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Too poor for a loan
Fighting poverty with micro-finance.
Can you imagine being so poor that banks won’t even consider you for a loan? You barely have enough to feed your family - what do you do?
You could get a job. Not an option, as there aren’t any in your village.
You could sell some possessions. No luck here, as you only own basic necessities.
You could borrow from family. No you cannot; they have nothing.
You could steal. You know this is wrong.
You see a money lender, what we call a loan shark. This is your only choice.
You borrow a small amount of money, maybe €20 worth. This is enough to help you buy some fabric in order to make clothing that you can sell. This loan gives you the missing link in helping to create business and put food on the table. Incorrect.
You see, that loan shark charges you an absurd interest fee, meaning you end up owing him far more than what you originally borrowed, and possibly double or more the profits you reap from your clothing sales. He agrees to give you another loan to pay back your initial one, and it’s official - you are caught in an endless cycle of indebtedness and struggle.
In steps the Grameen Bank. Grameen meaning ‘of the village’, is a community development bank founded by Nobel Peace Prize winner Mohammad Yunus that makes small loans, known as micro-credit, to the poorest of the poor without collateral. That means, come as you are. No assets, no savings? No problem.
The Grameen Bank opened with these main objectives:
- Extend banking facilities to poor men and women.
- Eliminate the exploitation of the poor by money lenders.
- Create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh.
- Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves.
- Reverse the age-old vicious circle of "low income, low saving and low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income".
How it works:
Solidarity lending is at the heart of GB. It works on the principle that small groups (typically five people) take a small loan out collectively, and encourage each other to pay. In essence, it is peer pressure at its finest. Anyone who appears to be free riding or mismanaging their individual finances will quickly be whipped into line by other members of the group. After all, if they can’t get enough money together as a group, they all lose out individually. Likewise, if someone is unable to make their share of the loan repayment, the others are likely to step up to help out, as again, defaulting on the loan does no one a favour.
Trust is also a main tenet of the Grameen Bank. There are no contracts, no legal mumbo-jumbo from the bank to borrowers. Instead, the agreement is based on the solid principle of trust. Along with this, all borrowers must agree to the 16 Decisions, a long list of promises ranging from "We shall always keep our children and our environment clean" to "We shall keep our families free from the curse of dowry". This social contract reflects the main principles of the institution: discipline, unity, courage and hard work.
Criticisms:
While the Grameen Bank is one of the most exciting ideas in banking and poverty alleviation to come out of the 21st century, it also faces much criticism, such as:
- It’s just as bad as loan sharking.
- GB charges an average of 20% interest on loans, far more than traditional banking institutions, but notably much less than your average shady loan shark.
- It’s a debt trap.
- Families live in a constant state of indebtedness and credit, one that is difficult to stop once started.
- It’s no different than welfare: Because GB relies on subsidies to operate, some say we may as well skip all the fuss and just dish out dole payments.
- It’s intolerant: Some argue that the 16 Decisions force families to abide by rules relating to lifestyle that they may not agree with.
More info:
www.grameen-info.org
www.youtube.com/watch?v=1UugpcDjjJU
