Bangladesh and America:Banking on the Poor

Scott Baker , 04-01-2011

Are the poor also poor credit risks? Since 1976, Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, has said an emphatic “NO!” through his creation of microcredit Grameen Bank. Now, that same model that has worked so well in Bangladesh, and other third world regions, comes to America.The other night I joined the head of our Common Ground-NYC Outreach committee in seeing “To Catch a Dollar“. This film is about the Grameen Bank, founded by Muhammad Yunus to provide microfinance. Now, in its earliest days that would have meant helping poor women entrepreneurs in third world countries with a small loan – generally under a thousand dollars – buy a new cooker, set up a store etc. But now, with America having one of, if not the, highest poverty rate in the industrialized world — with 1 in 7 Americans living below the poverty line (73 million), Grameen bank has found customers right here in Queens, New York. This movie is about that story.As Dr. Yunus reminds us, the question is not whether people are “creditworthy,” it is whether the banks are “peopleworthy.” Proof of Grameen’s “peopleworthiness” is its 99% repayment rate – according to the helpful literature handed out at the movie – encouraged by teams of 5 or more women* borrowers, all providing peer pressure to keep their group’s credit good, so that they can get more loans in the future. As one borrower in the film said, “I’ve got a good thing going here. Do you think I’m going to let anyone ruin it?” The handout at the movie further points out that from its founding in 2008, Grameen America has:

– $16.1 million in micro-loans

– 5,500 members in the 5 Buroughs, plus Omaha, NE

– $1,500 loan sizes

– 15% interest rates — though well above prime, this is for people with no credit history or even savings accounts, both of which are established as part of the process

– $ 730,000 borrower savings deposited

– >640 average credit score (once history is established)

– 6,300 jobs created

Now, this is a different model than a State, or Public, Bank, but Grameen needs funding, since they are a non-deposit bank, by law. As the NY Coordinator of the Public Banking Institute, I naturally wondered: Could a State Bank partner with Grameen bank to provide funding? Why not! The Bank of North Dakota partners with community banks in North Dakota, which is one reason why North Dakota has the highest per capita bank to person ratio in the country. And Grameen has already proven it knows how to tap into a good credit-risk pool of poor borrowers. This sounds like a very good fit and I raised the possibility of a partnership with the Grameen America VP of Strategic Partnerships, who was in attendance after the movie. She will be hearing more from us!

Meanwhile, this is yet another great idea that proves things do not have to be the way they are, with, as Economist Joseph Stiglitz recently said in Vanity Fair, a society “Of the 1%, by the 1%, for the 1%.” We know there are billions of dollars in CAFRs, managed by Wall Street Banks, for millions in fees, often under-performing their benchmarks, and in any case, never going to help the middle class, let alone the poor, of their respective states. Would banking on the poor be any more risky than banking on the money-leveraging banks that have already failed and had to be bailed out — for trillions? I’m banking on the poor, not those who wouldmakeus poor.* Why only women? Well, it turns out they are better credit risks, and more likely to respond to group pressure to keep up their loan payments. Guys, are you listening?

Published at on April 1,2011. Shared here with permission.

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