Microlending for the Poor?

Although it may seem that Grameem America Bank, known as the famous lender to the poor, some of them who don’t even have any credit history, or any means for collateral, is helping them gain access to money they require, a form of microfinance, for the start up of their business, when many banks won’t even lend to the most qualified borrowers. I personally think this structure poses as a major challenge and could lead to a bigger debt issue. Some people may refuse to believe this as they think this form of corporate social responsibility has improved their economic conditions, living standards, self-esteem and social status. But so far, the progress is not enough to claim that the Grameem model is a self-sustained model.

The notion of micro-credit is, in fact, micro-indebtedness and Grameem’s preference for women as loan targets is due to their prevalence in an impoverished situation. Grameem charges a 20% interest rate per year, which is 4% higher than the commercial rate in Bangladesh. It raises doubt on the real success of the many stories of women, about 93% who enslve themselves to Grameem, to take credit and on the amount of women being employed by the bank.

I look at Grameem Bank the same way I would look at payday loans companies as they give high-interest loans to the poor. It does not seem to reduce poverty but creates a debt trap for borrowers and are charged high interest relates relative to conventional banks. The repayment tactics are just communistic, tricky, disturbing and fraudulent. There are claims about the use of draconian methods to enforce repayment and Grameem does owe an explanation of its lending practices. It just throws crumbs to the poor and keeps people satisfied at a measly level.

The oft-repeated stories of how microcredit has helped various rural women from around the globe start their street vendor business, cannot be replicated in meaningful numbers. Conversely, at the cost of the poor, a large number of NGOs have benefited; banks have found a convenient route to increased lendings; and corporations have got a growing consumer market to target. Yunus believes that women are more stable borrowers and more tied to the home and family unit. Men do receive Grameem aid, but the vast majority are women who need the money for an income generating project to help improve the standard of living and that is the only thing that benefits society as a whole.

It promises credit for poor people who have no savings or collateral and when you take a closer look it is financially dangerous and subtly coercive. It is not a bank. Deposits from individuals and firms account for a mere 3% of its assets. It received grants and subsized loans, about $150 million in grants, from the governments of Norway, Sweden, Canada, Germany, Ford Foundation in the United Stations, the IMF and World Bank. Funds are lent at below-market rates, usually 2% which then are deposited in fixed term and short term accounts in commercial banks that pay higher rates. They Grameem foundation also received 1.5 million from Bill and Melinda Gates. George Soros has given $12 million plus to all sorts of Grameem spin-offs, including gifts to expand banking in other countries. The possible imposition of taxes and interest will eventually lead to higher costs to the borrowers and the reinvestment scheme subsidizes its loans by 39%.

Muhammed Yunus, who won a Nobel Peace Prize for his efforts in 2006, used his personal wealth and high-level connections to arrange special privileges and millions in subsidies. He had government backing for fully 60% of its operations. He has funded 17 companies and all except Grameeem Phones failed. Grameem Bank never publishes its audited annual balance sheets yet it is mandatory that every other commercial banks in this country does that. They do not pay any corporate tax which is about 20% while other banks does.

It may provide a ‘small bubble of hope’ but I believe Yunus uses this profitably to gain international attention and appreciation. And his future plans are worse. He plans on opening health clinics that are self-financing to help the beneficiaries. When is it okay to profit from the poor? It seems like we are just digging a bigger hole for the impoverished person making 7 cents a day. This is foul play and truly frightening as this is not helping people come out of welfare at all.


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