World Ark Magazine - January/February 2009 - (Page 14)

F rom this initi a l ex per iment came the seeds of a much larger project: the grameen bank, which yunus founded after discovering that no local banks would loan to these villagers. To date, the grameen bank has successfully loaned more than $5.3 billion in very small loans to 7 million borrowers, most of them extremely poor. in 2006, yunus won the nobel Peace Prize for his work with the bank. Throughout the ’80s and ’90s, as the grameen bank grew, so did a worldwide movement. Small institutions sprang up throughout latin america, asia and africa, dedicated to making collateral-free, tiny loans to the very poor. Microfinance, as the practice is called, is now a viable practice around the globe. yunus believes microfinance can eradicate poverty entirely; it is his oft-quoted goal that every country will eventually have its own “poverty museum,” as more and more of the world’s poorest improve their finances through small businesses. but microfinance also has its skeptics who criticize its high interest rates and the lack of hard data supporting its claims. Some critics doubt it can ever be more than a way to make money off the poor. Still, its potential to change lives seems irrefutable. as the practice continues to grow and evolve, the challenge will be to build a global system that is as effective, and as fair, as possible. did, i did the opposite. if banks lent to the rich, i lent to the poor. if banks lent to men, i lent to women. if banks made large loans, i made small ones. banks required collateral, and my loans were collateral-free. if banks required a lot of paperwork, my loans were illiterate-friendly. if you had to go to the bank to get a loan, i went to the village. That was my strategy.’ ” The rules of mainstream banking seemed to have more to do with preconceived notions of what a good borrower would be than with the reality. How It Grew Microfinance, at its root, is deeply egalitarian. it evolved from the notion that credit is a service that should be extended to everyone, not just people above a certain income, or who have a certain amount of collateral, or who are able to read and sign their name— all requirements that banks routinely enforce. “Microfinance had to break myriad rules of banking just to exist,” said Sam daley-harris, who runs a grassroots nonprofit called reSulTS and has helped organize worldwide summits on microcredit. daley-harris likes to quote yunus’ description of how the grameen bank developed its lending principles: “ ‘whatever banks The surprising thing was that such principles worked. The rules of mainstream banking seemed to have more to do with preconceived notions of what a good borrower would be than with the reality. in fact, the very poor, though unfamiliar with formal banking practices, were often savvy money managers. They were quite familiar with the concept of savings, usually keeping small amounts of livestock or jewelry to sell in case of emergencies. and by necessity, they were often resourceful, experienced entrepreneurs with livelihoods that depended on whatever tiny enterprises they could make work where they lived. Most important, as yunus and other microfinanciers have found, the poor could be extremely reliable borrowers. grameen bank reports say the overall repayment rate on their loans is 98 percent. So why have banks historically been so reluctant to make these loans? all prejudices about borrowers aside, for banks using a traditional lending model, the profits simply weren’t worth it. with an annual interest rate of 5 or 10 percent, a microloan, generally defined as between $25 and $400, would hardly generate enough 2006 Nobel Peace Prize recipient interest to cover a bank’s costs. even Muhammad Yunus a higher interest rate, say 20 percent, www.h ei f er .o r g 14 j a n uar y / feb ruar y 2 0 0 9 | world ark photo by MARLENE AWAAD/MAxppp /LANDov. http://www.heifer.org

Table of Contents Feed for the Digital Edition of World Ark Magazine - January/February 2009

World Ark Magazine - January/February 2009 Contents Letters For the Record The Good Life Asked and Answered Microfinance: A Lot for a Little Business is Buzzing in Honduras The World Grows Smaller Mixed Media Heifer Spirit Heifer Bulletin Calendar First Person

World Ark Magazine - January/February 2009

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