Author: AP
Publication: The Times of India
Date: August 31, 2009
The global financial crisis has highlighted
a curious success story: A bank that doles out loans to some of the world's
poorest, least-creditworthy people continues to have a payback rate of nearly
100%. Nobel Peace Prize winner Muhammad Yunus, known as the "banker to
the poor'', quips that the Grameen Bank he founded owes its success to "sub-sub-subprime
borrowers'' who also own nearly all the bank's equity. When Yunus approached
traditional banks over 30 years ago about lending to the poor in Bangladesh
to start small businesses, he was told it could not be done.
But since 1983, the bank has lent over $8
billion to nearly eight million people in Bangladesh who have had a 98% repayment
rate. About four million more have been similarly helped through partner organisations
in 38 other countries-with an average repayment rate of 95%.
Yunus thinks his model could teach big commercial
banks some lessons. "We have now shown that the poorest of the poor can
be creditworthy,'' he said in an interview with AP during a recent trip to
Bangkok. "Our loan repayments are as high as ever.''
Grameen takes on clients who have no collateral,
no credit history and no lawyers. The vast majority of them are women. Most
take out loans for $200 or less each time.
Yunus attributes microlending's success to
a system of "moral responsibility'' that makes approval and repayment
of the loan the concern of the community as well as the individual borrower.
Here is how it normally works. A group of
five prospective borrowers from similar social and economic positions come
together to determine an appropriate loan for each. The request then goes
before a larger council of borrowers, who are also shareholders in the bank,
and finally to the bank for approval. It's not entirely surprising that Grameen
and other microfinance institutions have been largely unscathed by the financial
turmoil, said Mayumi Ozaki, a microfinance specialist at the Asian Development
Bank. They generally support tiny businesses such as retail shops, vegetable
growing and craft making that are not affected much by a global trade slowdown.
But success of Grameen is also attributed to building relationships and trust.
Ozaki says it's hard to draw too many lessons
for big commercial banks, whose transactions are usually much larger and more
complicated. Grameen also has been successful because it's grounded in what
Yunus calls "the real economy'', rather than "fantasy economy''
of ever-climbing asset prices. "The closer you are to the real economy,
the safer you are,'' he said.
Grameen's model has been replicated successfully
in over 100 countries, including the US. Established in the US since early
2008, Grameen America lends investment capital to people who otherwise would
not have access or would have to rely on money from pawnshops and loan sharks.
