of all allegations surrounding misused or misappropriated funds in December 2010, in March 2011 the Bangladeshi government launched a three-month investigation of all Grameen Bank’s activities.^[104] This inquiry prevented Muhammad Yunus from participating in the World Economic Forum.^[105]

On 18 January 2011, Yunus appeared in court in a defamation case filed by a local politician from a minor left-leaning party in 2007, complaining about a statement that Yunus made to the AFP news agency, “Politicians in Bangladesh only work for power. There is no ideology here”.^[106] At the hearing, Yunus was granted bail and exempted from personal appearance at subsequent hearings.^[107]

These latter investigations have fueled suspicion that many attacks might be politically orchestrated,^[108] related to difficult relations between Sheikh Hasina and Yunus that date to early 2007, when Muhammad Yunus created his own political party, an effort he dropped in May 2007.^[109]

Transition to a new management[link]

Muhammad Yunus is now 71 years old, 11 years beyond the legal retirement age for banks in Bangladesh.^[110] The Finance Minister, who is himself 77 years old, has called for Prof. Yunus to step down and declared, ”We need to redefine the bank’s role and bring it under closer regulation.”^[111]

The government recently appointed a new chairman, Muzammel Huq, who was a former Grameen Bank employee.^[86] He has publicly criticized Prof. Yunus, saying, ‘I think he is a good man with a small heart ... He cannot give credit to anyone but himself”. On 28 February 2011, he presented a letter written by a Bangladesh Bank official at a meeting of the Grameen Bank Board of Directors,^[110] saying that Muhammad Yunus “staying in the post for an indefinite period ... was not within the law,” and asking that the meeting be adjourned; however, because the letter was not addressed to the Managing Director, the rest of the Board – including the two other government-appointed Directors – determined that the meeting should continue as planned.

A journalist of the Telegraph has commented that “the Bangladeshi Government should remove Chairman Huq immediately. If calling Yunus a ‘chicken hearted man’ in the New York Times is his way of showing commitment, independence and integrity, then something is seriously wrong. In his defense, it’s a pretty accurate description of someone who is determined to destroy a force for good!”^[112]

Prof. Yunus has stated his desire for an orderly transition, to make sure that the Bank’s governing practices and transparency are effective and ensure that the institution does not turn into a political instrument if taken over by the government:^[86] “I am riding the tiger. I cannot just get off the tiger without drawing the attention of that tiger. So I have to very quietly do it.”

Allegations involving partners: the food case and the phone case[link]

On 27 January 2011, Muhammad Yunus appeared on court about a food-adulteration case filed by the Dhaka City Corporation (DCC) Food Safety Court, accusing him of producing an “adulterated” yogurt^[113] in that the fat content would not comply with the legal minimum requirements. This yogurt is produced by Grameen Danone, a social business joint venture between Danone and Grameen Bank that works to alleviate poverty by providing opportunities for street vendors to sell the yogurt and to improve nutrition among the poor by providing nutrient-fortified yogurts to children in Bangladesh. According to Prof. Yunus’s lawyer, these allegations are “false and baseless”.^[114] At the request of Prof.Yunus lawyers, pointing procedural irregularities and errors, this case is now considered by the High Court.

On 15 February 2011, Prof. Yunus was summoned by a court in Pabna (in North Bangladesh) to appear on 18 April in a fraud case involving Grameen Phone.^[115] This case concerns a Grameen village phone user, who received overdue bills even though she had paid the bills regularly.

Family[link]

In 1967 while Yunus attended Vanderbilt University, he met Vera Forostenko, a student of Russian literature at Vanderbilt University and daughter of Russian immigrants to Trenton, New Jersey, U.S. They were married in 1970.^[9][12] Yunus's marriage with Vera ended within months of the birth of their baby girl, Monica Yunus (b. 1979 Chittagong), as Vera returned to New Jersey claiming that Bangladesh was not a good place to raise a baby.^[9][12] Yunus later married Afrozi Yunus, who was then a researcher in physics at Manchester University.^[12] She was later appointed as a professor of physics at Jahangirnagar University. Their daughter Deena Afroz Yunus was born in 1986.^[12]

His brothers are also active in academia. His brother Muhammad Ibrahim is a professor of physics at Dhaka University and the founder of The Center for Mass Education in Science (CMES), which brings science education to adolescent girls in villages.^[116] His younger brother Muhammad Jahangir is a popular television presenter and a well known social activist in Bangladesh. He is also the moderator of several Talk show programmes in Bangladesh. Monica Yunus, his elder daughter, is a Bangladeshi-Russian American operatic soprano, working in New York City.^[117]

Publications[link]

Books by Muhammad Yunus

• Three Farmers of Jobra; Department of Economics, Chittagong University; 1974
• Planning in Bangladesh: Format, Technique, and Priority, and Other Essays; Rural Studies Project, Department of Economics, Chittagong University; 1976
• Jorimon and Others: Faces of Poverty (co-authors: Saiyada Manajurula Isalama, Arifa Rahman); Grameen Bank; 1991
• Grameen Bank, as I See it; Grameen Bank; 1994
• Banker to the Poor: Micro-Lending and the Battle Against World Poverty; Public Affairs; 2003; ISBN 978-1-58648-198-8
• A World Without Poverty: Social Business and the Future of Capitalism; Public Affairs; 2008; ISBN 978-1-58648-493-4
• Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs^[118] ; Public Affairs; 2010; ISBN 978-1-58648-824-6

Articles by Muhammed Yunus

• World Policy Journal: "Economic Security for a World in Crisis"; World Policy Journal; Summer 2009;

On Muhammad Yunus

• David Bornstein; The Price of a Dream: The Story of the Grameen Bank and the Idea That Is; Simon & Schuster; 1996; ISBN 0-684-81191-X

See also[link]

	Sustainable development portal
	Bangladesh portal

• Yunus Centre
• Fazle Hasan Abed
• Islamic banking
• Notable Bangladeshis
• The Green Children are a European musical duo. In June 2006, they shot a music video in Bangladesh to celebrate the work of Yunus

References[link]