Grameen Bank Woes


{jb_quote}Poverty almost results in disbelief. (Bayhaqi){/jb_quote}

Grameen Bank Woes

Muhammad Tahir

{jb_dropcap}I{/jb_dropcap}nterest, no matter how abundant it may be, ultimately results in poverty." (Ahmad)


Give loans to the poor so that they can pull themselves out of poverty through entrepreneurship. Who could argue with that? Certainly not Bono, the Clintons, and ultimately the Nobel Prize Committee. And so it was that a plucky economist from Bangladesh named Muhammad Yunus "invented" micro-credit and set the poor of the world onto the road of wealth and affluence.

Unfortunately, things didn't quite work out as planned after Professor Yunus' triumphant valedictory address in Norway. Certainly there were warning signs: an unfortunate colleague of mine who had the pleasure of being seated next to Mr Yunus on a flight while he bragged about how much money he was making; or perhaps the fact that the children of his famous first customer, Sufia Begum, still apparently live in a squalid shack.

As a Muslim (and an economist), there are just so many things wrong with the Grameen concept of microfinance that it is difficult to know where to start. A good place might be Grameen and its founder Professor Yunus' current predicament. Recently cleared of allegations that almost $100 million donated to the Grameen Bank by Norway was instead siphoned off to a for-profit subsidiary for other purposes, Grameen continues to fend off allegations that "micro-credit" doesn’t necessarily translate into "micro-interest rates" with increasing evidence that Grameen was charging annual rates of interest in excess of 30%. The entire movement of micro-credit has come under question as revelations emerge that rates of debt-related suicide have sky-rocketed following the opening of micro-credit facilities in Uttar Pradesh province in India.

While many have decried the attack against Yunus as a combination of political vendetta on the part of Bangladesh's Prime Minister, Sheikh Hasina, and sour grapes on the part of those who envied Yunus' Nobel success, the rot underlying Grameen's apparent success runs much deeper. The fact of the matter is that it is not a lack of working capital which is the root cause of poverty in the developing world. To suggest that there is some nebulous untapped store of disposable wealth which poor women can magically tap into by getting a £150 loan to set up a tea stall and become rich is just wishful thinking. It also plays to conservative prejudices which suggest that poverty is a self-inflicted condition which just requires individual effort to escape.

It is much easier for Western governments to throw a bit of cash at micro-credit and some laurels at Muhammad Yunus than to address the serious structural problems that perpetuate developing world poverty. Take for example the ongoing Doha Round of negotiations of the World Trade Organization (WTO) which have largely ground to a halt. One of the main sticking points was the ongoing insistence of wealthy developed countries to have unrestricted access to poor economies in which to dump their agricultural and industrial over-production, effectively smothering domestic industries. At the same time, those same poor countries are denied free access to developed, wealthy markets in which to sell their own output. So basically, it comes down to this: you must take the output of our massive, subsidized, industrialized economies instead of developing any of your own industries. Oh, and here's some money to set up a tea stall, at 30% a year. Hooray for micro-credit! And don't forget to pay off your IMF and World Bank loans too...

Even if none of this shady business had ever come to light, it has been disappointing to note how many progressive Muslim types have jumped onto the micro-credit bandwagon. It has become just another stick with which to beat the behind-the-times "fundos": how backward to decry such an obvious way to lift the poor out of poverty. Indeed, micro-credit has even been touted as an antidote to Islamic extremism - not because it introduces riba into the lives of millions, but because it allows women to become self-employed. Someone was clearly ignorant of the biography of Zainab bint Jahsh, the wife of the Prophet (peace and blessings be upon him) who ran her own business. There is no such prohibition in Islam.

In an age where enthusiasm for Islamic finance is on the rise, it seems counter-intuitive to support a system which instead promotes a vast, financially unsustainable web of loan sharking. While it is true that Grameen borrowers mostly pay back their loans on time, there is ample evidence to show that this is accomplished in many cases by taking further loans from the networks of money lenders that have been operating in most rural economies since the pre-Grameen days.

It would be unfair however to leave it at that, as some would inevitably suggest that Islam has nothing to say on the issue of improving the lot of the poor or providing solutions to the intractable poverty which Muslims, among others, face the world over. Before getting into the detail, it is essential to understand that structural poverty is neither inevitable nor accidental. The true cost of imperialism is not measured in the bombs over Iraq or the Occupied Territories, but rather in the lopsided trade agreements which continue to perpetuate the upper hand in global trade which is enjoyed by the rich industrialized nations.

It is worth remembering that it was Muslims who first developed a robust framework for commercial trade. A brief perusal of even the most basic classical treatise of Hanafi fiqh will reveal detailed discussions on various forms of rental, partnership, financing and liability - none of which involves interest. These concepts continue to provide the basis for commercial law as we know it. In many cases, the descriptions of financial liability found in 1,000 year old Islamic texts appear to have been cut and pasted into the modern context.

This is a legacy which, all too often, Muslims ignore. What remains is Muslims peddling riba to other Muslims, backed by Western money and prestige. We can certainly do better than that. What is required of us is to rediscover our past heritage and ask our scholars to apply it to the modern context. This is not the same as changing Islam to fit the modern context as some pseudo-intellectual Muslims have called for. Even without knowing the details of the Grameen model, we only need the warning of the Prophet (sallallahu alayhi wasallam) to steer us clear: "Interest, no matter how abundant, ultimately leads to poverty." But at the same time, faced with crushing poverty and no viable options, it is easy to understand how Muslims continue to fall for such schemes: "Poverty is a condition which can almost lead to disbelief."

Any real solutions to the problems of developing world poverty need to look beyond the condition of the poor. The problem is not a lack of wealth. Of course, most people don't want the poor to remain impoverished, but if it is a choice of their SUV/McMansion/latest iPhone versus someone else's dinner, the choice becomes somewhat problematic. Even Bono, lead singer of U2 and global crusader for international debt forgiveness, balked when asked to pay higher taxes. Bono, if your government isn't going to make its cash from taxing its own financial activity, can you blame them if they continue to prey on the poor to build national wealth? As a member of the EU, Ireland continues to pursue trade policies which disadvantage the poorest of poor nations. The problem mainly lies at the feet of rich nations which prioritize national wealth and the protection of otherwise uncompetitive (but strategically important, such as agriculture) industries over foreign aid and development. This is completely understandable within a global system which equates the advancement of mankind with economic growth. What we need to ask ourselves in the wealthy countries of the world is whether this is the only objective of our civilization?

While Islam encourages trade and development, it does not exist simply to facilitate it. As Muslims, we should recognize the need for financial growth as a means to alleviate poverty, but not to the exclusion of spiritual growth. Will a new car and fresh bedsheets from Harvey Nics really make your life better when the old ones were functioning perfectly well? The anti-consumer movement in the West is remarkably silent when it comes to a real alternative to consumption, which is why it remains on the fringes. Muslims must take the lead in promoting a lifestyle focused not on more and more consumption, but on greater and deeper connection with the Creator. With this in mind, third world poverty becomes less a choice between us and them, and more a reflection of not only our interconnectedness with our neighbours in the global village, but our responsibility to help those who have less.

Ibn 'Abbas told Ibn az-Zubayr, "I heard the Prophet, may Allah bless him and grant him peace, say, 'A man is not a believer who fills his stomach while his neighbour is hungry.'"