Committee for the Abolition of Illegitimate Debt

In 2006, Muhammad Yunus and his Grameen Bank were awarded and accepted the Nobel Peace Prize. Yunus perfectly fitted the profile of the ideal candidate: just enough social commitment without any whiff of brimstone! Already at the time we were aware that Yunus’ contribution was in no way as revolutionary as was claimed. A book under his name published in 2008, Creating a World Without Poverty: Social Business and the Future of Capitalism and what is presumably a French version, Vers un nouveau capitalism [1], will let us throw light onto Yunus ‘phenomenon’ and the Grameen Bank.

First, a few words about the circumstances in which we came upon the French book, in themselves highly revealing. . In May 2008, we accompanied Philippe Diaz to the Cannes Film Festival where his documentary, The End of Poverty ? , had been selected for the International Critics’ Week. Once there, Philippe invited us to a meeting about the Grameen Bank and its founder, Muhammad Yunus. Some philanthropic foundations convened the meeting which took place on a boat. It was to be dedicated to the struggle against poverty. As it happened, we were planning to participate in a street demonstration with ATTAC and other local associations, to refocus on priorities in the moneyed cacophony of the Film Festival. As we got to the meeting point we were rather nonplussed: it was organized on a billionaire’s yacht, rented for the occasion. We climbed upstairs (it was a luxurious floating villa), among leather armchairs, thousands of euros’ worth of white flowers, and costly food, and picked out a copy among the few books by Yunus paraded among the champagne flutes. Nobody seemed really interested and there was no attempt to introduce the book, or Yunus, or his work. Philippe Diaz had no opportunity to mention his film: for the people present, attending to poverty seemed the least of their worries. So what did the book say? Would it counteract the shock we got on the yacht?

Explicit partnerships

Not really. The book begins with a love story and the decision to launch a partnership with the multinational corporation Danone [2]. Capitalists love this kind of ‘social’ partnership, governance rules and other humbug, that make it possible to keep your hand on both your heart and your wallet. Several foundations dedicated to promoting social entrepreneurship are mentioned, such as the Skoll Foundation, founded by Jeff Skoll (first employee and former president of Ebay), or the Schwab Foundation (Schwab founded the World Economic Forum in Davos) (p. 67); we learn that in September 2007, Intel and Grameen Solutions signed a memorandum of agreement (p. 142 ); the Grameen Trust received a donation from the MacArthur Foundation, then additional donations from the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the Rockefeller Foundation, USAID (p. 143); the same trust signed a partnership agreement with Crédit Agricole (p. 144): Grameen Capital India was created in partnership with Citibank India and ICICI Bank (p. 266). Throughout the book, we notice that Yunus and his creations are supported by key players of capitalism, and not of any new capitalism!

Social-business instead of collective responsibility

Yunus uses the sweet talk of a secular bishop. He brags at every turn about the word ‘social’, displays his worthy intentions, overuses idealistic claims... and does business. The book attempts to explain and promote social business. How can that be defined? Such companies exist to address social problems. They do not distribute dividends. They sell their products to be financially self-sufficient. Their owners can retrieve the amount they invested after a given period but there are no dividends. Instead, profits are used to finance the companies’ expansion, create new lines of products or services, and do more good in the world (see Vers un nouveau capitalism, pp. 18-19). It should be noted that State-owned companies and public services could operate on the same principle, with taxpayers as the ’investors’ in the public sector.

This kind of comment can be made throughout the book: Yunus never considers the possibility of achieving his ‘social’ goal through the State or in partnership with the State. On the contrary, he constantly criticizes public services and the State that he sees as unable to solve problems through lack of money (he does not question why money is lacking), because of public indifference (social movements struggling against privatizations are just not taken into account) and other dysfunctions (p. 64). The instances of social businesses he mentions lead us to ask the same question (p. 54): a social business that designs and markets health insurance policies to give poor people access to affordable medical care: why not State-run social security? A social business that develops renewable energy production systems and sells them at a reasonable price to rural communities that would otherwise be unable to finance their access to energy? A social business that recycles rubbish, sewage and other waste materials? Such tasks can easily fall to the State and can be achieved through public services if only the State has sufficient financial resources and the political will.

Why should investors put their money in a social business? Out of philanthropy on a grand scale, he argues (p. 57) with the bonus that after they have retrieved their initial investment they will still own the company with the ‘exciting’ (sic) prospect of determining its future financial activity.

The following developments suggest how very thin the social layer on the project is (the make-up base cracks: the cosmetic effect is not guaranteed) and how very similar ‘old’ and ‘new’ capitalisms actually are!

New capitalism?

Social-business companies operate in the same market as traditional companies (p. 59). So they compete not only with these companies but also among themselves … and may the best win! There are therefore also losers, who are not only bosses or investors but also workers and their families. Moreover, competition among social business companies forces them to increase their efficiency. In a capitalist context, which is nowhere called into question, this can only happen through exploiting workers and producers of raw materials. For Yunus, competition is still the engine, prices go down and consumers are delighted. Increased work pace, lower wage costs and fewer jobs: these realities are never mentioned by Yunus. He claims that competition among social-business companies will be different from that among for-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. companies. In the latter case, the stake is only financial, whereas he claims that competition among social-business companies is a matter of pride (!) (p. 61). Competitors will still be friends (!): they will learn from each other, they can merge, and they will rejoice at seeing more social-business companies join them on the market (and again!).

Things get even clearer when we read that there is another type of social-business company: these are owned by the poor (this process is not explained anywhere), and they try to maximize profits and distribute dividends.

The first type of social-business company (described above) would cover the notion of public service while keeping the State out of the project; the second type means in fact all-round privatization, at all levels, from the production of goods and also services (such as health care and education), but all in the most honorable way, since it’s the poor who are supposed to benefit.

What is the logic behind this second type of social-business company? It is quite simple: the company is owned by low-income citizens who buy shares at low prices thanks to loans by microcredit organizations which they repay on their profits. We have come full circle. Yunus does acknowledge incidentally that his proposal is not workable (p. 69). To the question of whether an economic model that combines profits and altruism is possible, he answers that theoretically, companies could have 60% of social objectives and 40% of for-profit objectives, but that in reality, it would be very difficult to manage companies with contradictory objectives. Some contradiction!

Vocabulary can help to smooth out contradictions. To attract investors, Yunus suggests creating a specialized stock market called a ‘social stock market’ (p. 62). Financial institutions of a new kind (?) could be created to meet the financial expectations of social-business companies: social funds and social hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. , and of course a social stock market (p. 269). Specialized credit rating agencies Rating agency
Rating agencies Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).

Moody’s : https://www.fitchratings.com/ could be created to assess some aspects of companies with a social vocation (p. 278). The creation of a regulatory and information body for social businesses... (p. 279). Every day the Social Wall Street Journal would report the latest news on the ups and downs of social business companies (p. 287). There will be a social Dow Jones index indicating the notation of shares of some of the biggest social-business companies (p. 289). At this point, we can only wonder: is this humor, stupidity, inconsistency, or plain dishonesty?

Yunus’ system is intended for this second type of social-business company to eventually prevail. He insists that while many of those companies initially had non-profit status, they have been encouraged to gradually bring their mode of functioning closer to that of a classic company and thus enter the world of business while retaining their social objectives (p. 141).

Social-business based on debt

Is Grameen Bank a social business company? In any case, it makes profits and distributes dividends. Let us try and see how Yunus reconciles this with the objective of getting millions of people out of poverty. Some passages in the book testify to the frenzied megalomania that affects Yunus when he refers to his action against poverty. He recalls that they are committed to having a significant and measurable impact on poverty, namely to help 100 million families escape poverty thanks to microcredit and other financial services. As estimates say that about five people benefit from the positive effects of microcredit to a family (a figure corroborated by our experience of the developing world), we can expect half a billion people to escape poverty during the next decade – in line with the Millennium Development Goals (p.121). We can send the United Nations packing: Yunus is doing the job on his own!

The key question for Yunus is how the poorer half of the global population can be allowed to join the main current of the global economy and be able to participate in free markets. (p. 31). Yunus starts from the premise that the global economy works well via the free market: the only problem for the poor is getting their foot in the door. Getting their first loan will pave the way. Banks don’t consider the poor to be creditworthy. Do they refuse to give them loans? He is going to try out lending to the poor. Yunus and his teams are really pushing hard on this issue: “When a borrower tries to avoid a loan offer because they have no business experience and don’t want to take the money, we try to convince them that they may have an idea for a new business line”. (p. 40) First, get into debt, then we’ll see how you manage.

This is strangely similar to how the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org ’s alluring proposals in the 1950s and 1960s baited governments in the South into creating a customer market. Once they were caught and the rules of the game were changed, they had to pay more and more. Governments pay back, over and over, but their countries are more than ever caught in the spiral of debt, dependence and poverty. Yunus and all microcredit institutions that have imitated the Grameen Bank proclaim loud and clear, even with admiration, that women and the poor are irreproachable in their repayments.

How can the Grameen Bank’s results be assessed? “Today, the Grameen Bank provides loans to more than 7 million poor people, 97% of whom are women, in 78,000 villages in Bangladesh. Since it opened, the bank has distributed loans totaling the equivalent of 6 billion dollars. The repayment rate is currently 98.6%. Like any well-managed bank, Grameen Bank usually makes a profit. It is financially autonomous and has not had recourse to donations since 1995. Grameen Bank’s deposits and other resources now represent 156% of its outstanding loans. The bank has been profitable since its inception, except in 1983, 1991 and 1992. But what matters most of all is that, according to an internal survey, 64% of those who have been our borrowers for at least five years are now above the poverty line.” (p. 96-97).

Repayments by the poor can be checked in the Grameen Bank’s account books. However, assessing the poverty line is more difficult. Earning even one cent more than the poverty line (whichever way it is calculated) means you are no longer counted as poor whereas life is just as hard as it ever was. We can also raise other questions: why should poor people go on borrowing after five years? Yunus would probably answer that they are on their way to doing good business, and that they are fully part of the global economy. But it might also be because they just cannot repay the borrowed stock (loans are flexible, debts can be rescheduled and restructured as in the case of borrowing countries). This situation is bound to recur since we know that for Yunus, 20% is a normal interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate and that his microcredit programmes focusing on poverty propose two loan zones: the green zone that corresponds to market rates plus up to 10 points and the yellow zone at the market rates plus 10 to 15 points.

“If you spend enough time among the poor, you’ll find out that their poverty results from the fact that they cannot retain the fruit of their labour, for the simple reason that they have no control over capital. The poor work for someone else who owns the capital” (p. 190). Yunus has thus discovered the existence of social classes and the proletariat. The one solution to escape poverty is to become a capitalist!

Multinational corporations and the social-business show

The book starts with the partnership with Danone, let’s go back to it. Yunus acknowledges that selling Grameen Danone yogurts to well-off families is not a social-business objective, so to retain the label, the solution is to increase production and sell yogurts to everybody. On the following page he specifies that Danone had little financial interest in the project, and, even more surprisingly, two pages further, he mentions in passing that Danone specialists studied the competitive environment of Grameen Danone: how local producers of food and drink worked (p. 220-227). Now, this is interesting: were there already people selling this kind of product before Danone, who had to face competition with the association of Grameen Bank and Danone? What became of them? Are they the new poor of Yunus’ new capitalism?

We soon came to talk about (small) profits and (small) dividends, while the two partners (Yunus and Danone) agreed on the definition of social business, right at the end a clause is added to the memorandum of agreement providing for a symbolic dividend of 1%. Yunus claims he no longer agrees with this provision. Yet he seems to have to face this kind of issue regularly (p. 157-159). Grameen Phone is owned jointly by Telenor, Norway (62%) and Grameen Telecom (38%). Grameen Phone is now the first company in Bangladesh with over 16 million subscribers. Yunus says he wanted to turn Grameen Phone into a social business company by transferring to poor people a majority of shares. But Telenor has refused to relinquish its shares (how surprising) even though it was supposed to have reduced its participation to less than 35% after 6 years. Did we say that profit and altruism were incompatible?

For Yunus, social business is the missing piece in the capitalist system. Introducing it can save the system (p. 171). But do we want to save a deadly system? Yunus tries to present false solutions. Let us not fall into the trap.

Reading this book makes you feel queasy, disgusted and indignant. So it is highly recommended if you want to understand the world... and to feel indignant about it. It turns out that the billionaire’s yacht in Cannes was well suited to hosting such a book.

Denise Comanne

A feminist engaged in local and international struggles against capitalism, racism and patriarchy, Denise Comanne co-founded the CADTM along with Éric Toussaint and other activists.

An indefatigable revolutionary, Denise was active in social movements to the very end. She died on 28 May 2010, after she had actively participated in a Forum on the fiftieth anniversary of the independence of the Democratic Republic of the Congo.

Translated by Christine Pagnoulle and Vicki Briault Manus.