Third Screen: Can Banks End Poverty?

Busy weekend for Muhammad Yunus, the 2006 Nobel Peace Prize-winning economist, Fulbright scholar, NY Times best-selling author, and "father of micro finance."

It included speaking engagements at Harvard, Georgetown, St. John's University for the launch of America's first degree program in Social Business, which is to be based on the practices of Yunus' famed Grameen Bank. Then Sunday afternoon, it was off to a panel discussion at the famed lecture circuit stop, The 92nd Street Y, to answer the question, "Can we have a world without poverty?"

And he still found time to see his daughter and speak to reporters from the BBC, Time, The National of Bangladesh, Reuters, a paper from Abu Dhabi, and me.

Thirty years ago in Bangladesh, teaching economic theory, it occurred to Dr. Yunus that a financial model was needed in banking to serve the world's poorest people and that it needed to be activated, and not just bandied about in the world of ideas.

Banks don't lend money to people who don't have credit and collateral. Yunus founded a bank that does. His social business concept of granting unsecured micro loans to help individuals rise out of poverty resulted in his formation of a pioneering financial institution called Grameen Bank (which means "rural" in Bengali) and the activation of an economic mechanism now known as micro credit, micro finance, or social business.

Yunus especially wanted to help women. "It took six years until Grameen was able to make loans 50/50 to men and women," Yunus explained. "I'd ask women if they wanted a loan to go into business, and they'd say no, I don't know how to do anything, and I have no skills. I don't know about business. Can you cook? I'd ask. Cooking is not work, they'd tell me. Is there someone in your village who makes a great dish? Yes, they would all say at once and start to trade names. Why can't you sell that? I'd ask You can't sell food, they'd argue. You serve food to your guests. Hasn't your husband ever brought home sweets or cookies for the children? I'd suggest. Didn't he buy them? Oh, they'd say, well, yes. So you can sell food, I'd say. And that embroidery you do so beautifully, you learned that at home, yes, but you can sell that embroidery."

Grameen, whose slogan is "banking for the unbanked," now operates in 38 countries providing collateral-free loans to over 7.5 million borrowers. The Grameen Bank has loaned out over $7.2 billion dollars. One of its most astonishing and impressive bits of data is its repayment rate of over 98% on its loans. A Grameen video includes everything from success stories in Latin America to Dr. Yunus addressing Hollywood celebrities such as Sharon Stone in Malibu, where he quips, "Isn't it funny that a banker who makes loans of a dollar or so is speaking in Malibu?" With similar charm, he told his audience in New York that things have really picked up for Grameen since he won that Nobel in 2006.

Habibur Rahman, a Grameen America manager now working at the first U.S. branch, which is located in Jackson Heights, Queens, is originally from Bangladesh and spent several years as a Grameen manager in Kosovo. "I landed in Kosovo on June 6, 2000″ he recalled. "Twenty yards from the airport everything was flat. Houses gone. Mosques gone. Schools gone. Business gone. Nothing to the left. Nothing to the right. The U.N. had secured the area but asked us not to go in on our own. We went. I stayed for three and a half years. First loan was to a hairdresser. Second loan was to a seamstress. I stayed until I knew local business didn't need us. They said you cannot go. You must stay and marry. You belong here now. I went home to Bangladesh, but it was very hard to leave."

According to Grameen Bank statistics, over 37 million people live below the official poverty line in the United States alone. 21 million of these are women. 9 million are in 'deep poverty.' At the same time, predatory loans are alive and well at neighborhood pawn shops and check cashing stops in poor communities. This "payday loan industry" is very large and growing rapidly. 2007 annual loan volume was more than $40 billion, with average interest rates of 400% APR.

Women of developing countries continue to tell Yunus and the other Grameen managers they have no skills, that they don't handle money, that Grameen should speak to their husbands. "When you hear a woman say this," Yunus said, "you are not hearing that woman. You are hearing the voice of history. We must change history."

Portions of this article also appear on my blog, "Some Backstory," at www.trueslant.com.

Comments

[PaydayLendingRep]

While critics of the industry assign labels to payday lending customers in an attempt to further their political agendas, the fact is that we provide services to a broad cross section of Americans because there is widespread demand for the financial service we provide. Our customers represent a large demographic segment and cannot be grouped based on race, sex or religion.

Payday lenders are located in population centers, convenient locations where customers live, work and shop.

Yes, a payday loans average ANNUALIZED interest rate would be around 391%, however it doesn’t make sense to look at the product’s fees this way as these are short-term loans and their rates are based on two week terms.

In any case, just to provide some context, a report by the FDIC found that bank and credit union overdraft fees have APRs ranging from 1067% to 3520%, so to call payday lenders “predatory” based on their annualized rates without including banks and credit unions seems a little unfair.

[Stinee]

One of the biggest obstacles to the "developing" world is the double standards of the developed world. The IMF requires imperiled developing economies to privatize their markets. But when we get into trouble, we socialize--or "bailout"--the banks. Here, we rightfully praise Muhammad Yunus as the father of microfinance, yet we demonize its slightest manifestation in our own country. Payday lenders are often the only institutions that will do business with our nation's unbanked. Where else can someone even take out a small $100-200 loan? Can we please see more articles on how microfinance would otherwise take place in America--whereby our own poor can borrow money and build their credit?

[Bcasey11]

can banks end poverty? BANKS CAUSE POVERTY!