Grameen Bank Heist and Burma Debt - David Roodman

Our Wonkcast this week covers two separate topics and two international figures recently in the news. First, Muhammad Yunus is considered the father of microfinance as the founder of Grameen Bank. Why then has he been removed from his post? What does it mean for the future of Grameen? Following up, we discuss another Nobel peace prize winner, Aung San Suu Kyi, and the future of Burmese debt.My guest this week is CGD senior fellow David Roodman. David is the author of the Microfinance Open Book Blog and a recently published CGD book Due Diligence: An Impertinent Inquiry into Microfinance.I ask him to remind me and my listeners of the oft-told story of how and why Yunus founded the Grameen Bank and then explain why the prime minister of Bangladesh has essentially taken over the bank, pushing Yunus out of the picture (for more on this, see David’s recent blog posts here and here).David recalls: In 1976, Yunus was teaching economics in Bangladesh when he met a woman who made stools in a nearby village. She wove the stools from supplies purchased in the morning and sold the finished product back to her supplier at day’s end. Yet she made only 50 cents a day for her labor. Yunus recognized the debt servitude that she faced and identified 27 others in the same village who could benefit from lower-interest loans. He lent out money on the spot. That was the beginning of a set of experiments that led to Grameen Bank.So why is Yunus now in trouble? Over a year ago he was forced from his position as director of Grameen Bank by the government of Bangladeshi Prime Minister Sheikh Hasina. The trigger of this feud, David tells me, was the arrival of a muck-raking documentary on microfinance fingering Yunus and Grameen.“The prime minister pounced, implied that Yunus was a blood-sucking moneylender, and began a campaign to have him removed from Grameen Bank,” David says.Why take such drastic action? According to David, several years ago the military took control of Bangladesh and threw Sheikh Hasina and her rival in jail. In their absence Yunus tried to start a political party, and when Hasina got out of jail and won the next election she remembered that potential threat.This August 23^rd, a new ordinance was passed that gives the government control over the choice of Muhammad Yunus’ successor. “It's the next step in the story of the Bangladesh government's attempts to take over the Grameen Bank,” Roodman explains. The Grameen board, whose members are mostly elected by female borrowers, has been superseded. Yunus has called the event a “black day in the nation’s history.”"This is his life's great work…it was a democratic institution. It was governed by its members. And as of August 23rd, it's not," David says sadly.Why is the government so bent on taking over Grameen? Is it just to remove Yunus or to use Grameen Bank as a tool? Roodman worries that the government may attempt to use Grameen for political ends, for example, extending blanket loan forgiveness ahead of elections. The government may also be eyeing about $1 billion in stock in Grameen’s other enterprises, particularly Grameenphone.At the end of the broadcast we turn to a topic on which David has recently been studying: the state of Burmese debt. Burma owes roughly $11 billion, most of which is in default. Burma’s recent political liberalization has raised the question of whether the country, among the poorest in the world, should be eligible for debt relief of the type extended to other poor, heavily indebted countries.“To my surprise I didn't come to the conclusion that we should cancel much of this debt,” David says. “The reason is that compared to the size of the economy, revenue and so on, the amount that Burma has to service the debt is relatively small. It doesn't have a large debt burden.” (For more on David’s work on this issue, see here).“I was struck by the comparison you can make between the debt situation and the economic sanctions that the US has put on Burma because of the repressive nature of the government,” he says. “Aung San Suu Kyi recently endorsed the US decision not to eliminate the sanctions, but to suspend them. Similarly, I think the solution is to reschedule the debt. If reforms proceed at a healthy pace, then we can revisit the decision to cancel the debt.”My thanks to Anna Sosdian for a draft of this blog post and to Alexandra Gordon for production assistance on the Wonkcast recording.