For whom the Nobel tolls (a real one)

Some econo-bloggers have been having fun with the fact that Muhammad Yunus, founder of the Grameen Bank and father of micro-credit, won the Nobel Peace Prize. Yunus, an economist who would not be shortlisted for the (kind of) Nobel Prize in Economics, wins a real one instead.

I saw Yunus speak in Ottawa over ten years ago, and he was amazing. Back then microcredit was new and hip – and held the potential of being a profound transformative tool. Today, it has become a fairly mainstream thing.
Tyler Cowen has some good links related to Grameen and microcredit here.

The Globe’s story comments:

… Yesterday, Mr. Yunus and the Grameen Bank he founded were awarded the Nobel Peace Prize for establishing a “microcredit” system enabling some of the world’s neediest people to establish small businesses through small, non-collateral loans. The average loan is about $200 (U.S.).

Back in 1974, not long after returning from doctoral studies in the United States, Mr. Yunus surveyed other villagers and found many, like the bamboo weaver, who were also indebted to loan sharks.

He decided to dig into his own pocket and lend the villagers money — paying him back whenever they could — so they could buy their own weaving supplies and “liberate themselves.”

The idea led to the creation of the Grameen Bank in 1983. Today, it is the largest rural bank in Bangladesh with millions of borrowers, most of them women.

In awarding a prize more usually given to those pursuing peace in the world’s trouble spots or fighting for human rights, the Norwegian Nobel committee specifically linked peace to reducing poverty.

… [T]he concept has been copied widely, the Nobel committee noted, saying Mr. Yunus and the bank became “a source of ideas and models for the many institutions in the field of microcredit that have sprung up around the world.”The World Bank estimates that there are now more than 7,000 microfinancing institutions serving 16 million people.

A reality check is then offered:

Ample anecdotal evidence suggests tiny loans, along with financial training, have hoisted many out of poverty. Despite that, the precise benefits of microcredit are still hazy, several experts said.

“I am a great admirer of Professor Yunus — he is a brave, generous and brilliant man who’s done lots of things that needed to be done,” said Abhijit Banerjee, a development economist at the Massachusetts Institute of Technology, referring to yesterday’s Nobel Peace Prize winner, Muhammad Yunus. “But being where I am situated in the intellectual domain, I can’t possibly say there is evidence that [microcredit] actually works.”

That’s not to say that it doesn’t work. It just means more thorough research may be needed. Mr. Banerjee, who hopes to get more results next year from a study he’s conducting in Hyderabad, India, believes it works but says the evidence so far has been “patchy.”

There are “a lot of very plausible theories which make it highly likely that in some version it does work,” he said. “But to go from there and say that there actually is demonstrated evidence that it works is a stretch.”

That’s because it’s hard to compare someone with a loan with someone without a loan. People who tend to take the loans do so voluntarily, meaning they’re probably already more motivated to claw themselves out of poverty, he said.

2 comments

  • I need an economist agony aunt.

    I find the Grameen Bank to be inspirational. I see its model as being on the side of the poor, and hence I am happy to claim it as being left wing. But then I open the Globe and Mail this morning and there is Preston Manning, extolling the virtues of microcredit – and he’s not the only one I’ve seen. My head is spinning.

    So, agony aunt, are Grameen Bank and other microcredit institutions left-wing or right-wing? And if so why?

    – disoriented in Waterloo

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