Lessons from Grameen and Microfinance—Are You Building an Institution of Change?

At this stage it appears the government of Bangladesh has been successful in its campaign to oust Mohammed Yunus from his post as chairman of Grameen Bank. The future of Grameen Bank is now in question. The best efforts of a formidable group of international backers calling themselves the Friends of Grameen opposing the actions of Prime Minister Sheikh Hasina has apparently been in vain.

What has happened at Grameen Bank is wrong—and could cause a great deal of harm to the hundreds of thousands of poor customers that Grameen serves. The Friends of Grameen are to be commended, and supported, for doing their best to protect Grameen Bank.

The fear for the future of Grameen Bank is driven in no small part by concerns that the organization does not have the management depth to cope well with Yunus’ forced departure (an argument put forward by the bank itself). External observers have raised questions about the quality of Grameen management repeatedly. There have been a number of occasions over the years where candidates to succeed Yunus have left the bank. It’s enough that David Roodman (and I agree) makes a plausible argument that Grameen Bank suffers from Founder’s Syndrome.

That leads me to question where the Friends of Grameen were over the last few decades when Grameen apparently failed to develop leaders to take over from Yunus. Put another way, were the Friends of Grameen really friends of the institution of Grameen Bank, or just of its visionary and charismatic leader?

The transformation from an organization to an institution is a problem that many start-ups face: Will they outgrow their founder and how painful will that process be? A founder refusing to relinquish control plays a part in the early demise of all too many promising businesses. The problem is even more common in social enterprises where the passion of a founder is often felt even more strongly.

Roodman, an excellent guide to all things microfinance especially during the current crises in South Asia, has suggested that one of the possible significant benefits of the microfinance movement is the creation of indigenously run institutions—organizations like Grameen, BRAC, BancoSol, Basix, Compartamos, Share, Spandana, etc. While these organizations have received support from aid agencies and philanthropies, they are first and foremost local organizations in places where strong institutions are often lacking. I agree that that the development of trustworthy institutions is a huge potential benefit, but it depends on whether these organizations truly become institutions. In other words, the institution is more important than any individual, including the organization’s founders. Developing countries have no shortage of personality-driven pseudo-institutions.

Hopefully Grameen and other microfinance players won’t be casualties of Founder’s Syndrome. No role of funders, supporters, and board members of an organization that strives to make a long-term difference is more important than ensuring that there is institutional development—including growing beyond the founder.

Not every organization should become an institution. But long-term change really is dependent on institutions. So if you think of yourself as a “friend” of a social enterprise or social entrepreneur, ask yourself where you are on the path to institution building.

Read more stories by Timothy Ogden.