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« Network Democracy | Main | Not in the Footsteps »

October 14, 2006


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Peter McCluskey

It's not all that hard to argue with the reported 99% repayment rate. This post claims it's a bogus number. Grameen is probably a lot better than the typical charity which doesn't measure its results in any meaningful way, but I don't believe it's as effective as it claims.

Tom Craver

It'd be shocking if 97%+ of their borrowers succeeded enough to repay the loans, given their presumed lack of prior business experience. If it's 80% or even 50%, they're doing amazingly well.

I suspect the 'bank' felt they had to fudge their accounting, or their basic concept would be proven wrong. And of course, they can't bring themselves to make loans that are secured by at least the business assets, to be seized if the borrower cannot repay, as a real bank would do.

So they're a charity - surprise surprise.

Phillip Huggan


Mike Treder, CRN

Phillip, is that really your comment? I almost deleted it as spam or trolling. Perhaps you could be a bit more coherent...

Phillip Huggan

Peter, the blog you link espouses right-wing crap-onomics. note one of the categories listed their is the Austrian school of economics, which is just about as effective as the American school of nation-building.

I doubt the Grameen bank historic repayment rate is anything above mid-90% simply because a typhoon wiped out pretty much all their loans in 1998 (or 1996, I forget).

Tom, their are now tens of thousands of microfinance institutions, many with transparent accounting procedures (and some without). Their efficiacy range is just as wide as are mainstream banks. You get your Citibank, but from time to time you also get your Barings. You pulled the 80% and 50% repayment rate figures out of your ass; haven't done any research into this field you obviously know little about.

The biggest problem with capitalism as an economic system is that only people with capital assets are eligible for credit. Microfinance is a key weapon being used by Canada to fight the Taliban in Afghanistan (though for lack of about 3 or 4 thousand more troops, the war there may be a losing fight). You could call the practise of Canadian soldiers dying to defend American civilian lives "charity", or perhaps "stupidity" is a better word.

Tom Craver

The thing I like best about the Grameen approach to charity is that it treats the poor as full human beings, with full human potential - not virtual animals to be taken care of. It recognizes that every individual *has* a major asset - namely herself.

The most thought provoking aspect of Grameen is the idea that they never charge more in interest than the original amount of the loan, even if the loan isn't paid back on time. In essence - without forgiving the loan - this means that the bank has it's money back at that point, and it's wrong to demand more interest.

That might be a useful principle to write into an anti-usury law for developed nations. It would probably mean banks wouldn't be willing to lend for 30 years, and credit cards would demand faster repayment. But that might be in the long term best interest of the borrowers.

Grameen focuses on women - but I wonder of an analogous approach might be developed for men. It would probably have very different psychological principles, perhaps something based on honor/pride/ego. Maybe posting the payment status of each man's loan on a public "banking wall".

Phillip Huggan

I'm under the impression that all microloans programs in the 3rd world charge 16-25% interest on their loans. This isn't because of high default rates (natural disasters are now factored into the interest), but because of high administrative costs. There are more employees per loanee in microfinance institutions than in conventional banks because employees typically travel on foot for marketing and payment collection. And the typical loan itself is smaller (few hundred to a few thousand dollars) than at regional banks. 20% is still an improvement over the interest rate charged by local loan-sharks, especially if a debtors income is seasonal.

"The most thought provoking aspect of Grameen is the idea that they never charge more in interest than the original amount of the loan, even if the loan isn't paid back on time."

Are you saying microloan institutions don't accept a greater repayment than 100% of principle or than 200% of principle?

Paul Nurse

If the interest is capped at 100% of the principle then the total amount to be repaid will never be more then 200% of the principle.

Phillip Huggan

Right. But I've never heard of the process of interest capping within microfinance institutions. I asked for further details because I believe Tom is fabricating facts in a derogatory manner here. If I were to make similiar assertions against right-wing targets, I'd alienate CRNs Republican readership base.

Tom Craver


I don't know what's gotten a bug up your ass, but if you're going to criticize me with statements like "You pulled the 80% and 50% repayment rate figures out of your ass; haven't done any research into this field you obviously know little about." and "I believe Tom is fabricating facts in a derogatory manner here" - as if you were an expert on Grameen - perhaps you should do a little more research:

"In Grameen Bank, under no circumstances total interest on a loan can exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest is charged after the interest amount equals the principal." (Is Grameen Bank Different From Conventional Banks? by Muhammad Yunus )

The only statement I made about Grameen that seems at all critical, was in response to Peter McCluskey's claim that their repayment figures were bogus - I said that the bank's management may have felt a need to fudge their repayment rate, to maintain the validity of their model. But even that was coupled with a statement that I thought 80% or even 50% repayment would be amazingly good, considering what's being attempted in getting poverty stricken women to run successful businesses.

And my second post was wholly in praise of Grameen Bank - their approach is quite close to my idea of the ideal way to run a "charity".

I suppose Grameen might say they aren't a charity - but that's the closest term I can think of for them. Their goal is to do good by helping people do well, rather than to maximize profit. They'd be an excellent model for other organizations - aiming to achieve some good goal, but do it by modifying successful business models.

How about a Grameen pharmaceutical company that supports itself through profits - but has elimination of diseases as it's fundamental principle, rather than exploitation of them for maximum profit? (Normal pharma corporations don't have much motivation to search for actual cures for disease - much better to come up with drugs that have to be taken over and over to offset the symptoms of a disease.)

How about a Grameen nanotechnology corporation, developing MNT for the benefit of the world - but supporting itself and building research strength through development of beneficial interim nanotech products?

Phillip Huggan

When posts are loaded with normative statements, it is tough for me to separate opinions from well-researched facts, such as Grameen's interest capping (of which I was unaware of).

The thing about regular banks is that, to qualify for credit, you need assets (a house, an income stream, equities, etc) with whcich to borrow against. This is precisely the group of people that *don't* need loans. The banks assume such people are more likely to return the loan with interest, but that assumption rests upon circular reasoning.

The thing about microloans is, they only works when people already have underlying skills (such as basket weaving or the ability to operate a rickshaw cart taxi service). In essence, they help raise the relative middle-class of a poor country to the upper-class. The trickle-down effect will help for sure, but there are still an underlying population (maybe 1/3?) of wretched people who will need to be given charity; for which no market solution exists.

This was even true of America once. The early settlers needed to be *given* charity from the indigenous population to not die from scurvy. They needed British supply lines. Just like them, there are populations now that aren't capable of utilizing microfinance yet; for whom an underlying investment must be made that will not generate any visible ROI for a very long time. In the context of MNT, some goods should just be given away. Just because a recipient hasn't attained the skill set of being an entrepreneur, doesn't mean he/she should face large life-expectancy/quality-of-living decreases. I view microfinance as the 1/4-1/2 rungs on the ladder of development economics. There is still a need to get 1/4 up the ladder that microfinance can't help with.

Yunus's bank and foundation started microfinance, but they hardly represent the model. The field is dynamic; the influence of main-stream banks is now far more important than anything Yunus has to say.

Mike Treder, CRN

A very informative article on microcredit is in the current issue of the New Yorker magazine.

Tom Craver

The only "normative statements" in my posts were praise of Grameen - how does that translate into criticism? Or did you think calling something a "charity" was a criticism?

And I'm sure Grameen would object to your claim that they only address the needs of the "relative middle class", far more than they'd object to my calling it a charity. Grameen even loans to beggars. Those with more skills can more easily make use of loans. But even a beggar can learn to sell a few items for some extra cash.

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