The Wall Street Journal (WSJ), a leading business publication, interviewed Muhammad Yunus, founder of Grameen Bank and 2006 Nobel Peace Prize winner, in an article titled “Muhammad Yunus: Subprime Lender”. The article covered Mr. Yunus’ entrance into U.S.’s microcredit market and his approach to credit lending.
Grameen America, Inc. is Mr. Yunus’ new microfinance venture which focuses on serving “poor, aspiring entrepreneurs in the United States”. It is a for-profit microfinance company, follows the same lending model as Bangladesh-based Grameen Bank, and is focused on New York City with the intent to eventually spread throughout the US. Since it’s initiation in January, Grameen America has loaned a total of USD 145,000 at interest rates around 15 percent. Like other Grameen programs, priority is given to women borrowers; there are no credit-history checks; and borrowers do not need collateral or deal with complicated paperwork.
Grameen America joins other U.S. micro lenders such as ACCION USA, a private non-profit organization and part of ACCION International. ACCION USA has lent over USD 120 million to poor entrepreneurs in Brooklyn since 1991, and over USD 154 million to over 16,000 entrepreneurs nationwide. The microfinance information clearinghouse Mix Market lists only one US-based MFI: ECDC Enterprise Development Group (EDG), a non-profit, non-bank financial institution. EDG has provided microfinance services to over 5,000 people in Washington DC’s metropolitan area and had 250 active borrowers as of September 2006.
Given the economic turmoil caused by the U.S subprime mortgage collapse, Mr. Yunus discussed the risks of subprime-lending in the article as well. While Mr. Yunus described his business as “sub sub sub subprime”, he is not fazed by the credit crisis, blaming the collapse on sloppy business techniques. Despite the lack of collateral, guarantees, and lawyers common in conventional American lending, Grameen Bank claims over 98 percent of their loans are repaid and attributes the success to “know[ing] what is the limit within which we operate.”
Mr. Yunus also emphasizes access to credit as a basic human right, placing it as No. 1 when compared to other human rights such as the right to food, shelter, work, and health. He argues that through microcredit self-employment is possible. Self-employment can generate income, which in turn can provide food, shelter, and health care.
Beyond microfinance, Mr. Yunus explains how “social business” can eliminate world poverty. Social business is a “cause-driven” business model rather than a profit-driven model. Unlike charities, social businesses must recoup their investments, at minimum cover their costs, but still concentrate on creating products or providing services with social good. Furthermore, Mr. Yunus believes that a business model is needed to efficiently bring about change. Unlike a philanthropic dollar, Mr. Yunus states that “social business dollar has endless life, it recycles. And you build institutions.” With institutions come creativity, innovation, and continuity. Mr. Yunus fully details his vision on social business in his new book “Creating a World Without Poverty”.
by Jennifer Lee
Wall Street Journal: “Muhammad Yunus: Subprime Lender”, by Emily Parker, March 1, 2008.
Financial Times: Letters to the Editor, “Queens Needs Microfinance as much as South Asia”, by Anne Fish, February 27, 2008.
MicroCapital Stories on Yunus Wins Nobel Peace Prize
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- MICROFINANCE EVENT: SEEP Network Annual Conference, September 19-21, 2016, Arlington, Virginia, USA