Loans to the Poor
Muhammad Yunus has brought the Grameen Bank to the U.S. The microfinance venture, which previously helped the poor in countries like Bangladesh, is now offering small loans to residents of New York City. Grameen lends money to finance small businesses and help new entrepreneurs become self-sufficient. It’s been remarkably successful, with a repayment rate of 98 percent:
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." […]
Each borrower joins a group of people from similar social and economic conditions, and the group approves the loan request of each member.
Traditionally, loans to the poor have entailed high interest rates and a lot of risk. That’s why there’s so much enthusiasm for regulation and government involvement in the business. But Yunus has created a new business model for lending; he combines mentoring and money to increase the loans’ effectiveness. Rather than passing strict laws to drive lenders out of the business, we should be encouraging this new kind of bank for the poor. Maybe the next branch of Grameen will open in St. Louis or Kansas City!
For more information on microfinancing, take a look at Enterprise Mentors International, a microcredit organization cofounded by Show-Me Institute board member and treasurer Menlo Smith.