Sam Fleming Economics Editor
Posted at 12:01AM, April 30 2013
The founding father of microfinance has called on politicians to make it easier to open banks in developed countries such as Britain.
Muhammad Yunus, the Nobel Prize-winning Bangladeshi behind Grameen Bank, is helping bring his microfinance concept to Glasgow with a venture that will offer small loans to prospective entrepreneurs who are locked out of the mainstream financial system.
He hopes that the project can break the stranglehold of loan sharks in deprived areas.
Existing banking regulations are pitched at organisations that make large profits and demand collateral for loans — “banks for the rich”, Professor Yunus argued. He said that the system should be made more amenable to the creation of deposit-taking microfinance banks that are not profit- driven and where customers post no collateral and save and borrow tiny amounts.
The Grameen venture in Scotland will use services provided by Tesco Bank, which has put up £500,000 in loan capital. It plans to offer its first loans of up to £1,000 per person to “lending circles” of five customers this summer.
Applying for a banking licence requires a “huge amount of money — all the regulation, equipment and so on,” Professor Yunus said. “Behind the banking law is that you should be dealing with millions of dollars. They are not thinking of a loan of £30 or £100.”
The financial system is failing poor people in the West, he argued. “As long as you have people living out of payday lenders, loan sharks, pawn shops, borrowing from friends, selling things off to bring in money, you have a great case where you have to have microfinance. Why don’t we create a law for the bank for the poor? Then loan sharking will disappear.”
Britain has eased access for new players by demanding less capital for small upstart banks. Last year the Government lowered the barriers to the formation of credit unions.
Chris Leslie, the Shadow Financial Secretary, said that he was counting on credit unions and other mutuals to address financial exclusion in Britain. “I would be open to the idea of widening access to banking licences as long as consumer and taxpayer safeguards can be guaranteed,” he said.
Professor Yunus was speaking in Washington, where this month he was awarded the Congressional Gold Medal for his work in combating poverty.
Source: The Times, UK