Dr Muhammad Yunus, the founder of Bangladeshi microfinance institution (MFI) Grameen Bank, recently argued that the Arab world has “misinterpreted the system’s true principles” by operating it as a “charity affair” . Dr Yunus explains that this is because Arab microfinance organizations are not legally permitted to function as financial institutions, forcing them to use traditional banks as an intermediary to disburse loans.
Dr Yunus offers two policy suggestions to improve the situation: lawmakers should pass laws that allow microlenders to function independently of banks; and governments should create microfinance regulatory authorities that would set norms for interest rates and service quality. Conceding that microfinance is not a “silver bullet,” Dr Yunus proposed the analogy that microfinance is a powerful tool for reducing poverty and unemployment just as information technology has been a key driving force in the recent Arab uprisings.
By Nisha Koul, Research Associate
About Grameen Bank: Grameen Bank is a Bangladeshi microfinance institution that provides loans to poor entrepreneurs in rural areas. It was founded in 1976 by Dr Muhammad Yunus, who, along with Grameen Bank, won the 2006 Nobel Peace Prize for his work in developing the concept of microfinance. As of December 31, 2010, Grameen Bank reported to the US-based nonprofit Microfinance Information Exchange total assets of USD 1.7 billion, a gross loan portfolio of USD 939 million, return on assets (ROA) of 0.7 percent, return on equity (ROE) of 10.7 percent and 8.34 million active borrowers.
Sources and Additional Resources:
 The Daily Star, “Arab Microfinancing Missing Expectations,” http://www.dailystar.com.lb/Business/Middle-East/2011/Sep-05/147878-arab-microfinancing-missing-expectations.ashx
MicroCapital.org story, September 8, 2011, “MICROCAPITAL BRIEF: Dr Muhammad Yunus Advises Nigeria’s Microfinance Banks to “Look At Conventional Banking And Do It the Opposite Way,”” https://www.microcapital.org/microcapital-brief-dr-muhammad-yunus-advises-nigeria%E2%80%99s-microfinance-banks-to-%E2%80%9Clook-at-conventional-banking-and-do-it-the-opposite-way%E2%80%9D/
MicroCapital.org story, April 26, 2011, “MICROCAPITAL BRIEF: CGAP (Consultative Group to Assist the Poor) Microfinance Blog Explores Effects of Arab Upheaval on Microfinance Institutions (MFIs),” https://www.microcapital.org/microcapital-brief-cgap-consultative-group-to-assist-the-poor-microfinance-blog-explores-effects-of-arab-upheaval-on-microfinance-institutions-mfis/
MicroCapital Universe Profile: Grameen Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Bank
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