Apr 7, 2010

Grameen Bank uses the poor to bail out Adidas from its financial crisis

Nobel laureate Muhammed Yunus is planning a joint venture with German sports apparel maker Adidas to provide cheaper shoes for the poor. Bangladesh's newspaper Daily Star reported on March 21: The two sides have signed a memorandum of understanding and are working together on how to bring the products into market tentatively by the year-end, said officials of Yunus Centre, the hub of his social business activities. At a meeting at Yunus Centre, Yunus was quoted as saying: "The shoes will be cheap and affordable for the poor. It will protect people from diseases."

Appears to be a laudable objective. But just pause, and think.

I admire Muhammed Yunus for his ability to use the poor so effectively in promoting the commercial ventures of internationally known brands, which are faced with a serious economic crisis. Adidas is one such company, which recently faced a money-laundering probe, and has had its net profits falling by a whopping 97 per cent to just US $ 6.7 million. According to news reports, "Adidas has announced a major restructuring of its operations that would include the elimination of regional headquarters in Europe and Asia and was expected to generate more than €100 million in annual savings."

Adidas would remain eternally grateful to Muhammed Yunus for providing it an assured market that it was desperately looking for. Any shoe company would grab an opportunity where it can sell its shoes continuously for years, in bulk. In other words, Grameen Bank will end up bailing out Adidas from its present crisis of survival. Even if the market was for cheaper shoes (in any case, these shoes have often been allegedly manufactured in 'sweat-shops'), Adidas ends up making enough money to keep it afloat.

Ever since I was a child, I always felt outraged to see the poor walk barefoot. In my own village in Himachal Pradesh, this was quite a usual sight till recently. In many other parts of the country, more so in the tribal and poverty-stricken areas, poor people walk barefoot for miles. I even see women walking barefoot to collect drinking water, fuel and fooder. Most people do understand that walking barefoot makes them vulnerable to several ailments and diseases. But it is because of their economic inability, they can't afford a pair of shoes or chappal.

Providing the poor with cheaper shoes certainly looks to be a pious initiative. I am sure Grameen Bank will soon link up sales of shoes with its loan repayment plans. In other words, poor will become an assured market for Adidas shoes.

I am sure many of you would agree that if the poor were given micro-credit at a lower rate of interest than what the Grameen Bank is doing at present, they would be left with more money in their hands from which they can buy not only shoes but also a decent pair of clothing that Muhammed Yunus is now trying to sell. Interestingly, you first squeeze out every penny from the pocket of the poor in the name of empowerment, and then you show benevolence by selling them a pair of shoes!

Muhammed Yunus and his brand of Micro-Finance Institutions (MFIs) all over the developing world charges the poorest of the poor with a very high interest rate varying between 24 to 36 per cent on an average. I don't think even former US President Bill Clinton, a strong votary of micro-finance, himself pays a 24 per cent rate of interest like what the poorest of the poor are made to shell out.

Since the loan recovery is on weekly basis, the poor end up paying still higher interest, anything between 35 to 50 per cent. No wonder, in several parts of India (and also in Bangladesh) poor loanees are being driven to commit suicide.

Micro-finance is an organised money-lending.

Imagine if the poor were to repay at the rate of 4 to 5 per cent rate of interest, which increasingly is being offered to farmers in India, the entire economic activity for which they receive the small credit, would become profitable. I have always been saying that if the poorest of a poor woman in a village were to get credit at 4 per cent interest for buying a goat, she would be probably be driving a Nano car at the end of the second year.

Yunus is only talking about providing the poor with a pair of cheap shoes. I am talking about Nano car (I don't have to sign an MoU with Tata's to market Nano for the poor). I am sure if he (and his fellow MFI partners) were to start charging only 4 per cent interest on the small credit that is made available, poverty would banish much sooner than what is projected to be achieved under the Millennium Development Goals (MDGs). But then, the problem is who will sustain the livelihood of MFI employees? How can the MFIs then turn into big Empires?

The MoU with Adidas benefits everyone except the poor. Grameen Bank gets the accolades from the urban elite for an imaginative business deal. The business and industrial chambers in Bangladesh (and also in India) would be delighted since these are the kind of business activities that can keep them afloat. Adidas of course will get a breather that it is desperately looking for. Economists would be very happy because the GDP will go up.

Grameen Bank tie-up with Adidas is a classic case of how the well-to-do in our society gangs up to exploit the poor.

Long live the poor!!

1 comment:

Bhaskar Goswami said...

Yunus has yet again demonstrated that poverty spawns excellent business opportunities for corporations. In the past he bailed out Telenor, Norway through a tie-up with Grameen Phone; this time round it's Adidas - not surprising at all.

Walk down the streets of Dhaka and chances are that the poshest commercial complexes are owned by these fat-cat MFIs... empires built upon blood and sweat of the poor. They would do better by letting the poor be!