"Did Yunus Deserve the Nobel Peace Prize: Microfinance or Macrofarce?"
Adams, John, Raymond, Frank, Journal of Economic Issues
In October 2006, Muhammad Yunus, a Bangladeshi economist trained at Vanderbilt, won the Nobel Peace Prize, which was shared with the Grameen Bank, the microcredit facility he conceived and founded in 1976. Grameen's chief aims are to alleviate poverty among the poorest families and to focus on women's incomes and empowerment. Initial loans are tiny, usually $100 or less, but depending on the practices of a given institution they can escalate. Yunus's key innovation was to create loan circles, usually of five women, in which members used social suasion to ensure high repayment rates and sustain the group's creditworthiness. This institutional structure helps resolve a number of information, incentive, and enforcement dilemmas that plague small banks catering to a large number of poor clients who lack credit histories. Almost all poor countries, and a few rich ones, now have Grameen clones. In total, billions of dollars of grants and credits have been poured into the Yunus system, which takes many forms in different settings. Enthusiasm for the goals and potentials of the Grameen model has far outdistanced rigorous analysis of its institutional and incentive features; likewise, valid benefit-cost or statistical studies of impacts are rare (Dichter and Harper 2007).
Did Yunus and Grameen merit the Peace Prize? The qualifications are ambiguous, articulating that it should be given to "the person who shall have done the most or the best work for fraternity among nations, for the abolition or reduction of standing armies, and for the holding and promotion of peace congresses" (Encarta 2008). In fact, most recent awards have been made under the vague standard, "fraternity among nations." They have gone to persons and groups involved in human rights or humanitarian activities. Setting aside the endless Israeli-Palestinian conflict, hot wars between nations stopped with the Vietnamese accord of 1973, for which Henry Kissinger and Le Duc Tho, both well known peaceniks, split the honor. Le Duc Tho had the uncommon decency to decline his portion. Otherwise, we have Jimmy Carter, Doctors Without Borders, the Dalai Lama, Desmond Tutu, Mikhail Gorbachev, and Mother Teresa. What is unusual about the two most recent Prizes is that they went to Yunus and Albert Arnold Gore, who had strong economic orientations in what they did. Gore shared his award with the Intergovernmental Panel on Climate Change. Interestingly, Leon Walras campaigned to win the Nobel Peace Prize of 1905 by making the argument through nominators that his work on free trade and free markets supported open societies and more amicable international relations (Sandmo 2007).
The Norwegian Nobel Committee said of the Yunus award, that
Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means. Development from below also serves to advance democracy and human rights.... Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development. Microcredit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions. Economic growth and political democracy cannot achieve their full potential unless the female half of humanity participates on an equal footing with the male. (2006)
The fatuity of each of these propositions is self-evident, so they need not be deconstructed here.
Evaluating Microfinance Programs
We can begin at the end, so to speak, by discussing problems encountered in trying to evaluate outcomes and give a few examples of the more credible assessments. There is a very common pattern to reports on microfinance banks and their impacts. …