Muhammad Yunus, the Bangladeshi economist who won the Nobel Prize for creating the Grameen bank to help eradicate poverty in developing nations, has opened Grameen America and began disbursing loans in January, in Queens, a borough of New York City. This is the first time he has brought his program of "microloans" to a developed country. Grameen America offers loans in amounts from $500 to $3000, hoping to reach the segment of poor Americans without access to credit who are nonetheless entrepreneurs and provide vital services that will jump-start the lower tiers of the economy. They are bakers who cannot afford a refrigerator and therefore cannot buy or bake in bulk; vendors who cannot buy a cart and therefore have to pay daily rent on one; hair salon owners who have to pawn their jewelery to buy shampoo. Grameen is starting in immigrant communities where entrepreneurs have strong bonds. If the hairdresser's husband gets sick and she has to take care of him, her colleagues will pitch in and each take in one of her children so she can stay in business. Borrowers even make agreements as a group so that if one person defaults on a payment, disbursements to the whole group are delayed. Yunus says that the problem with the Western model of capitalism is that it makes a distinction between a company pursuing profit and a charity pursuing good, when in fact both goals can be accomplished by the same action. He began in 1974 by loaning $27 to a group of poor villagers in Bangladesh and soon realized that even small loans could make a transformative difference. The Grameen Bank has since disbursed $6 billion to more than 7 million Bangladeshi micro-entrepreneurs. He is grappling with the immense U.S. regulatory system, which for example prevents an entrepreneur from simply acquiring a cart and selling cakes, no matter how well his customers know him and trust his honesty and sanitation. He also objects to the American style of welfare, which discourages income-generating activities. "If you earn a dollar it is simply subtracted from your check," giving you no incentive to work. But worse, "If you want to quit welfare, you lose your health benefits." No micro-lending operation launched by Americans has succeeded and the feeling within the American financial industry is that microfinancing cannot work here. Nonetheless, Grameen America expects to break even when it has only 20,000 borrowers, which it predicts it will have no later than 2013. According to Grameen Bank, Grameen America authorized 36 loans worth a total of $100,000 in the first three weeks of February. Some of the types of businesses financed include handbags, candy, catering, tailoring, cleaning, doll-making, printing and day care. --HIghlights of a report in the Washington Post, 3/10/2008
Microlending in America will not succeed simply because the poor are overburdened with credit from PayDay loans at 125% interest and other loan sharks and Pawn Shops. Besides dealing drugs is quick money. The poor distribute and rich consume....and there is that borderline prostitution where the female sleeps with a boyfriend and gets money to pay for the gas to take the kid to school. There is shop lifting and selling the clothes and so on....that is not in Bangladesh!
Even in Bangladesh they found that they should avoid loaning poor men money because they will be irresponsible with the money. Loaning to poor women worked better. In the USA responsibility, patience and self denial are so rare. They better make sure they understand US culture before they try lending here.
The article talked about that. One of the things they're doing is getting people out of the grasp of the loan sharks and payday loaners It did seem that almost all of the people they interviewed in the article were women. They're starting in the Latino community in New York city. They understand U.S. culture very well. Please Register or Log in to view the hidden image!
That is a very noble effort and kudos to Yunus. In our 13 Trillion dollar economy it is literally a drop in the ocean! What is needed is a major revamp of our economic system that is sustainable... As I get more involved in major export activities (translation: jobs) I find that there is a whole group of people out there who are leechers under legal protection and protected by free enterprise umbrella. They are so called economists (who have never worked to produce a gadget), professors, thinktank consultants, and government employees getting bad advice - that is destroying the country. The problems are now systemic and pervasive just like Africa but in a very high level. Hope he makes a dent.
I think its a great idea. I heard elsewhere the microcredit was being co-opted by corporations that wanted to turn a profit from it, hope it can escape that in the US.
That kind of lending has worked in America - it used to be common, I think, at the judgment of the local banker or local money bags (organized crime has always done a lot of micro-lending, and made money doing it - with less lofty motives, naturally). A few years ago a banker in the west-central plains of Minnesota retired, and his very profitable practice of micro-lending (granted, not $27 - but in the low thousands) was dwelt on in the newspaper write up - one particular item: he would loan the college tuition to any graduate of the local high school, without collateral, on their handshake. According to the article, he never had a default on a tuition loan, and never - in fifty years - foreclosed on a farm. And his bank prospered handsomely. Yunus mentioned that in an interview I heard on the radio, as a major factor. That's huge, in the US. This utterly stupid system of running health care through employers puts an enormous risk on anyone who contemplates joining the working poor.
