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Microfinance

Microfinance wins the 2006 Nobel Peace Prize

Q. What is more dangerous than a celebrity with a cause?

A. A celebrity with a cause and a nobel peace prize (see reason 34 for why).

Thank god then that the the 2006 Nobel Peace Prize was awarded to Muhammad Yunus and his Grameen Bank – someone that actually deserved it, not someone that was simply a savvy marketeer.

This is an excellent choice, and the Nobel Committee must be congratulated for its imagination in making the link between poverty and peace. For prosperity is a necessary, if not sufficient, condition for peace. As the Committee said:

Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty.

Even as it validates the importance of inclusive development, the decision also trashes Geldof’s simplistic and patronizing idea that more money by countries that otherwise participate in a twisted international system, will solve global poverty.

Yunus’ work shows that just the opposite is true. That solutions to poverty are complex, at best, and must fit the situation. Even microfinance, hailed globally as a solution that works, works differently in different regions and even fails in certain communities.

There are other problems with microfinance. And as with all ideas that become holy grail in the west, the presumed success of microfinance has a downside. It prevents a true evaluation of the impact of this model. It also prevents us from questioning if the problem is a lack of finance, or something more fundamental. Most of all, it is ironic, unfortunate, and dangerous that ‘civil society’ proponents of microfinance take its apparent success to validate a simplistic solution to a complex problem.

In the aftermath of the decision, Yunus is being hailed as ‘the banker of the poor’. There is truth to that characterization, but his contribution is simpler, and more fundamental than banking.

He has shown that the lack of formal laws is not an impediment to market transactions. Instead, he has proven that existing informal social rules can very effectively fill in for such formal laws in poor communities.

The implications of his work are therefore much wider than banking. The lack of laws has prevented market players from engaging with poor communities. However, by expanding what constitutes ‘laws’ and ‘rules’ in market transactions, and elevating the idea to the international stage, he allowed the idea to be adopted by anyone with a modicum of imagination.

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Discussion

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  1. Hi Dweep–

    i don’t know how i found your blog exactly– i was mining around the web and I stumbled on it…I think i was reading other blogs on Yunus winning the Peace Prize and one linked to yours! Pure accident! Anyway thanks for the comment! It’s always nice to be read, right? :-) Oh and the research idea will evolve, trust me. Your comments, critiques, caveats are always welcome.

    Keep in touch. I’ll check back– you have some thought-provoking stuff on your site. Thanks for the great reads! -Gen

    Posted by Genevieve | October 14, 2006, 12:18 am
  2. Microfinance can definitely help in reducing inequalities and the award has been bestowed to the right person for a great contribution.

    Posted by Alex M Thomas | October 16, 2006, 5:35 pm
  3. At the risk of making myself unpopular: I find the choice of Yunus for the Nobel Peace prize a little confusing. No doubt, Yunus has made a remarkable contribution to poverty alleviation and development, both directly and through the philosophy that he has but into practice.

    But is this the most significant contribution to peace that world could come up with? The link between poverty and war is there, but I would claim that it is much stronger, the other way around (that war causes poverty). Poverty is a problem that should be everyone’s concern, because it is a problem in its own right. But to claim that Yunus’ work is one of the most important contributions to world PEACE, is a bit of a stretch, and a misrepresentation of what the man stands for.

    Posted by Maurice | October 17, 2006, 8:28 am
  4. [...] These cases show the way, if large formal businesses are to turn the BoP from a potential to a real market. It is also interesting to note that two of the three cases copy the microfinance business model to solve that problem. As I had noted previously, Yunus’ contribution – for which he deserves real credit – was not so much towards poverty alleviation, but rather in his proving that business can flourish without formal laws. [...]

    Posted by Formal Business through Informal Means: Targeting the BoP - The Discomfort Zone | November 29, 2006, 9:52 am
  5. [...] When the Nobel Prize was announced, I had suggested that the true contribution of Yunus was to prove that social norms can replace commercial contracts, in order to reach the poor. This is still true, but that does not imply that microfinance is the only, or even the best way to organize social groups to address the lack of market rules. [...]

    Posted by Microfinance: Not a Development Tool, Then What? - The Discomfort Zone | January 1, 2007, 8:20 am
  6. [...] peace. Never mind that the link between microfinance and poverty alleviation is tenous at best, I cheered nonetheless because Yunus has made other significant contributions, not least of which is to prove [...]

    Posted by Al Gore Does Not Deserve the Nobel Peace Prize at The Discomfort Zone | October 12, 2007, 1:18 pm
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