MICROCAPITAL BRIEF: Founder of Grameen Bank and Nobel Peace Prize Winner Dr Muhammad Yunus Speaks Out Against the Commercialization of Microfinance Institutions (MFIs)

Dr Muhammad Yunus, founder of Grameen Bank and winner of the Nobel Peace Prize for his work in microcredit, has again spoken out against the commercialization of microfinance institutions (MFIs) and their deviation from the mission of poverty alleviation. Dr Yunus marks the beginning of “trouble with microcredit” at 2005, when he says MFIs became increasingly interested in profit-making strategies, which was followed by the 2007 initial public offering (IPO) of Mexican microbank Compartamos. Since then, several other MFIs have gone public, including India’s, SKS Microfinance, in August 2010.

Such action, Dr Yunus claims, places pressure on MFIs to ensure profitability to investors, which then places a heavier burden on borrowers to pay higher interest rates and be subjected to aggressive payment collection. Dr Yunus calls for a regulatory authority to be established in every country where microlending takes place to enforce transparency and prevent excessive interest rates. He also suggests that governments should cap interest rates. As a model, he refers to Grameen Bank, which reportedly relies solely on borrowers’ savings deposits to fund its lending [1].

About Muhammad Yunus: Dr Muhammad Yunus is a Bangladeshi banker, economist and Nobel Peace Prize recipient. As a professor of economics, he built on the concepts of microcredit and microfinance. Dr Yunus is also the founder of Grameen Bank, a Bangladeshi microfinance institution. In 2006, Dr Yunus and the bank were jointly awarded the Nobel Peace Prize. Dr Yunus himself has also received several other national and international honors and is a member of several organizations’ boards.

About Grameen Bank: Grameen Bank is a Bangladeshi microfinance institution that provides collateral-free loans to poor entrepreneurs in rural areas. It was founded in the late 1970’s by Muhammad Yunus, who, along with Grameen Bank, won the 2006 Nobel Peace Prize for his work in developing the concept of microfinance. As of February 2010, Grameen Bank reports 8 million borrowers, 97 percent of whom are women. With 2,563 branches, Grameen Bank provides services to 81,343 villages. Grameen Bank has the equivalent of USD 1.4 billion in assets as of 2009 as indicated on the Microfinance Information Exchange (MIX), the microfinance information clearinghouse.

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI), which was launched in 1998, that delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company, which converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Its equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. As of March 31, 2010, SKS Microfinance Private Limited reports to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, total assets of USD 897 million, a gross loan portfolio of USD 653 million, a return on assets of 4.96 percent, a return on equity of 21.56 percent and 5.79 million active borrowers.

By Diana Baide, Research Assistant

[1] The Daily Star. “Wrong turn for microcredit” by Muhammad Yunus, 9 January 2011

http://www.thedailystar.net/newDesign/news-details.php?nid=169263

MicroCapital’s Microfinance Universe profile: Muhammad Yunus

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MicroCapital’s Microfinance Universe profile: SKS Microfinance

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