Micro credit boss Muhammad Yunus may need to curb anathema to profit

Bangladesh's new interim government head Muhammad Yunus, now Chief Adviser, stresses ethical business practices and social entrepreneurship while addressing Bangladesh's economic revival

Prof. Muhammad Yunus is often credited with developing the "Yunus Social Business model." The key theme of his model is a clampdown on what he calls "selfish pursuits of profits." He has made these comments often, including in discussions with business chambers in India.

Another notable aspect of Yunus, who is the Chief Adviser to the interim government, is his ability to listen. From Chandrashekar Ghosh, former CEO and MD of Kolkata-headquartered Bandhan Bank, to Gyan Mohan, former IDBI Bank MD and now CEO of a microfinance company based in Patna, "listening is something Yunus does a lot." As Bangladesh begins its long revival, this should be a significant strength for him.

These are, of course, very early days for the interim government in Dhaka, which is currently focused on immediate priorities like restarting the leaderless central bank and getting the police forces back into their posts to restore law and order. "I would expect the interim government to set just the basic priorities in shape, and then call for elections," said Jayant Dasgupta, former IAS officer and India's former ambassador to the WTO.

The long-term economic policy of the government will be determined only after the promised general elections, Dasgupta said. However, it is likely that, as the most recognized leader of Bangladesh, Yunus' views will be highly valued. He was sworn in on Thursday as Chief Adviser to the interim government, a position equivalent to that of Prime Minister.

"Building up a movement like microfinance when nobody thought poor women were bankable without any collateral must have been a great challenge by itself. Those leadership qualities will be called upon now," said Jiji Mammen, CEO of Sa-Dhan, India’s leading association of microfinance institutions. Mammen recalled his meeting with Yunus in 2023 as "amazing." "I met Prof. Yunus last year in Dhaka and was amazed by his clarity of thought on economic and other issues."

Yunus has identified three key challenges for countries like Bangladesh: global warming, extensive use of AI leading to unemployment, and wealth concentration, which he describes as "ticking time bombs" that should be addressed this decade. However, he has never spoken about the absence of key regulatory institutions, a significant weakness for the nation.

Instead, the Chief Adviser has often criticized institutions that he claims respond primarily to price signals. "Market-led institutions, in the past, have been designed the wrong way," he has said.

For Indian business groups that have begun reaching out to Dhaka for tie-ups, these remarks are important to note.

Yunus, with a Vanderbilt University doctorate, has noted that "maximizing profits seems to be the only goal for businesses. Therefore, two kinds of businesses need to be created: single-interest businesses and common-interest or social businesses." Yunus made this observation as recently as 2020 while speaking with FICCI.

For instance, Dr. Yunus claims that he does not oppose MFIs making a profit but stresses that there should be a cap on profits. He has warned of the volatility of commercial capital markets and argued that "microcredit is not about exciting people to make money off the poor." He made these comments in a discussion with Vikram Akula, founder of Indian SKS Microfinance, when the company became the first such institution to be listed. Yunus had said listing MFIs on the bourses was a wrong move and that these institutions in India had deviated from the idea of microcredit.

On the role of private equity investors, Yunus has said they should pool money for the formation of social business funds without looking for any kind of return. "If investors are ready to part with 1-2 percent of money, then that money could be used to create a parallel social fund without looking for a return," he has said.

In the post-Sheikh Hasina era, Bangladesh is expected to look for such investors to expand the roll call of business leaders in the country. Yunus is likely to be the voice of moderation in managing these expectations.

According to KP Krishnan, former IAS officer and a keen commentator on regulatory issues, what Bangladesh needs at this juncture are deep, liquid financial markets and strong institutions. Bangladesh expects to graduate to the rank of middle-income countries by 2026, for which developing both markets and institutions has to proceed simultaneously, unlike the luxury of sequencing enjoyed by those who came before.

Yunus has not engaged with this aspect of finance, leading his interventions through microcredit. But there are limitations to this approach. Global ratings agency S&P has lowered Bangladesh's long-term sovereign credit ratings to 'B+' from 'BB-', citing "modest per capita income and limited fiscal flexibility owing to a combination of low revenue-generation capacity and high-interest burden."

In addition, the "evolving administrative and institutional settings represent additional rating constraints," S&P noted. The downgrade reflects persistent pressure on Bangladesh's external metrics, marked in particular by a continued decline in foreign exchange reserves. This has occurred despite import compression measures enacted by Bangladesh. 

In summary, the country’s gross external financing needs now exceed the sum of current account receipts and usable reserves. With a leaderless central bank and regulatory institutions, these are significant challenges for anyone, even with Yunus' abilities.