Bhagwati on Grameen and SEWA

Jagdish Bhagwati questions the basic development premise of microfinance through comparing Grameen and SEWA – comparing the alternate models for providing financial services for the poor:

…Throughout its existence, SEWA has been regulated by India’s central bank, the Reserve Bank of India, staying strictly within the law and seeking no special dispensations. Unlike the Grameen Bank, it has received no foreign money (such as the grant of $100 million from Norway, the handling of which led to the initial charges of malfeasance against Yunus), and it has distributed dividends of 9-12% annually each year since its founding…

…Ela Bhatt’s SEWA adds to the huge benefits to the poor and underprivileged that a reformed macroeconomic policy framework has brought to India. By contrast, Yunus’s Grameen Bank puts at best a microeconomic finger in the leaky dyke of Bangladesh’s largely unreformed macroeconomic policies. Can we hope that the Grameen affair will be a prelude to the fight for the liberal reforms that will transform the Bangladeshi economy? 

Bhagwati makes other points as well – but its the last, that seems to be the dominant thread. He of course thinks microfinance is not a viable engine for economic development; but more importantly, highlights the need for broader macro-economic change that only governments can bring. While the jury is out on whether microfinance benefits the poor or not, the general point of government-led reform is an important one. I don’t necessarily agree with his displeasure with Yunus for keeping Grameen outside the system through a mixture of foreign aid and political neutrality. And I definitely do not agree with the suggestion that Bangladesh can grow only through ‘liberal reforms’ – but that’s Bhagwati for you!

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