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Tuesday, February 15, 2011

series 1 of simplest articles on microcredit ever seen

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.

David Caploe PhD

Editor-in-Chief

EconomyWatch.com

President / acalaha.com



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.


Furthermore, it means commercial microcredit institutions are subject to demands for ever-increasing profits, which can only come in the form of higher interest rates charged to the poor, defeating the very purpose of the loans.


Some advocates of commercialization say it’s the only way to attract the money that’s needed to expand the availability of microcredit and to “liberate” the system from dependence on foundations and other charitable donors.

But it is possible to harness investment in microcredit — and even make a profit —

without working through either charities or global financial markets.

Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh.


It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program,to micro-enterprise loans of about $1,000.

Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis.

When borrowers join the bank, they open a savings account.

All borrowers have savings accounts at the bank, many with balances larger than their loans.

And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.

More microcredit institutions should adopt this model.

The community needs to reaffirm the original definition of microcredit,

abandon commercialization, and turn back to serving the poor.

Stricter government regulation could help.

The maximum interest rate should not exceed the cost of the fund —

meaning the cost that is incurred by the bank to procure the money to lend —

plus 15 percent of the fund.


That 15 percent goes to cover operational costs and contribute to profit.

In the case of Grameen Bank, the cost of fund is 10 percent.

So, the maximum interest rate could be 25 percent.

However, we charge 20 percent to the borrowers.

The ideal “spread” between the cost of the fund and the lending rate should be close to 10 percent.

To enforce such a cap, every country where microloans are made needs a microcredit regulatory authority.

Bangladesh, which has the most microcredit borrowers per square mile in the world, has had such an authority for several years,

and it is devoted to ensuring transparency in lending and prevented excessive interest rates and collection practices.


In the future, it may be able to accredit microfinance banks.

India, with its burgeoning microcredit sector, is most in need of a similar agency.

There are always people eager to take advantage of the vulnerable.

But credit programs that seek to profit from the suffering of the poor should not be described as “microcredit,” and investors who own such programs should not be allowed to benefit from the trust and respect that microcredit banks have rightly earned.

Governments are responsible for preventing such abuse. In 1997, then First Lady Hillary Clinton and Prime Minister Sheikh Hasina of Bangladesh met with other world leaders to commit to providing 100 million poor people with microloans and other financial services by 2005.


At the time, it looked like an utterly impossible task, but by 2006 we had achieved it. World leaders should come together again to provide the powerful and visionary leadership to help steer microcredit back on course.

A sentiment with which we could not agree more.

chris macrae www.microcredit.tv


1:31 pm est 


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shortguide on how to host yunus 10000 dvd youth dialogue improves weekly with your help

YUNUS Diary

April

new york, jackson heights friday april 25- yunus opens branch of Grameen America bank

personal Q&A with yunus london ap 21- RSVP : flow candidate questions by 8.00pm london time sunday ap 20

Events with Yunus
Kiev Ukraine April 8

Dubai April 13
http://www.arabianbusiness.com/516350-grameen-banks-muhammed-yunus-first-nobel-laureate-to-address-an-islamic-finance-forum?ln=en

London April 21 - water conference
http://watermeetsmoney.com/schedule

Los Angeles Apr 28-30 Milken Instiute http://www.marketwire.com/mw/release.do?id=846750


Lancaster PA April 30 Nobel Peace Prize Recipient to Speak at 136th Annual Dinner
Muhammad Yunus - revolutionizing economic and social development worldwide
http://www.lcci.com/enews/article.asp?id=1241

Events with Citizens

Los Angeles April 15 Isabel Maxwell
http://grameenamerica.net - Grameen's bank for the unbanked is coming to CA http://www.hhill.org/hill/events

New York April 15 Peter Burgess's 2nd bimonthly 30 person roundtable on how can New Yorkers help Dr Yunus most

-please tell us of yunus events at at practice@yunusuni.com

May

12: Dhaka: opening TheGreenChildren eyecare hospital replicated from Aravind model (help us catalogue more Base of Pyramid models)

June

July

Consistently ranked humanity's most productive networking event -achieving its 10 year roadmap of giving 100 million families access to ending poverty - microcreditsummit comes to Indonesia: http://www.inamicrocreditsummit.org/
 July 28-30

If we met in Dhaka at end of 08 to discuss top 9 ways to help Yunus, what would they be?

here are some current menus - we delight in being told what we are missing or how to take an item to the next step or worldwide entrepreneurial collaboration

08.1 relationships with africa http://www.youtube.com/watch?v=klUu03EMeRs

08.2 relationships with china http://wholeplanet.tv/id25.html

08.3 how to sustain your city's largest monthly collaboration citizen meeting on yunus and celebrating humanity agenda

08.4 yuNus youtubes and resources -development; catlaoguing on how to use to save 24 different worlds; how to increase any time accessibility and peer to peer debriefings http://wholeplanet.tv/id27.html

08.5 Social Action diaries- which communities want to trailblaze this year-long youth participation system http://www.youtube.com/watch?v=ngNUvukZY3U

08.6 Help develop smba and Social business catalogues http://smbaworld.com/

08.7 Future Capitalism: how do citizens share knowledge of how to play Snap FC with ceos and industry sector responsibility http://futurecapitalism.tv/

08.8 empowerment networks Win-Win-Win: Connect q&a with 10000 rural telecentres and 5 focal areas beyonmd community banking - ie health, agriculture, education, government, comesumer channels and goods http://egrameen.com/

08.9 How can citizens and netizens help quality control microcredit market as for SB organisational systems, and bridge knowledge from micro credit to all micro economic developments


Help benchmark Livelihoods Lab- what alumni network is best for student livelihoods? 
 
Congratulations to www.pennies4progress.org  - the first student entrepreneur pitch I have been involved in judging to go on to win a 50000 $ prize 
My CV macrae014.doc macrae014.doc -why I changed my title to Job Creation Agent; love to see CVs of other job creation agents - chris.macrae@yahoo.co.uk 
 
Leaflet Clubs
One of the better kept secrets of visiting Dhaka is the extraordinary range of leaflets on talks given by Dr Yunus and his leading entrepreneurs of green energy, health and  social business's other sustainability solutions
If you missed a leaflet and want one ask me to send you a laser copy -chris.macrae@yahoo.co.uk
If you succeed in geting a lecturer to use a leaflet as a classroom debating stimuli - do tell us so we can put leaflet dialigue alumni in touch with each other
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HOW DID GANDHI CREATE HIS JOB AS THE 20TH CENTURY NUMBER ! LEADER OF PEACEFUL NATIONAL ECONOMY REVOLUTION

As global village Scots, we report this from the viewpoint of my maternal grandfather - a fellow Bar of London Barrister whose job as chief justoce of the Mumbai region mainly involved 25 years of arbitration with Mahatma Gandhi. Of course culturally there are many far more exciting local reports (tell us if you have one to post below chris.macrae@yahoo.co.uk) Gandhi didnt see anything he wanted to study in his home region of India or Mumbai its main capital. So he talked his families into funding him to study law at the Bar of London. When he returned to Mumbai , there was no work for Indians that matched his qualificiations so some expatriates in South Africa invited him to become their number 1 lawyer. Gandhi began sailing through the triad of Mumbai, Durban and London. On one occasion he was marooned in London just as World War 1 started- charicteristically the then 45-year old gandhi devoted himself to months of being a paramedic . On a much earlier home-trip he started leafletting stories of how few real livelihood opportunities Empire left locals in both South and Eastern hemispheres, and a local newspaper asked him to write an article. This got seen by the Raj authorities "reutered/telegrammed" back to London and South Africa - what's this young person up to? That's how Gandhi started to become worldwide networked -linking in his social networks as a bar of london student, a lawyer in south africa, and a reporter in India. Also his many sailings started to become YouthCreativeLabs where disciples could enjoy several weeks of tutoring,and pitch entrepreneurial ideas. However, it wasnt until Gandhi was nearly 40 that he had a system-transforming AHA "whole truth" moment "Satyagraha" - when he was thrown out of a first class carriage of a south african train for having the wrong color skin. He concluded his profession- ruling with British Imperial Law - was the main conflict with the future freedoms and happiness of 99% of the peoples (in africa and india). His plan which he spent the scond half of his life on - was plant a totally new education system from kindergarten up to university and once a first generation had graduated invite them to peace marches (eg to collect salt fom the sea- something the British salt manufacturing monopoly banned) and other demonstrations to massively free human interest stories which by now the EMpire's media and my grandad were being ordered to censor. The ending was happy in 2 ways and sad in another. Maria Montessori joined in Gandhi's education revolution - which has been sustained in such wonderful schools as Lucknow India and 40000 village schools network in Bangladesh. Also joyfully my grandfathers last job was to write up the legalese of India's Independence. Sadly Gandhi was assasinated partly before he wanted the whole continent to remain united not to be split into India and what became West and East Pakistan (the latter finally becomg free as Bangaldesh in 1971).

 

Is this story relevant today. Why yes! The Mandela Elders have been supporting what is so far a 15 year effort to free educational systems around missing curricula of youth entrepreneurship. #2020now aims to help south african youth co-create a million jobs. Could such a curriculum be of massive open online value to the worldwide youth Diaspora and twin capitals of youth jobs summits ?

Related searches MOOCyunusplanetMOOCmicroeducationsummit


some selections from april

21 April London :

.

Scene 1 Greeting

Prime Minister Gordon Brown: Hello How are you, what a pleasure

Muhammad Yunus: It’s a pleasure for me

PM :  It’s good to see you

(They Shake Hands)

Scene 2 Muhammad Yunus Introduces himself to the camera from the heart of 10 Downing Street

I am Muhammad Yunus from Bangladesh with Grameen bank. We lend money to extremely poor people for income generating activities. I am suggesting that Africa needs a lot of microfinance programs – tiny loans 30 dollar, 45 dollar 100 dollar – and paid back in weekly installments. It doesn’t need any collateral. It doesn’t need any lawyers into it but the repayment rate is very high: 98% or 99%.

Microfinance is very important because it allows people to bring out their own initiative, bring out their own capability. And they can move on their own speed to cerate income, to get out of poverty. And people in Africa are very enterprising people, particularly women. Microfinance focuses on women. Today in Bangladesh within Grameen Bank we have 7.5 million borrowers a- 97% of them women. The Prime Minister is very much aware of it; very supportative of it. So we will discuss how to make it happen in Africa

Scene 3 PM and Dr Yunus sitting round a cup of tea

PM There is so much goodwill to the work you have been doing, and it is so important

Scene 4  After tea: Muhammad Yunus denouement

At the same time, we will be discussing another concept – the social business :  business to do good to people -  (show copy of Dr Yunus new bestselling book Creating a World Without Poverty- Social Business, The Future of Capitalism ).  This is business where you aim at the social objectives, not for making money for yourself. You cover your cost, make profit but the profit doesn’t go to investors or outsiders but stays with the company to achieve the goal that you set out to help achieve or lead.



Milken Institute Yunus has been described by BusinessWeek as one of the "greatest entrepreneurs of all time." He received a bachelor's degree and a master's degree from the University of Dhaka and a Ph.D. from Vanderbilt University.

Panels:
Financing Social Entrepreneurs: Transformative Models for the Future

Revolutionizing Health Care and Research in the Developing World

Grameen America
By invitation only


Business Innovations That Are Changing the World

Business Innovations That Are Changing the World

Speakers:
Eric Schmidt, Chairman and CEO, Google Inc.
Craig Venter, Founder and President, J. Craig Venter Institute; Co-Founder and CEO, Synthetic Genomics Inc.
Muhammad Yunus, Nobel Peace Prize Laureate, 2006; Managing Director, Grameen Bank

Moderator:
Michael Milken, Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions

Some of the most inventive minds in business are harnessing the power of technology and the markets to create sweeping shifts in the way we live, work and interact. By combining top-notch intellectual talent with non-traditional approaches, bold ideas, major investments and cutting-edge technology, they are innovating on a grand scale. Our panelists will discuss how pioneering business ventures can drive social change.





YUNUS100 videos; YUNUS1000 bookclubmicropublishing of community guides & bursaries


info@worldcitizen.tv welcomes additions to this Yunus literature list (wider mfi lists include 1)


  • Yunus, Muhammad, Credit for Self Employment: A Fundamental Human Right, Grameen Bank, Dhaka, 1987.
  • Yunus, M. and Jolis, A.(1998) Banker to the poor: the autobiography of Muhammad Yunus, founder of the Grameen Bank. Aurum
  • Yunus M, Creating a World Without Poverty: Social Business, Future of Capitalism, 2008


  • Yunus, Muhammad, Experience in Organizing Grassroot Initiatives and Mobiliing People's Participation: The Case of Grameen Bank Project in Bangladesh. Paper Presented at the 25th World Conference of the Society for International Development. Baltimore, Md., 1982.
  • Yunus, Muhammad, 1983, "If you can't beat them join them; or, how to operate your own financial institution", in Mattis, Ann, ed., 1984, A Society for International Development Prospectus, Duke UP for Society for International Development, Durham, NC, p. 79?90.

  • Yunus, Muhammad, Jorimon and Others, Grameen Bank, Dhaka, 1984.
  • Yunus, Muhammad, Grameen Bank - The First Decade, Asian and Pacific Development Centre, 1986.
  • Yunus, Muhammad, Strategy for the Decade of Ninties, Grameen Bank, Dhaka, 1989.
  • Yunus, Muhammad, Peace is Freedom from Poverty, Grameen Bank, Dhaka, 1991.

  • Yunus, Muhammad, 1991, The Grameen Bank: Experiences and Reflections, Grameen Bank, Dhaka.
  • Yunus, Muhammad, Experiences and Reflections, Grameen Bank, 1991.

  • Yunus, Muhammad, 1994, Grameen Bank As I See It, in Gibbons, David S, 1994, ed., The Grameen Reader, 2nd edition, Grameen Bank, Dhaka, p. 62-98

  • Bangladesh and Its Giant Neighbors 273
    The World in 2050 460
    The Problem of Poverty in Bangladesh