Wednesday, August 19, 2009

A word about microfinance

Some of you may have heard of Muhammad Yunus, a remarkable man from Bangladesh who developed the idea of microfinance and founded Grameen Bank, which is opening branches in both New York City and Glasgow, Scotland. He's written at least two books about it (Banker to the Poor and Creating a World Without Poverty), appeared on Oprah, The Daily Show, The Colbert Report and other television programs, and won a Nobel Peace Prize and a Presidential Medal of Freedom. You can learn more about him and his principles over at The Yunus Center, but I can tell you that the awards are well-merited, and that he has helped countless individuals find their way out of poverty.

Here's a brief excerpt from an article in The Guardian that talks about why his business model continues to work, and why the recession doesn't have to be bad news for everyone:

Muhammad Yunus is to economic development what Nelson Mandela is to world peace - a revered figure whose Grameen Bank has helped millions of Bangladeshis out of rural poverty by lending them small amounts of money, or microfinance, to set up their own businesses. It has 8 million borrowers, 97% of whom are women, and since 1982 has issued more than $6bn (£3.65bn), lending around $100m a month, with the average loan just $220, and repayments of near 100%. Its model has now been rolled out worldwide, from China and Zimbabwe to New York, and plans are underway to open the first British Grameen in Glasgow.

Yunus attributes its success to "trust-based banking". Money is lent to women - who he identified as using money more effectively than men for the wellbeing of their children - in groups of five. If one defaults, they all suffer, so they support each other to pay it back. And the borrowers own the bank, receiving dividends in lieu of profits.

In 1976, when he approached conventional banks asking them to lend to villagers deep in debt to loan sharks, the young economics student was told it couldn't be done because the poor are not creditworthy. He has proved them wrong, as has the collapse of the global banking system.

"2009 is a good year to ask again: 'Who is creditworthy?' Is it the large banks with large clients? They cannot obtain their money back ... whereas the poor taking tiny loans, without collateral, are paying every penny of it and changing lives," he told a packed audience last week at a British Council lecture in London.

A couple of years ago, when the incredible Green brothers were still in the Brotherhood 2.0 era, they started talking about microfinance. Here's John's vlogpost:

And that's when I decided to become a microfinancier. I sent $82.50 (via credit-card) to Seventy-five dollars of it wasn't tax-deductible, because it was for loans, and loans are not charity. I applied the full $75 of my microfinance funds toward the request of a Cambodian woman who wanted to buy more vegetables and buy a motorcycle to help her deliver produce for her existing business. Earlier tonight, I applied $25 of my Kiva credit (from repaid loans) to help a cab driver in Nablus pay for major repairs to his taxi (it was an especially fun experience for me, since my $25 moved his loan into the "fully funded" category).

In the past two years, I've never paid any more money in, and I've never pulled any money out (although I did donate some additional funds from it to Kiva to help them with their operating expenses). I've made 8 loans totalling $275 to various people in Uganda, Honduras, Viet Nam, Tanzania, Pakistan and the Dominican Republic, in addition to Cambodia and Nablus (which is located in the West Bank under the governance of the Palestinian Authority). Not a penny of it has been lost. Not a single loan has defaulted.

I hope that those of you looking for a way to make the world a better place will consider becoming microfinanciers. And even if you don't, at least now you'll know what that little "kiva" logo is at the bottom of my posts. (Oh - and if you do take out a loan, I hope you'll tell them I sent you. My email account is my first and last name (w/out the R in the middle) at hotmail dot com. Take that, web spiders!)

Kiva - loans that change lives

No comments: