Source: Financial Times.
Original article available here.
NEW YORK, February 16 – Bangladesh’s Grameen Bank has made its first loans in New York in an attempt to bring its pioneering microfinance techniques to the tens of millions of people in the world’s richest country who have no bank account.
The bank’s entry into the US, its first in a developed market, comes after mainstream banks’ credibility has been hit by the mortgage meltdown and many people are turning to fringe financial institutions offering loans at exorbitant interest rates.
“Now is a good time because of…the subprime crisis and that highlights the issue that the financial system is not perfect,” Muhammad Yunus, the bank’s Nobel prize-winning founder, told the Financial Times.
Grameen has lent USD 50,000 (GBP 25,500) in the past month to groups of immigrant women in Jackson Heights in New York’s borough of Queens. During the next five years, it plans to offer USD 176 million in loans within New York City and then expand to the rest of the US.
In Bangladesh, Grameen lends to poor women seeking to start small enterprises but who cannot borrow from banks because they do not have accounts or a high enough credit rating.
The bank, which started with USD 27 in loans Mr Yunus made to 42 women in Bangladesh in 1976, has now made more than USD 6.5 billion in loans to 7 million people in the country.
In the US, about 28 million people have no bank accounts, while 44.7 million have only limited access to financial institutions. People often did not hold bank accounts because they had had credit problems, had no access to a local branch or they distrusted the mainstream financial system, said Jonathan Morduch, a microfinance expert at New York University.
Those outside and on the fringe of the banking system produce USD 1.4 trillion in annual income, the Federal Deposit Insurance Corporation estimates.
The so-called “unbanked” are forced to rely on fringe or black-market financial operations, which charge huge rates of interest, such as payday lending and loansharking.
The volume of payday loans, which can charge interest rates in excess of 1,500 percent, handed out in the US has almost doubled to USD 48 billion in the past five years, according to the Consumer Federation.
Ben Bernanke, the chairman of the Federal Reserve, has highlighted the role of microfinance in incubating businesses. In a speech in November he hailed “the important role that microfinance plays in bringing the opportunity for entrepreneurship to people who otherwise might not have it”.
However, some microfinance experts expressed doubt that Grameen could make an impact in the US, where credit was widely available and businesses and tax systems were much trickier to navigate than in developing countries.
After beginning with small loans to micro-entrepreneurs, Grameen plans to expand into other businesses, such as remittances and mortgages. as it has done in Bangladesh.
By Daniel Pimlott, Financial Times
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