GLOBE AND MAIL CANADA's
LARGEST NATIONAL DAILY
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.
