Tuesday, March 3, 2009

Microcredit Versus the Global Recession

As various financial institutions fall by the wayside, will Dr. Muhammad Yunus’ microcredit program hold its own against the onslaught of the on-going global economic turmoil?

By: Ringo Bones

Even though Dr. Muhammad Yunus’ Grameen Bank and the microcredit / microfinance program that it fostered could trace its beginnings back in 1982, it is only after Dr. Yunus won the 2006 Nobel Peace Prize that his poverty elimination scheme gained worldwide fame. He even gained fame as the “Banker to the Poor”. The underlying success of Grameen Bank’s microcredit / microfinance program has been – according to Dr. Yunus’ own words is that: “poor people can, and do, repay loans”. As a poverty elimination scheme that is congruent with the long established global financial system, Dr. Yunus is largely credited with making microfinance / microcredit a socially responsible and viable business model.

When the global credit crunch went full steam during the last quarter of 2008, many have wondered whether Dr. Muhammad Yunus’ novel poverty elimination “financial company” could become insolvent. After all, he conscientiously made his microfinance / microcredit program’s business model congruent with the established global financial system. But the program’s 98% payment / payback rate has been it’s saving grace during increasingly tough economic times. Even the fledgling Grameen Bank America that started serving the “financially depressed” parts of New York City back in January 2008 seems to be holding its own, despite of scores of banks teetering on the brink just a stone’s throw away from Grameen Bank America’s offices.

As the global credit market seems to be currently grinding to a halt, an overwhelming majority of microfinance / microcredit schemes modeled after the ones established by Dr. Yunus seem to be holding their own, which is very fortunate for the rest of us because financial companies that provide microfinance / microcredit loans are very vital in developing countries as they are – more often than not – the only source of small business loans and start-up capital loans. Surprisingly, it works even better than the dysfunctional foreign aid system whose own rigmarole is powerless against white-collar corruption. In the long-term, microfinance / microcredit schemes could be a more economically viable way out of poverty - even foreign aid dependency – in developing nations.

Dr. Muhammad Yunus’ Grameen Bank has even been wholeheartedly welcomed in the Islamic World due to its adherence of Sharia Banking Laws – i.e. the use of tangible / concrete assets as collateral. Plus, the money provided by these microfinance / microcredit schemes are used in bricks and mortar business establishments like fish and vegetable markets – even if the bricks and mortar more often than not are just twigs and thatched straws. Nonetheless, these are far more tangible than those overly complex credit derivatives designed by financial engineers in leading American Ivy League institutions.


Sherry Rashad said...

As a member of Nelson Mandela's Council of Elders, The 2006 Nobel Peace Prize Laureate Dr. Muhammad Yunus choice of conscientiously making the microfinance / microcredit scheme that he founded congruent to the global financial system / free market system only logical because the world's poor - more often than not - had always been marginalized when it comes to the riches promised by free enterprise. As with environmental programs, microcredit and microfinance-based poverty alleviation schemes are one of the concepts of corporate social responsibility that has shown good results.

Vanessa said...

I used to believe that the 2006 Nobel Peace Laureate Dr. Muhammad Yunus' Microcredit and microfinance programs would allow us to weather out the on-going global credit crisis. But after hearing of the AIG "Financial Black Hole" whick kept on swallowing the billions of dollars worth of TARP funds without abatement. I'm now somewhat skeptical about Keynesian Economics.

Ringo said...

Even though our on-going global financial crisis has been exacerbated by the lack of investor confidence due to recent high-profile corporate fraud. From the Satyam fraud in India to the Bernard Madoff and Sir allen Stanford investment fraud in the states, most banks and other financial institutions are now holding tight to their money. Which further worsens the existing global liquidity crisis.
Even though the slowing-down of the global economy has yet to reach its bottom point, microfinance and microcredit schemes around the world modeled after the one started by Dr. Muhammad Yunus has been a godsend to the poorest parts of the globe. Many recepients / clients had been testifying the benefits a few years before the start of our on-going global economic downturn. Even though it lacks the "glamour" of trendy Wall Street hedge funds, investing your money in microfinance / microcredit schemes is a very good way of insuring your "Financial Karma" or a good way to experience the corporate social responsibility bandwagon first hand. And its way more interesting than investing your money in gold and other precious metals.