Yunus: Re-Orienting Micro-Credit for People, Not Profit

Feb. 15, 2011 - PRLog -- http://www.economywatch.com/economy-business-and-finance-news/yunus-re-orienting-micro-credit-for-people-not-profit.15-02.html

15 February 2011.
Here at EconomyWatch, we consider micro-credit to be a key issue in one of our main concerns:

the impact of world political economy on ordinary people's lives.

We have looked at the situation from the perspective of those promoting micro-credit for profit,

the specific problems for-profit micro-finance has caused in India,

as well as the growing resentment towards the "industry" world-wide.

In this piece, Bangladeshi Muhammad Yunus, the "founder" of micro-credit, via his Grameen Bank,



talks about the problems of micro-credit today, and the most effective means to solve them --


first and foremost, effective / intelligent / EMPATHETIC government regulation.

While he himself has been having problems of late with the Prime Minister of Bangla Desh, Sheikh Hasina,

his commitment to the success of micro-credit FOR PEOPLE is undeniable,

making his thoughts on this key and increasingly important issue area as relevant as ever.

In the 1970s, when I began working here on what would eventually be called “microcredit,”

one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor.

In 1983, I founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty.

At that time, I never imagined one day microcredit would give rise to its own breed of loan sharks.

But it has.

And as a result, many borrowers in India have been defaulting on their microloans,

which could then result in lenders being driven out of business.

India’s crisis points to a clear need to get microcredit back on track.

Troubles with microcredit began around 2005,

when many lenders started looking for ways to make a profit on the loans

by shifting from their status as nonprofit organizations to commercial enterprises.

In 2007, Compartamos, a Mexican bank, became Latin America’s first microcredit bank to go public.

And this past August, SKS Microfinance, the largest bank of its kind in India, raised $358 million in an initial public offering.

To ensure that the small loans would be profitable for their shareholders,

such banks needed to raise interest rates and engage in aggressive marketing and loan collection.

The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared.

The people whom microcredit was supposed to help were being harmed.

In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.

Commercialization has been a terrible wrong turn for microfinance,

and it indicates a worrying “mission drift” in the motivation of those lending to the poor.

Poverty should be eradicated, not seen as a money-making opportunity.

There are also serious practical problems treating microcredit as an ordinary profit-maximizing business.

Instead of creating wholesale funds dedicated to lending money to microfinance institutions, as Bangladesh has done,

these commercial organizations raise larger sums in volatile international financial markets,

and then transmit financial risks to the poor.

Full article:

http://www.economywatch.com/economy-business-and-finance-...

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