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Muhammad Yunus Subprime Lender
By EMILY PARKER, WSJ, March 1, 2008 Queens, N.Y.
In a Jackson Heights
shop for colorful saris and glittering bracelets, several women have
gathered to meet with their banker. They laugh and chat in Bengali.
Sultana, a 39-year-old woman wearing a headscarf, hands him $128 in
cash. She is making her first repayment of the $3,000, six-month loan
she'll use to help with her husband's candy store.
Welcome to Grameen
America, Muhammad Yunus's brand-new microfinance venture. Mr. Yunus,
along with his Bangladesh-originated Grameen Bank, won the 2006 Nobel
Peace Prize for battling poverty by lending out small sums of money to
the poor. The loans are mainly for income-generating activities -- from
making baskets to raising chickens. Since its establishment in 1983,
Grameen has given out billions of dollars in loans, helping to pull
families out of poverty and inspiring similar operations all over the
world.
Mr. Yunus has now
brought Grameen to this borough of New York City. Since taking off in
January, Grameen America has lent out a total of $145,000, with
interest rates at around 15% on the declining loan balance. The money
will be used for everything from taxi registrations to sewing machines.
I meet Josefina from the Dominican Republic, who has borrowed money to
buy women's accessories to sell.
Grameen works a little
differently from your average American financial institution. The
Grameen banker comes to the borrowers, either in their homes or
businesses. Women borrowers take priority. There is no need for
collateral, credit-history checks, legalities or complicated paperwork.
Just credit, plain and simple. . .
Mr. Yunus, who
cheerfully refers to his business as "sub sub sub subprime,"
seems unfazed by the U.S. subprime mortgage collapse and the various
tightenings of credit that followed in its wake. "If subprime
cases are risky, Grameen cases are extremely risky," he says.
"Because not only are we poorest, [borrowers] don't have
collateral, they don't have guarantees, they don't have lawyers,
nothing. How risky can you get? Still, our money comes back."
Grameen has claimed that over 98% of their debts are repaid.
I mention that Mr.
Yunus's way of doing business seems like an "old-fashioned"
notion of credit, which a few centuries back was apparently closer to
the Latin credere (to believe or trust). To have
"credit" in a community, for example, meant that you could be
trusted to pay back your debts.
"I use to say this
in my speeches, in the early days," he responds. "I said:
look at the world, how funny it is. They took the word credit which
means trust, and built a whole edifice of credit institutions, refined,
very sophisticated, entirely based on distrust." At Grameen, he
says, "we went back to the original meaning of credit."
Mr. Yunus would argue
that in making credit more easily accessible, he is helping guarantee a
fundamental human right. "There are certain items that are listed
as human rights: right to food, right to shelter, right to work, right
to health . . . but who are going to implement those human
rights?"
Some might say that
government is responsible. But "that doesn't mean that government
has to bring a platter full of food every morning to feed you, that's
not what the government could do. Government could not bring health
care to every single citizen or work opportunity for every single
citizen."
Out of all the rights
that he listed, Mr. Yunus says he would put credit as No. 1. "If
you agree that each case of receiving microcredit is a creation of
self-employment, then my argument is self-employment creates
income," he explains. "Income is the thing which brings food.
Income is the thing which creates the possibility of shelter, home. And
income is the best medicine."
The collapse of the
American subprime market has not shaken Mr. Yunus's confidence in
credit. Rather, he blames the problem on sloppy business techniques.
"They have the collateral, they have the lawyers, they have the
entire legal system behind them . . . But they still could not protect
themselves. What does it say?" he asks. One, "it says you
didn't know how to do business . . . No. 2 . . . you got extra greedy.
You overstepped your territory." . . .
Why is Grameen's
debt-repayment rate so high? "Self-interest," is one reason.
"For the first time, she has been given this opportunity to make
money, make an income. Now she has a choice: she can pay back the loan
so that she can continue with this door open and she can move on step
by step. Or she says, enough is enough, I'm not going to pay back, I'm
going to enjoy the money I got. What happens? The door gets
closed."
Grameen, crazy as it
may sound, "assumes that every borrower is honest." But it
does have ways to help ensure repayment. Each borrower joins a group of
people from similar social and economic conditions, and the group
approves the loan request of each member. In this way, the group
assumes "moral responsibility" for the loan.
Mr. Yunus's use of the
female pronoun is not accidental. He says Grameen Bank's borrowers are
97% women, the result of a very deliberate policy. It all started when
Mr. Yunus complained that Bangladesh's banks weren't lending to women
at all. "I was trying to show in how many different ways
conventional banking went wrong. So when I began I wanted to make sure
that I do not face the same complaint against me. So I wanted to have
50% of my borrowers as women." . . .
After Grameen got to
their desired level, 50% women borrowers, "we started noticing
that money going to the family through women brought so much more
benefit to the family than the same amount of money going to the family
through men . . . So at one point we said, forget about 50-50. Let's
focus on women because it changes the family faster." . . .
Mr. Yunus's
determination paid off. Grameen, in quiet ways, is helping to empower
women. "Every single of those seven-and-a-half million
borrowers," he says, has a "personal bank account, and they
are accumulating quite a significant amount for themselves." This
"immediately establishes ownership because she is the only one who
can withdraw money. This is her protected territory." . . .
In his new book,
"Creating a World Without Poverty," Mr. Yunus does just that.
He defines social business as "cause-driven" rather than
profit-driven. And yet, it is not a charity: Its owners are entitled to
recoup their investments, and the social business must recover its full
costs, or more, even as it concentrates on creating products or
services that provide a social good. It does this by charging a fee for
its products and services. (One example: a business that manufactures
and sells low-priced, nutritious food products to underfed children.
Grameen America is also a social business.)
Mr. Yunus freely
acknowledges that the free market has done a great deal for the poor.
"I didn't say that what is there is wrong. I said the structure
was not complete. One piece was missing. We couldn't express within the
business world all the things we want to do for others."
He argues that in
today's world, people whose main ambition is to help those in need tend
to be pushed into philanthropy, which isn't always the most efficient
way to bring about change. In philanthropy, he says, the "dollar
has only one life, you can use it once . . . social business dollar has
endless life, it recycles. And you build institutions." He
continues, "when it's an institution you bring creativity into it.
You bring innovations into it. You bring continuity into it."
Mr. Yunus argues that
it's extremely difficult to bring efficiency to charity. But "the moment
you bring in a business model, immediately you become concerned about
the cost, about the revenue, the sustainability, the surplus
generation, how to bring more efficiency, how to bring new technology,
how to redesign, each year you review the whole thing . . . charity
doesn't have that package.". . .
Mr. Yunus likes to tell
a story of going into a village and meeting one of his borrowers, whose
daughter has risen to become a doctor. "You look at the mother,
that illiterate woman who borrowed money to raise chickens, to buy a
cow to send the daughter to school, and now she's a doctor. And I get
the question in my mind: the mother could have been a doctor too,"
he says.
"The whole thing
is about making those opportunities available, so that they can change
their lives."
To read the entire
article, go to http://online.wsj.com/article_print/SB120432950873204335.html.
Ms. Parker is an
assistant editorial features editor at The Wall Street Journal.
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