Micro-credit alongside some Major Credit: Grameen in New York

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Mohammed YunusMy friend Lynn in South Africa just sent me this article from “the Globe and Mail” (I think). Very interesting development in the world of development …

For those who may be unfamiliar with Mohammed Yunus, he developed the Grameen (bank of the village) in Bangladesh in the 70’s. After obtaining his degree in Economics in a US university, he had moved back to his native Bangladesh to work with the government on billion dollar policy and five-year plans. Walking through a local village one day, he was struck by the discrepancy between his work and the realities of poverty in the community. After some investigation he realized the the grand total to relieve a couple of dozen people from an uneding cycle of poverty was about $40 … and that is when he made a chaoice that has made all of the difference. Rather than simple charity, he loaned the money out to this percieved ‘high-risk’ credit-starved group, at interest. They repaid.

Today, the bank that he began with that simple step, has billions of dollars in asset and has refused donations since the mid-90’s. Men and mostly women who take advantage of the loans have personally experienced a dramatic reduction in child mortality rates, improved housing as Grameen standard homes stand against huricanes, definite improvement due to personal economic choice and possibility. The rate of loan return is at 98.15%.

Yunus and the Grameen organization co-shared the Nobel prize a couple of years ago … evidentally they had their sights set on the poor in America as well …

here is the article …

Yunus sees big answers in microcredit

TAVIA GRANT
June 11, 2008

Muhammad Yunus, banker to the poor and winner of the 2006 Nobel Peace Prize, believes the best way to bring microfinance to the developed world lies in the heart of the banking world – New York City.

Bangladesh-based Grameen Bank opened its doors in Queens six months ago, distributing start-up business loans of $500 (U.S.) to $3,500 to women, many of them low-income Latin American immigrants. It’s early days, but repayment rates so far are 100 per cent and the number of clients has grown to 225 from 165.

The concept is simple – give those who wouldn’t otherwise have access to affordable credit a chance to start small businesses such as, in New York, child care or beauty salons. Groups of borrowers meet weekly and make regular repayments. The concept has mushroomed throughout the developing world, but is relatively untried in richer nations.

“New York is the world capital of banking, but it doesn’t do banking for its nearest neighbours – those who live under the shadow of the skyscrapers,” Mr. Yunus said in a wide-ranging interview with The Globe and Mail.

Grameen’s founder and managing director, Mr. Yunus is in Toronto to speak at a conference of top Canadian employers.

He moved into the New York market after watching the explosive growth of pricey payday loan companies, cheque cashers and pawn shops. “We wanted to address this head-on. So we created Grameen America … and it’s working beautifully.”

It’s the first time Grameen has operated in North America, and Mr. Yunus sees it as a possible springboard for the continent. Other cities, such as Los Angeles, Baltimore and New Orleans, are clamouring to launch similar projects – and officials in Toronto and Vancouver have also expressed interest, Mr. Yunus says.

The New York project will run for a several years, giving Grameen a chance to assess the challenges and degree of success before it branches into other cities. Grameen keeps the interest rate to 15 per cent, far below average payday loan rates, though it’s too early to assess how sustainable the model is.

“That’s what we’re trying to figure out. If we can build up the volume of business enough – to $6-million in loans – then it works out.”

Half-a-million dollars has been distributed so far. Any lending project would need about a $10-million start-up base before eventually becoming self-sufficient, he adds.

“If it works in New York, I don’t see any reason why it shouldn’t work in Toronto. You have lots of new immigrants here … all we need is someone to give the money to do it, and we can do it. Look at First Nations, why don’t you extend this to reserves? This is income-generating activity.”

It may not be easy, though. The idea has been tried in Canada, through the Calmeadow Foundation, which closed in 2000 because of what it said was a lack of economies of scale. Several credit unions have since started their own programs.

Mr. Yunus dismisses the notion microfinance may not work as well in Canada. “If we can do it in remote villages in Africa, why not here? People on Aboriginal reserves still have an economy.”

***

Dr. Muhammad Yunus on other topics:

FINANCIAL SERVICES IN NORTH AMERICA

Millions of people in the United States can’t open a bank account because banks don’t consider them worthy clients. So if they receive their salary cheque, they can’t cash it … so they go to the cheque-cashing companies, who chop off a good portion of that cheque for themselves. Or they go to the payday loans, where interest rates can be 1,000 per cent … And it’s not a few people. It’s millions of people. This is a thriving business of loan sharks. What kind of banking sector are we talking about where the loan sharks can thrive, like in a primitive age, and they’re the only source of money?

BANKS

I say to banks – don’t worry about your mainstream business. Why don’t you use your foundation window and create some microfinance as a social business? So it does the work that your mainstream business doesn’t touch.

The second proposal – many of these banks have their corporate social responsibility fund, which is a charity fund … Why don’t you use that corporate social responsibility money to create a subsidiary for a microfinance bank?

All that subsidiary does is lend money to the poor people. It doesn’t do the mainstream banking, it has a specialized banking to the poor. Then if you lose money, there’s nothing to worry about.

THE SUBPRIME MORTGAGE CRISIS

Subprime teaches us a very, very strong lesson. The banking system is not as strong as they were telling us. So the lesson is, we have to go back and fix it – not the hole, but the system of banking … One trillion dollars disappeared overnight. So we have to redesign it, because we don’t want to face similar problems down the line.

If, without collateral, without lawyers, microcredit loans can get back near 100 per cent – why don’t you learn from them?

MICROCREDITGiving these tiny loans [means] you can start digging into yourself, discovering yourself. It’s not just a loan with just money involved – it’s the fact that you’re discovering your own capability, you’re bringing out your entrepreneurial ability. So you become a contributor rather than being a burden on society. Because poor people are looked at as a burden on society. They’re not. They’re a burden because society never gave them an opportunity to be a creative contributor.

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