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.