April 11th, 2011

Professor Mohammed Yunus, founder of the microfinance Grameen Bank in Bangladesh, has just been evicted from managing it by the government. The pretext is that he is too old and should have retired ten years ago at 60. Pretty obviously, this is simply a pretext: it’s an act of revenge by the government.of Sheikh Hasina for Yunus’ ill-advised entry into politics in 2007, when he set up his own political party soon after winning the Nobel Peace prize. By the standards of Bangladeshi politics he got off lightly; politicians there, including Hasina, are regularly charged with murder (here and here).

Yunus is a great man and thoroughly deserves the Nobel awarded jointly to him and the institution he founded. His major insight was an economic discovery: the very poor – and particularly poor women – are at least as honest as the conventionally creditworthy, and conventional collateral can be replaced by community social pressures (if you don’t repay, your neighbours won’t get loans). Carefully designed, a portfolio of microloans to the very poor is just as safe as conservative conventional banking, and much safer than the Liars’ Poker sort. The institutional model of microlending Yunus created has since been replicated in a variety of settings, including rich countries like Britain. A startup loan from the British Princes’ Trust is more likely to be £4,000 for a second-hand van than Grameen’s £40 for a wheelbarrow or a mobile phone for renting, but the principle is the same.

But why did it have to be the peace prize not the economics one? Ah, you and you get the economics prize for proving that if you start with ridiculous microeconomic assumptions about human behaviour, you can rigorously and elegantly deduce ridiculous conclusions without looking out of the window.

Isaiah Berlin turned a lapidary phrase of Archilochus’ – “the fox knows many little things, but the hedgehog knows one big thing” – into a sparkling dichotomy of types of intellectuals. Yunus is a paradigm hedgehog. His Big Idea was true and he turned it into massive good. Even if Bangadeshi politicians now trash the great institution he built, he will be remembered, and his insight will keep lifting millions out of misery, long after his mean-spirited enemies slide into well-deserved obscurity.
Picture credit: National Geographic

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