K.N.Panikker
A new identity is being foisted on Hindus. The identity of Hindutva. Are Hindus being coerced to accept that identity, socially and culturally and indeed politically? Apparently, no society can be forced to own an externally induced identity. It has to emerge from within as a part of social dynamics. Yet, when ideas are implanted in social consciousness and nurtured through legitimising interventions, they do succeed in exercising a powerful influence in society. Hindutva is such an idea `invented' about 80 years ago, intellectually elaborated thereafter by several communal ideologues and recently given wide currency through state sponsorship, political support and socio-cultural mobilisation. Although alien to Hindu philosophical tenets and religious practices, Hindutva has gained legitimacy as a commonly shared heritage among a large section of Hindus. The implications of this development has pitch-forked Hindutva to the centre stage of contemporary Indian politics.
Hindutva and Hinduism
But then what is Hindutva? None of its contemporary advocates, including former Prime Minister Atal Bihari Vajpayee and his less imaginative colleagues in the Sangh Parivar, have spelt out its character and its constitutive elements. For good reasons. They are seeking to evolve an overarching political ideology to bring together the followers of a highly differentiated religious faith. Hindutva is, therefore, conceived as an undefinable quality inherent in the Hindu `race', which cannot be identified with anything specific in Hinduism. Hindutva, in the opinion of Vinayak Damodar Savarkar, the progenitor of the concept, "is so varied and so rich, so powerful and so subtle, so elusive and yet so vivid" that it defies all attempts at analysis. Therefore, he had stopped short of defining it; instead he only tried to underline its relationship with Hinduism. He had asserted: "Hinduism is only a derivative, a fraction, a part of Hindutva." He, however, argued that this distinction would help to consolidate the Hindu community: "Failure to distinguish between Hindutva and Hinduism has given rise to much misunderstanding and mutual suspicion between some of those sister communities that have inherited this inestimable and common treasure of our Hindu civilisation... It is enough to point out that Hindutva is not identical with what is vaguely indicated by the term Hinduism. By an `ism' it is generally meant a theory or a code more or less based on spiritual or religious dogma or system. But when we attempt to investigate into the essential significance of Hindutva, we do not primarily - and certainly not mainly - concern ourselves with any particular theocratic or religious dogma or creed... Hindutva embraces all the departments of thought and activity of the whole Being of our Hindu race." Despite the above distinction, the relationship between Hindutva and Hinduism is well marked even in Savarkar's scheme. Savarkar had argued that a Muslim or a Christian, even if born in India, could not claim to possess the qualities of Hindutva. The essentials of Hindutva, according to Savarkar, are "a common nation (rashtra), a common race (jati) and a common civilisation (sanskriti)".
Later Hindu ideologues such as M.S. Golwalkar elaborated this idea to exclude all non-Hindus from the ambit of the nation. Hindutva, therefore, serves as an ideological justification for the construction of India as a Hindu nation. The statement of the Prime Minister that the demolition of the Babri Masjid is an expression of national sentiment and his reluctance to condemn the Gujarat massacre unambiguously demonstrate his commitment to the political ideology of Hindutva. So does the Sangh Parivar's general view that the rath yatra of L.K. Advani, currently enacting a repeat performance, represents the resurgence of India as a nation. In the Hindu communal practice, therefore, the distinction between Hindutva and Hinduism has disappeared, which has helped the militant communal Hindu politics to command the support of unsuspecting Hindu believers. In the last few elections, this strategy has returned high dividends.
The next election is another test case as to whether Hindus can be coerced in the name of their faith to act against the basic tenets of their own religion. Despite the new slogans of development and statesmanship, Hindutva would continue to be an issue in the forthcoming elections. For the Sangh Parivar cannot ensure the support even of its ardent followers without feeding them with irrational politics. Such politics commands wider support when imbued with cultural content. The Sangh Parivar is fully alive to this mobilising potential of culture, which accounts for the foregrounding of cultural nationalism as central to its politics.
Cultural nationalism
The concept of cultural nationalism conceived and propagated by Hindutva is based on a misrepresentation of the nature of national identity. Nationalism, like democracy, is indivisible, with its constitutive elements - political, economic and cultural - intermeshed with each other. Privileging any one of these attributes tends to undermine the holistic character of nationalism. There is no denying the importance of culture in the make-up of national identity; yet culture alone does not mould the nationalism of any country. This was true of India as well where nationalism emerged and evolved as a part of anti-colonial consciousness. Culture was deeply implicated in this process of national reconstruction, both by trying to develop a national culture, which was distinct from the colonial and the traditional, as well as by invoking culture as a locus of resistance. Yet, the struggle for national culture during the anti-colonial period either remained an epi-phenomenon, or an instrument of political mobilisation. Therefore, the cultural question was not adequately addressed during the anti-colonial struggle and Hindutva has appropriated the space thus left open.
Hindutva's conception of nationalism is rooted in the primacy of culture over politics. The meaning attributed to culture by the ideologues of the Sangh Parivar and their cultural practices further qualifies the character of cultural nationalism. According to their interpretation, culture "is but a product of our all-comprehensive religion, a part of its body and not distinguishable from it". It naturally implies that the national culture is Hindu religious culture. Cultural nationalism is, therefore, a euphemism invoked in order to mask the creation of a state with Hindu religious identity. Such a character of the nation was clearly spelt out by Golwalkar: "In Hindustan, the land of the Hindus lives and should live the Hindu Nation... Consequently, only those movements are truly `National' as aim at rebuilding, revitalising, and emancipating from the present stupor, the Hindu Nation."
The contemporary advocates of cultural nationalism and the movements they lead are engaged in creating a nation in which the Hindu religious identity coincides with the cultural. This is attempted through intervention in culture rather than cultural intervention. The importance of this distinction is realised by the activists of the Hindutva who, as a result, constantly intervene in the actual cultural life of the people in order to transform it in a religious direction. As a part of this endeavour, the Sangh Parivar has set up cultural organisations in almost every conceivable area. They are constantly engaged in imparting a Hindu religious character to the quotidian cultural practices of the people. The secular forces, on the other hand, even at the face of the successful cultural advance of Hindutva, continue to be trapped in an instrumentalist view of culture and persist with their faith in the transformative power of cultural performance.
The multi-faceted cultural intervention of Hindutva is primarily intended to appropriate the cultural past as Hindu and to expropriate the `other' as anti-national. As a part of the former, a new Hindu cultural pantheon is being constructed. The icons of this pantheon goes back to the Indus Valley Civilisation, renamed now as Saraswati River civilisation, as a part of the attempt to impart to it a Hindu character. At any rate, the lineage of the Hindu nation is traced to the culture of the Vedic era and, though not yet firmly, to the Indus Valley. Identifying the roots of the Indian civilisational process to the achievements of the Harappan and the Vedic people is indeed unexceptionable. That, however, does not establish either its contemporary relevance or its being the sole source of national culture, as Hindutva seems to advocate. In doing so, the historical process, which has ushered in a fundamental transformation in social and cultural mores, is ignored. Nevertheless, it has admirably served its ends. It has given to the Hindu, culturally and psychologically ravaged by colonial subjugation, the knowledge of a credible and honourable cultural past. In the process, Hindutva has not only succeeded in creating a new, even aggressive, cultural confidence among Hindus, but at the same time cast itself as the defender and preserver of Indian heritage. Thereby Hindutva claims to represent the cultural interest of the Hindu `community' as a whole.
The success of Hindutva was its ability to implant its Hindu representative character in social consciousness. Through a series of social and cultural undertakings, initially at the grassroots level, such an impression was slowly but surely created. An interesting example is the movement for the renovation of village temples, which were in decay. The members of the Sangh Parivar positioning themselves in the forefront of this movement received the general approval and approbation of the Hindus of the locality. It was believed that they were acting not only to maintain a religious place of worship but also to preserve the cultural tradition. At a national plane, the Ram Janmabhoomi issue provided an unprecedented opportunity, which was used by celebrating Ram as a national icon and by undertaking the popularisation of symbols linked with him. The agitation centred around the temple, including the rath yatra of Advani, established Hindutva's claim to represent Hindus. The effort, however, goes on. Bhojshala in Madhya Pradesh and Baba Budangiri in Karnataka are the new sites invented to defend Hindu interests.
In order to realise this claim socially and culturally, the Sangh Parivar has adopted an aggressive policy of homogenising the diverse groups among Hindus. Many were taken by surprise when Dalits participated in the Gujarat pogrom or when Adivasis supported the Bharatiya Janata Party in the recently held elections to the State Assemblies. But it is not altogether surprising as the ideology of Hindutva has been at work among these groups for a long time in order to inculcate a Hindu identity in them. An indication of this change is the transformation in their worship pattern. Their traditional places of worship are being refashioned as Hindu temples and their modes of worship are being replaced by those of the Brahminical order. The Hinduisation thus taking place amounts to cultural denial and oppression. Yet, a large number of Dalits and Adivasis are attracted to the lure of sanskritisation, which is a major achievement of Hindu consolidation.
Appropriation of cultural tradition
A selective appropriation of cultural and intellectual traditions and their privileging through the intervention of innumerable organisations have lent credence to Hindutva's claim to represent Hindu interests. It is selective because it excludes those with non-Hindu affiliations. Even in the Hindu past only what is ideologically useful is invoked. The purpose of this appropriation is to inscribe on Hindutva the stamp of the authentic tradition of the nation. As a part of this endeavour, Hindu religious events have been turned into national cultural celebrations, even when they are alien to regional cultures or unknown to different sections of Hindus. Rakshabandhan and Ganapati festivals, for instance. Sponsored by the Sangh Parivar, they have now become public celebrations even in South India where they were earlier unknown.
The appropriation is not limited to cultural tradition alone; even political and intellectual leaders of the past are being turned into Hindu nationalist icons. Ancient and medieval rulers, even if they had followed the principles of secular governance, are claimed as Hindu. So are those who fought against colonial rule. Kerala Varma Pazhassi Raja, Velu Thampi, Nana Saheb and Kattabomman are being made into Hindutva's cult figures. Similarly, Hindu religious reformers of the 19th century, such as Dayananda Saraswati, Vivekananda and Aurobindo, who gave much importance to the universalist spirit in all religions, are celebrated as the progenitors of Hindu nationalism. But their ideas of inclusive nationalism are completely overlooked. Vivekananda, for instance, had argued that the union of Hindu and Islamic civilisations offered an ideal solution for India's regeneration. Aurobindo's concept of nationalism was riven with contradictions and at any rate he did not subscribe to a Hindu denominational nationalism in which the followers of other faiths had no place. Even Mahatma Gandhi and Bhagat Singh are in the process of being co-opted into the Hindutva fold!
At the same time, what is excluded from the nationalist tradition helps to reinforce Hindutva's religion-based concept of nationalism. Liberal and tolerant rulers such as Ashoka, Akbar, Jai Singh, Shahu Maharaj and Wajid Ali Shah do not figure in Hindutva's list of national heroes. Among those who revolted against the British, Bahadur Shah, Zinat Mahal, Maulavi Ahamadullah and General Bhakt Khan, are conspicuous by their absence. Even syncretic traditions such as the Bhakti movement are generally ignored. It is quite interesting that the advocates of religious universalism, including modernisers such as Rammohan Roy and Keshab Chandra Sen, do not figure in the Hindutva pantheon.
The selective appropriation is based on the premise that national regeneration and resurgence would require the recreation of an authentic culture by reclaiming the indigenous and purging the exogenous. Hindutva's cultural project, encoded in the slogan `nationalise and spiritualise', therefore, is twofold: First, to retrieve and disseminate the cultural traditions of the `golden' Hindu past; and second, to eliminate all accretions that had become part of the heritage. The educational policy as adumbrated by the BJP-led government is inspired by the first. The entire exercise of curriculum revision undertaken by government agencies during the last few years was mainly intended to achieve this end.
The involvement of the government, obsessive and lopsided, with the pursuit of Vedic knowledge is an obvious example. The government, it appears, is spending an enormous amount of money for research in Vedic studies, which in itself is not undesirable. But it is a different matter when undertaken to prove certain preconceived assumptions. It is reported that several science organisations funded by the government are scouting for scholars and institutions who would be willing to testify the golden age thesis. Such efforts are likely to create false notions about India's past.
The authentic cultural tradition Hindutva seeks to construct does not respect either the trajectory of its own historical evolution or the importance of external influences in its make-up. It, therefore, takes a static view of cultural tradition, ignoring its inherent dynamism. One of the consequences of this attitude is the intolerance of different interpretations and conflicting representations for which the Indian cultural tradition is justly famous. The plural cultural traditions, therefore, have been continuously under attack. Well-known examples are the vandalising of M.F. Hussain's paintings of Hindu goddesses, disruption of the shooting of Deepa Mehta's film, the campaign against the Malayalam writer Kamala Suraiya and the destruction of SAHMAT's exhibition on Ayodhya. The instances in which the Hindu cultural police has intervened, often in a violent and intimidatory manner, in defence of Hindu cultural tradition are far too many to cite. The denigration of secular historians, writers and journalists are also done with the same purpose.
These fairly orchestrated assaults are meant to silence any opposition to the communal colonisation of the cultural sphere. The legitimacy Hindutva has managed to garner is the most decisive development in contemporary Indian politics. A marginal force until about 10 years ago, it is now in a position to dictate the political and cultural agenda of the nation. Yet, the rise of Hindutva was neither sudden nor spontaneous. It owes much to the slow transformation in social consciousness as a result of sustained interventions in the cultural and religious life of the people. The decline of the Congress(I) and the inability of the Left to emerge as an alternative provided the space for Hinduva to imbue such interventions with a political content. It was compounded by the willing collaboration and cooperation of secular formations, particularly after the Emergency, which lent to Hindutva the legitimacy it lacked before. Hindutva thus succeeded in integrating politics with culture. Hence cultural nationalism is the real shining motif of Hindutva. Given its exclusivist character, however, cultural nationalism is anti-democratic and anti-national. The existence of India as a nation is possible only with the rejection of cultural nationalism.
K.N. Panikkar was formerly Vice-Chancellor of the Sri Sankara University of Sanskrit, Kalady, Kerala.
Source: countercurrents.org
Friday, April 18, 2008
Wednesday, April 2, 2008
Microcredit or Macrowelfare: The Myth of Grameen
For those who follow the zeitgeist — and the Nobel Prize committee seems always in the position of following rather than leading — the 2007 Peace Prize was no surprise. It went to one of the least-criticized men on the planet: Professor Muhammed Yunus and his Grameen Bank of Bangladesh.
Pundits left, right, and center appear to love him. His microcredit scheme seems to mix the best socialist ideals with free market means, and then the rhetoric alone carries the day.
The literature on Grameen is an echo chamber of hurrahs. Even the Nobel Committee didn't bother looking more deeply. Its press release provides 5 paragraphs of puff. Its link to other resources includes only one source: the Grameen Bank itself.
The uncritical attitude is especially strange given the extent to which pawn shops and payday lending — which, unlike Grameen, are genuine market institutions — in poor areas of the United States are hounded by the anticapitalist Left. Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?
The best fallout from the prize, then, will be a continued rethinking of the core assumptions behind microcredit of the Grameen model. A deeper look at this institution shows not a success but precisely the sort of flop you might expect from a government-subsidized program that is predicated on the view that money alone is the answer to poverty.
So let's look deeper. Aside from my own piece in 1995, the Grameen public relations edifice has been cracking for years. In 2001, the Wall Street Journal's Daniel Pearl and Michael Phillips revealed that the repayment rate of their loans isn't anywhere near what the bank claims, that at least one quarter of its loans were being used for consumption, that the bank delays defaults and hides problem loans, that the bank isn't subject to any kind of serious supervision, public or private. The government owns 6% of its assets, while the rest is only superficially owned by borrowers who cannot sell or trade their stock.
The impact on the target population has not been stellar. Sudhirendar Sharma of New Delhi writes that "the effect of the Grameen strategy has not been to reduce poverty but only to create a debt trap for borrowers, who are being charged very high rates of interest relative to conventional banks. The oft-repeated stories of how microcredit has helped a rural woman buy a buffalo, or how a poor woman now owns a telephone kiosk, cannot be replicated in meaningful numbers. Conversely, at the cost of the poor, a large number of NGOs have benefited; banks have found a convenient route to increased lendings; and corporations have got a growing consumer market to target."
Grameen is not alone in the microcredit movement. As pointed out by Jonathan Morduch in the Journal of Economic Literature (December 1999, pp. 1569-1614), "most programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors. Moreover, the programs that are breaking even financially are not those celebrated for serving the poorest clients. ...poverty-focused programs..cover only about 70 percent of their full costs."
Further, "even established programs like the Grameen Bank would have trouble making ends meet without ongoing subsidies." In answer to the question of whether Grameen is financially sustainable, the author says "no." If Grameen had been a market institution, it would have suffered $34 million in losses between 1985 and 1996, or it would have had to raise its loan rates to well above 50%.
As helpful as the data are, market logic alone is enough to reveal the problem. Consider the absurd claims that we are being asked to believe.
We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?
Even if we can accept that he had some sort of entrepreneurial insight that no one else had, Grameen has been giving loans to poor women for thirty years. Are we really supposed to believe that conventional bankers were so stupid as not to spot this opportunity even after decades of demonstration? Yunus says that he discovered that the poor are "bankable" but if this were true in the way that he says, others would have discovered the same profit opportunities and done it without help from government.
Actually, Grameen is not really free enterprise at all. Yunus's first pile of cash came from the United Nations. Then he went to the Bangladesh government. Then he went to US foundations. In the 1980s and '90s, the bank received nearly $150 million in grants. At the same time, he started borrowing at low interest rates from governments around the world, and lending out the same money at higher rates. His institution keeps the difference.
Those who uncritically celebrate microcredit seem unaware of the actual debates within the microcredit community. As Connie Bruck explains, the dominant issue right now is how best to build institutions that are genuinely market viable as verses subsidy dependent. Until very recently and with only few exceptions, microbanking has been commerce in name only.
The Grameen Bank says it no longer accepts outright grants — the grant money goes to a dozen or so spin-off "enterprises" — but it still borrows low and sells high, and since its books are under wraps and its stockholders are that in name only, we'll never know for sure. But this much we do know from its recent history. The Grameen "foundation" received 1.5 million from Bill and Melinda Gates just a few months ago. Meanwhile, George Soros has given some $12 million plus to all sorts of Grameen spin-offs, including gifts to expand "banking" in other countries. (The latest detailed financial analysis, which looks grim, excludes these massive grants)
Since Yunus and Grameen won the prize, many institutions have rushed forward to take credit for the success, by virtue of their vast giving. Here is a small sample of other grant announcements: 1, 2, 3, 4, 5, 6, 7, 8.
Let us now turn to the peculiar features of Grameen, and, in particularly, its repayment tactics. The bank assembles peer groups to lean on delinquent borrowers, and makes political-mental reconstruction a condition of the loans, which are often being taken out to repay previous loans and so on. Yunus's "Sixteen Decisions" that must be adopted by all borrowers read like a party platform for collectivist regimentation.
"We shall take part in all social activities collectively."
"We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus."
"We shall build and use pit-latrines."
"If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline."
A very strange bank indeed!
And why would economists — and sophisticated free market economists, of all people (examples: 1, 2, 3, 4) — fall for the line that more debt can somehow save the world? More much sensible is Vijay Mahajan, the chief of Basix, who reports to the Guardian that Grameen's tactics suffer from five fatal assumptions.
First is the idea that poor should be self-employed rather than work for wages. That is contrary to the whole history of successful economic development.
Second is the idea that loans are the main financial service needed by the poor, whereas they really need savings and insurance.
Third is the idea that credit is what builds enterprise, whereas the truth is that entrepreneurship and management are more important.
Fourth is the idea that the non-poor don't need credit, whereas the truth is revealed in market-based banking: higher incomes can handle higher debt.
Fifth is the idea that microcredit institutions can become self-sustaining, whereas all experience shows that new enterprises in poor areas that are built on credit alone rarely emerge from dependency.
For years, I've received notes from financial professionals in Bangladesh that have thanked me for writing about this institution, which has made their lives very difficult.
But I thought it might be useful to share these recent additions to my pile of correspondence:
Your article on Grameen system is informative and thought provoking. I fully agree with you that the Grameen success stories are nothing but over blown claims supported by tricky financial arithmetic. As a Bangalee, I am delighted that Dr. Yunus won the Nobel peace prize. Any one should feel proud when another person of his country gets a Nobel. But I also reflect that now the whole Grameen operation will come under intense international scrutiny. I am sure that they will come to the same conclusions as you did.
Dr. Yunus founded so far 17 companies. Except for Grameen Phones, all flopped. How did he manage to fund these projects? Is it the Grameen Bank that funds his 'innovative ideas'. Perhaps we will never know, for Grameen Bank never publishes its audited annual balance sheets. Every other commercial banks in this country does that and it's mandatory. Grameen Bank does not pay any corporate tax which is about 20%. Other commercial banks have to pay the taxes.
Last year Grameen Phone made US$450 million profit (that's what I read in the newspaper). Out of these profit, TeleNor which owns 62% share took the profit and transferred it as US dollar. Who provided the hard currency? The poor Bangalee labourers who toil in Middle east like slaves. They send the dollars earned as their wage. These labourers, like the Grameen women are from deep rural areas where there is no electricity. In fact there are more than 70% households (mostly in the rural areas) where electricity is not available. How do these people use the mobile phone? They don't. Because they can not re-charge their mobile phone battery. Yet, Dr. Yunus is jetting around the world to tell that the Grameen phone has revolutionized the countryside. This is a massive fraudulent act involving millions of truly poor people who are incapable of getting beyond the razzle dazzle economic talk Dr. Yunus is making.
The western enthusiasm over Dr. Yunus verging on madness should now end. We should not be taken in by a fast talking economist whose life-long objective has been to be a player in the international arena. And he found out fast, that the all pervading poverty in this country could be used profitably to gain international attention and perhaps appreciation. … Whenever, I see this guy on the TV, I feel the presence of a very sleek salesman who target group is rich and powerful in the west who are apparently on a guilt trip over the poverty in third world countries.
The poverty problem in Bangladesh and many other countries are truly frightening and it has deep rooted causes. We should evaluate other models where a nation came out of poverty and fulfilled their basic human needs. …
And another concerning the Sixteen Decisions:
My daughter did an internship with Yunus/Grameen while she was doing her under graduate studies in the late 90's, and came back with both admiring and critical position on their works…. She did have some concerns as you also mention mainly in the pushy privacy violation aspects. As a gifted observer with US upbringing and heightened respect for the universally prevalent, taken-for-granted individual rights, it was hard for her to not notice the harsh big brotherism. She privately told me of some troubling aspects.
How real banks workThe real problem in Bangladesh is not its lack of personal indebtedness but instead is revealed in the account in the Index of Economic Freedom. Its government's bad economic policies include huge barriers to trade, vast amounts of state-owned enterprise, unionization, heavy taxes on foreign investment, a high tax burden, and some of the world's worst political violence and official corruption.
The irony of it all is that Bangladesh is making economic progress in its export sector for fish and clothing. There is no mention of Grameen's contribution to its 5% rate of economic growth in any reliable source.
The best that Professor Yunus could do to help his country would be to use his now-considerable credibility to push for a freer market through radical privatization and free trade. And it is true that he has pushed a bit for halfway privatization in health care. But in general, he has a stake in keeping the status quo just as it is. In the meantime, there is really no excuse for serious analysts of the Grameen experience to pretend as if money alone is going to save the country.
Courtesy:Jeffrey A. Tucker,Ludwig von Mises Institute
Pundits left, right, and center appear to love him. His microcredit scheme seems to mix the best socialist ideals with free market means, and then the rhetoric alone carries the day.
The literature on Grameen is an echo chamber of hurrahs. Even the Nobel Committee didn't bother looking more deeply. Its press release provides 5 paragraphs of puff. Its link to other resources includes only one source: the Grameen Bank itself.
The uncritical attitude is especially strange given the extent to which pawn shops and payday lending — which, unlike Grameen, are genuine market institutions — in poor areas of the United States are hounded by the anticapitalist Left. Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?
The best fallout from the prize, then, will be a continued rethinking of the core assumptions behind microcredit of the Grameen model. A deeper look at this institution shows not a success but precisely the sort of flop you might expect from a government-subsidized program that is predicated on the view that money alone is the answer to poverty.
So let's look deeper. Aside from my own piece in 1995, the Grameen public relations edifice has been cracking for years. In 2001, the Wall Street Journal's Daniel Pearl and Michael Phillips revealed that the repayment rate of their loans isn't anywhere near what the bank claims, that at least one quarter of its loans were being used for consumption, that the bank delays defaults and hides problem loans, that the bank isn't subject to any kind of serious supervision, public or private. The government owns 6% of its assets, while the rest is only superficially owned by borrowers who cannot sell or trade their stock.
The impact on the target population has not been stellar. Sudhirendar Sharma of New Delhi writes that "the effect of the Grameen strategy has not been to reduce poverty but only to create a debt trap for borrowers, who are being charged very high rates of interest relative to conventional banks. The oft-repeated stories of how microcredit has helped a rural woman buy a buffalo, or how a poor woman now owns a telephone kiosk, cannot be replicated in meaningful numbers. Conversely, at the cost of the poor, a large number of NGOs have benefited; banks have found a convenient route to increased lendings; and corporations have got a growing consumer market to target."
Grameen is not alone in the microcredit movement. As pointed out by Jonathan Morduch in the Journal of Economic Literature (December 1999, pp. 1569-1614), "most programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors. Moreover, the programs that are breaking even financially are not those celebrated for serving the poorest clients. ...poverty-focused programs..cover only about 70 percent of their full costs."
Further, "even established programs like the Grameen Bank would have trouble making ends meet without ongoing subsidies." In answer to the question of whether Grameen is financially sustainable, the author says "no." If Grameen had been a market institution, it would have suffered $34 million in losses between 1985 and 1996, or it would have had to raise its loan rates to well above 50%.
As helpful as the data are, market logic alone is enough to reveal the problem. Consider the absurd claims that we are being asked to believe.
We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?
Even if we can accept that he had some sort of entrepreneurial insight that no one else had, Grameen has been giving loans to poor women for thirty years. Are we really supposed to believe that conventional bankers were so stupid as not to spot this opportunity even after decades of demonstration? Yunus says that he discovered that the poor are "bankable" but if this were true in the way that he says, others would have discovered the same profit opportunities and done it without help from government.
Actually, Grameen is not really free enterprise at all. Yunus's first pile of cash came from the United Nations. Then he went to the Bangladesh government. Then he went to US foundations. In the 1980s and '90s, the bank received nearly $150 million in grants. At the same time, he started borrowing at low interest rates from governments around the world, and lending out the same money at higher rates. His institution keeps the difference.
Those who uncritically celebrate microcredit seem unaware of the actual debates within the microcredit community. As Connie Bruck explains, the dominant issue right now is how best to build institutions that are genuinely market viable as verses subsidy dependent. Until very recently and with only few exceptions, microbanking has been commerce in name only.
The Grameen Bank says it no longer accepts outright grants — the grant money goes to a dozen or so spin-off "enterprises" — but it still borrows low and sells high, and since its books are under wraps and its stockholders are that in name only, we'll never know for sure. But this much we do know from its recent history. The Grameen "foundation" received 1.5 million from Bill and Melinda Gates just a few months ago. Meanwhile, George Soros has given some $12 million plus to all sorts of Grameen spin-offs, including gifts to expand "banking" in other countries. (The latest detailed financial analysis, which looks grim, excludes these massive grants)
Since Yunus and Grameen won the prize, many institutions have rushed forward to take credit for the success, by virtue of their vast giving. Here is a small sample of other grant announcements: 1, 2, 3, 4, 5, 6, 7, 8.
Let us now turn to the peculiar features of Grameen, and, in particularly, its repayment tactics. The bank assembles peer groups to lean on delinquent borrowers, and makes political-mental reconstruction a condition of the loans, which are often being taken out to repay previous loans and so on. Yunus's "Sixteen Decisions" that must be adopted by all borrowers read like a party platform for collectivist regimentation.
"We shall take part in all social activities collectively."
"We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus."
"We shall build and use pit-latrines."
"If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline."
A very strange bank indeed!
And why would economists — and sophisticated free market economists, of all people (examples: 1, 2, 3, 4) — fall for the line that more debt can somehow save the world? More much sensible is Vijay Mahajan, the chief of Basix, who reports to the Guardian that Grameen's tactics suffer from five fatal assumptions.
First is the idea that poor should be self-employed rather than work for wages. That is contrary to the whole history of successful economic development.
Second is the idea that loans are the main financial service needed by the poor, whereas they really need savings and insurance.
Third is the idea that credit is what builds enterprise, whereas the truth is that entrepreneurship and management are more important.
Fourth is the idea that the non-poor don't need credit, whereas the truth is revealed in market-based banking: higher incomes can handle higher debt.
Fifth is the idea that microcredit institutions can become self-sustaining, whereas all experience shows that new enterprises in poor areas that are built on credit alone rarely emerge from dependency.
For years, I've received notes from financial professionals in Bangladesh that have thanked me for writing about this institution, which has made their lives very difficult.
But I thought it might be useful to share these recent additions to my pile of correspondence:
Your article on Grameen system is informative and thought provoking. I fully agree with you that the Grameen success stories are nothing but over blown claims supported by tricky financial arithmetic. As a Bangalee, I am delighted that Dr. Yunus won the Nobel peace prize. Any one should feel proud when another person of his country gets a Nobel. But I also reflect that now the whole Grameen operation will come under intense international scrutiny. I am sure that they will come to the same conclusions as you did.
Dr. Yunus founded so far 17 companies. Except for Grameen Phones, all flopped. How did he manage to fund these projects? Is it the Grameen Bank that funds his 'innovative ideas'. Perhaps we will never know, for Grameen Bank never publishes its audited annual balance sheets. Every other commercial banks in this country does that and it's mandatory. Grameen Bank does not pay any corporate tax which is about 20%. Other commercial banks have to pay the taxes.
Last year Grameen Phone made US$450 million profit (that's what I read in the newspaper). Out of these profit, TeleNor which owns 62% share took the profit and transferred it as US dollar. Who provided the hard currency? The poor Bangalee labourers who toil in Middle east like slaves. They send the dollars earned as their wage. These labourers, like the Grameen women are from deep rural areas where there is no electricity. In fact there are more than 70% households (mostly in the rural areas) where electricity is not available. How do these people use the mobile phone? They don't. Because they can not re-charge their mobile phone battery. Yet, Dr. Yunus is jetting around the world to tell that the Grameen phone has revolutionized the countryside. This is a massive fraudulent act involving millions of truly poor people who are incapable of getting beyond the razzle dazzle economic talk Dr. Yunus is making.
The western enthusiasm over Dr. Yunus verging on madness should now end. We should not be taken in by a fast talking economist whose life-long objective has been to be a player in the international arena. And he found out fast, that the all pervading poverty in this country could be used profitably to gain international attention and perhaps appreciation. … Whenever, I see this guy on the TV, I feel the presence of a very sleek salesman who target group is rich and powerful in the west who are apparently on a guilt trip over the poverty in third world countries.
The poverty problem in Bangladesh and many other countries are truly frightening and it has deep rooted causes. We should evaluate other models where a nation came out of poverty and fulfilled their basic human needs. …
And another concerning the Sixteen Decisions:
My daughter did an internship with Yunus/Grameen while she was doing her under graduate studies in the late 90's, and came back with both admiring and critical position on their works…. She did have some concerns as you also mention mainly in the pushy privacy violation aspects. As a gifted observer with US upbringing and heightened respect for the universally prevalent, taken-for-granted individual rights, it was hard for her to not notice the harsh big brotherism. She privately told me of some troubling aspects.
How real banks workThe real problem in Bangladesh is not its lack of personal indebtedness but instead is revealed in the account in the Index of Economic Freedom. Its government's bad economic policies include huge barriers to trade, vast amounts of state-owned enterprise, unionization, heavy taxes on foreign investment, a high tax burden, and some of the world's worst political violence and official corruption.
The irony of it all is that Bangladesh is making economic progress in its export sector for fish and clothing. There is no mention of Grameen's contribution to its 5% rate of economic growth in any reliable source.
The best that Professor Yunus could do to help his country would be to use his now-considerable credibility to push for a freer market through radical privatization and free trade. And it is true that he has pushed a bit for halfway privatization in health care. But in general, he has a stake in keeping the status quo just as it is. In the meantime, there is really no excuse for serious analysts of the Grameen experience to pretend as if money alone is going to save the country.
Courtesy:Jeffrey A. Tucker,Ludwig von Mises Institute
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