The Microcredit Attack Documentary

Update: I have blogged the English version of the documentary too.I first heard from Danish documentarian Tom Heinemann last January. He was probably drawn to me because I had tweaked Kiva for de facto slight of hand. He told me he was making a film about microfinance---the one that premiered last Tuesday evening on Norwegian television. (An English version is coming early in 2011.) I could tell that while we shared a desire to pierce the publicity veils around microfinance, his drive was more purely critical. Basically, it seemed to me that he wanted to get the goods on microfinance. While feeling that the truth about microfinance is nuanced, I was curious to see what he would come up with.Over the year, he checked in with me, as I'm sure he did with others in the film, to share his discoveries. He also asked good questions, such as what the interest rate of the Grameen Bank is, which led me to some blogging.On a Saturday in August, Tom and his wife came to my house to interview me. I appear in the Norwegian final cut at 36:40 and 40:25. (Background art credit to my wife Mai.)Overall, Tom seems to have made pretty much the most negative movie he could. As I show just below, the film sensationalizes matters that have more to do with making Muhammad Yunus look bad than whether microcredit is good for the poor; exaggerates the Grameen Bank's interest rates despite my explanations in e-mail to Tom and on this blog; and heavily favors negative voices, depriving viewers of the opportunity to glimpse the complexities of the real world and think for themselves. Talking-head defenders of microcredit do get some airtime. However, as far as I can tell the client voices are all negative. Such voices are important and generally underrepresented, but they are not the whole story. It is easy to find people in Bangladesh who would rather have access to microcredit than not---I know because I met some while tagging along with Stuart Rutherford for a day in 2008. As far as I can tell, such microcredit users were not investigated in the course of this investigative journalism on microcredit use. The documentary is therefore designed to give viewers only half the story.I can see a few potential motives or rationales for the strong negativity:

• Appropriately counterbalancing the microfinance hype. I have to say, at this point, it almost seems like the microfinance hype is hyped. The hype is constantly regretted (and it ain't dead yet), but the press coverage has turned negative and the public image may follow. At any rate, I'm open to the Hegelian perspective that the jabs between opposite views are inevitable, even healthy: Muhammad Yunus is the thesis; critics like Tom Heinemann, Thomas Dichter, and Milford Bateman are the antithesis; and others, perhaps including me, are the synthesis.
• Telling the truth. In other words, if almost everything about microcredit is bad then that's the story a responsible reporter must tell. But that's simply not the case here. Credit is always a source of possibilities good and bad.
• Beating up on bad or destructive people and organizations. This is the negative advertising theory of policy change. You see the other side as benighted or malign, or at least see yourself as justified in treating them as such. In this case, any attack upon them is in the interests of the poor. The presumption here is, as it were, that God is a Republican. The burden of evidence that one holds a monopoly on the truth ought to be pretty high.
• Maximizing drama. Maybe even-handed analysis makes for good blogging (ahem) but it's boring on video. Dramatic tension calls for personification and dichotomization of issues. The medium is the message. That's why this documentary revolves around the character of Yunus.
• Maximizing attention for the attacker. Anyone who publishes content seeks attention, so the issue here would be a matter of degree and balance.

By way of making my case that the documentary maxes out on negativity, I'll comment on a few parts:

• All along, I've felt that the most valuable thing Tom has to offer is his footage of women in Bangladesh talking about their troubles with microcredit. Not knowing a word of Bangla or Norwegian, I can't tell what they say in the film, but I can read their tears and long faces. Tom told me that some women he met in Bangladesh said they have contemplated suicide; I expect that made it into the film. At one point, he asks a woman, in English, to show him the house she lost to debt. I think it is worthy to bring such sad stories to life through the powerful medium of video. Anyone who promotes or supports microcredit must recognize that it, like all credit, has a dark side. We don't see it enough.That said, I am certain that if Tom had wanted video of people talking about how microcredit had helped them manage life a bit better, he could have shot it. For example, he could have asked the authors of Portfolios of the Poor to introduce him to some of their subjects, many of whose stories are told in Appendix 2 of that book. Those stories are neither of ascent out of poverty nor of descent into indigence, but of people getting by by grasping financial tools within reach. The apparently pure negativity of documentary's client footage is therefore a choice---a choice to give viewers only one side of the story. Whether most viewers will realize that, I don't know.
• The talking head footage is dominated by critics, and even more by criticism. I think quotes from middle-of-the-roaders like me and Jonathan Morduch accentuate the negative. Tom cleared three with me: the two negative ones used, and this positive one, which didn't make the final cut: "I do think that we need to give Mohammad Yunus credit for spreading the idea that you can do business with the poor." (I should explain, as I wrote to Tom, that I misspoke in one that he does use: we have essentially no credible evidence that microcredit reduces poverty; but we do have one study that shows microsavings (thus microfinance) reducing poverty. I feel bad about creating this film editing problem, which has not been solved yet.)The one ardent defender is Alex Counts, CEO of the Grameen Foundation. To be fair, I should note that Yunus refused to be interviewed. But is it just me, or are the shots of Alex less flattering in angle and frame than of the other talking heads? (I did wince at 42:30, when Alex cited the literature review he commissioned five years ago as showing that microfinance reduces poverty rather than the fine, new update which avoids such claims.)
• A companion article, and I assume the film, claim that the Grameen Bank charges 30%/year interest. I told Tom that's wrong. The source appears to be page 61 of this report, which Tom sent me, and which contains two errors. First, it assumes that loans repaid in 46 installments are repaid in 46 weeks, which they are not: some weeks no payment is due because of holidays. Extending the repayment period lowers the effective interest rate. Second, and more significantly, the cited figure includes an estimate of client transaction costs, such as the rickshaw ride to the weekly meeting. That's interesting, but misleading when cited without explanation.My sharp measurement of a standard Grameen borrowing pattern, inspired by Tom's queries, yields a rate of about 24%. After I blogged that finding, Tom contacted me to share his puzzlement over Grameen Bank transaction logs he had copied. It turned out that the borrowers were topping up their loans: having repaid at least half the balance, they borrowed it back again. Explaining this to Tom, I realized that the unusual flexibility of Grameen loans raises average balances without raising interest charges. Factoring this in reduces the interest rates to more like 17--20%. And all that is before factoring in Bangladesh's higher inflation rate, which makes 17--20% feel like 13--16% to a Norwegian or American. That is much less than I would pay for an uncollateralized loan from American Express. All the sturm und drang about usury in India notwithstanding, microcredit is generally cheap in South Asia. I told Tom, but he stuck with 30%.
• A companion article, and perhaps a chunk of the film, sets out to debunk the myth of the "phone ladies," women who began in the late 1990s to take microloans to buy mobile phones and then sell their use by the minute. "The truth is," intones the article in Google translation, "that today there is no longer any phone women." But how is this a failure? The truth is that for the Bangladeshi man who conceived of bringing mobile phones to the masses in the developing world, Iqbal Quadir, credit was just a means to the end of connectivity. When connectivity became so cheap and prevalent as to make phone ladies obsolete, that was success---indeed, given its ripple effects throughout the developing world, one of the most extraordinary development triumphs of our day. As a matter of history, microcredit was a low rung on that ladder to success. Accentuating the negative here looks like mudslinging.
• Likewise, the documentary devotes ~10 of its 60 minutes to documents Tom obtained through a Norwegian Freedom of Information Act request. (I have OCR'd, Google-translated, and archived them here.) Most of the documents relate to a previously hidden dispute between the Grameen Bank and the Norwegian government over the former's use of the latter's aid. For microfinance history geeks like me, this is prime, like Wikileaked State Department cables. But, as I told Tom at the interview, it appears to have no bearing on the important question of how microcredit affects human beings. And even on its own terms, it has been blown out of proportion.What is revealed is that in 1996 the Grameen Bank transferred some $100 million in aid receipts from Norway, Sweden, and other donors to a separate, non-profit entity called Grameen Kalyan---without informing those donors. Grameen Kalyan then lent the money back to the Bank at 2% interest. According to the Bank's just-released account, this interest supplied a Social Advancement Fund which was to provide services such as scholarships to Grameen members and employees. A Norwegian official first detected the transaction in a footnote of the Bank's 1996 annual report, which was published in mid-1997. The Norwegian government became alarmed that money it had given to a specific institution for a specific purpose (housing loans) had been transferred to another institution for other purposes without the donor's knowledge. It also pointed out that this gift to Grameen Kalyan reduced the net worth of the Grameen Bank, thus of its shareholder-members. (A good timeline is here.)The Bank's explanations for this strange transaction were and are disturbingly dubious. One rationale was and is that the Bank gave the money away and borrowed it back because it was afraid that otherwise it would burn a hole in the Bank's pocket. This Bank, entrusted with the serious responsibility of using foreign funds to help the poor, would not entrust itself with the basic function of a bank: holding money safely. Or---more likely---the Bank was and is lying. Another reason given was and is that the deal could reduce Grameen's tax liability. But according to a Norwegian embassy official, Yunus first emphasized this rationale, then deemphasized it months later. (And the Bank disowned the rationale in a letter to Tom this August.) The dissembling raises suspicions: perhaps the move was nefarious, as sensational headlines have insinuated in the last few days. But lacking evidence to the contrary, I am prepared to believe that the real motive was indeed to set up the social fund, and that the Bank got trapped in rationalizing a contract violation. In the end, the disputants compromised: about half the funds (I think) were moved back, after which the Norwegians judged that their interest in the appropriate use of their money was served. On what basis should we second-guess them? [Update: The Norwegian government has, from its point of view, cleared Grameen of all charges.]The episode does shed light on the parting of ways between the Grameen Bank and donors. Yunus has long taken pride in the Bank's independence since the mid-1990s. Whether he is making a virtue of out of an unhappy divorce, or whether the deep cause of the newly exposed dispute was Yunus's growing restiveness under the yoke of the donors, it seems clear that the Bank had developed the confidence to do things its way, on its own. The documents also debunk Milford Bateman's assertion that "the rejection of subsidies [for the Grameen Bank] was essentially rooted in changing politics: specifically, the rapid ascendance of the neoliberal political project." There is no sign of Norwegian officials, in their candid moments, planning to neoliberalize the Grameen Bank. Rather, they wanted to subsidize it and have a full say in how their subsidies were used.Why then make such heavy weather of this dozen-year-old dispute? I suspect the answer lies in the excitement of headlines such as "Grameen founder Muhammad Yunus in Bangladesh aid probe"---as distinct from, say, questions of what helps the poor.