~ new institutions for new ages

The Grameen Bank, founded by Professor Muhammad Yunus (Head of the Rural Economics Program at the University of Chittagong) in 1976, is an innovative new kind of lending institution serving Bangladesh. Its revolutionary credit delivery system provides an excellent demonstration of how socialist aims (specifically, the alleviation of poverty) can be achieved within a capitalist economy (specifically, at nobody else's expense). This is particularly relevant for poorer nations, who can't afford social safety nets in the first place. The Grameen Bank exists to provide peasants with opportunities for self-employment. Professor Yunus won the 2006 Nobel Peace Prize for his role in founding the Grameen Bank.

The underlying premise of Grameen is that, in order to emerge from poverty and remove themselves from the clutches of usurers and middlemen, landless peasants need access to credit, without which they cannot be expected to launch their own enterprises, however small these may be. In defiance of the traditional rural banking postulate whereby "no collateral (in this case, land) means no credit", the Grameen Bank experiment set out to prove – successfully – that lending to the poor is not an impossible proposition; on the contrary, it gives landless peasants the opportunity to purchase their own tools, equipment, or other necessary means of production and embark on income-generating ventures which will allow them escape from the vicious cycle of "low income, low savings, low investment, low income". In other words, the banker's confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.

The revolutionary aspect of the Grameen Bank is that you don't need collateral. This is how it works. Those who intend to borrow are organized into groups of five. Of this pentad, or "centre," only two are eligible for a loan in the first stage. Members of this group make a pledge to maintain the "16 Decisions." The bank checks up on the activities of this group for one month, to make sure that their Decisions are being maintained by the group. Other members of the cooperative are not eligible to receive loans unless the original two borrowers begin to pay the loan back (principal plus interest) within the first six weeks.*

Loans are small, but then again it doesn't take much to get started in Bangladesh, and every little bit counts when you're a peasant. Grameen specifically targets the "poorest of the poor" – those who have no other option, especially women (which outnumber men as Grameen customers by a ratio of almost 18:1). The interest rate is 16%, and the money is used to pay for livestock, small farm equipment, cloth, pottery, and the like. The particular industry is chosen by the borrower, but the Bank staff help the borrower pick one that will be profitable for them. Because one's eligibility for a loan is dependent on the activities of a group, the centres promote cooperation and mutual aid for the purposes of setting up a profitable trade – that's the only way everyone in the group will have the chance to participate in the economy.

The Grameen Bank's "Method of Action" is as follows:

1: Start with the problem rather than the solution: a credit system must be based on a survey of the social background rather than on a pre-established banking technique.

2: Adopt a progressive attitude: development is a long-term process which depends on the aspirations and committment of the economic operators.

3: Make sure that the credit system serves the poor, and not vice-versa: credit officers visit the villages, enabling them to get to know the borrowers.

4: Establish priorities for action vis-a-vis to the the target population: serve the most poverty-stricken people needing investment resources, who have no access to credit.

5: At the begining, restrict credit to income-generating production operations, freely selected by the borrower. Make it possible for the borrower to be able to repay the loan.

6: Lean on solidarity groups: small informal groups consisting of co-opted members coming from the same background and trusting each other.

7: Associate savings with credit without it being necessarily a prerequisite.

8: Combine close monitoring of borrowers with procedures which are as simple and standardised as possible.

9: Do everything possible to ensure the system's financial balance.

10: Invest in human resources: training leaders will provide them with real development ethics based on rigour, creativity, understanding and respect for the rural environment.

The Decisions put an emphasis on becoming economically self-sufficient, maintaining health and property in a profitable manner, building credit discipline, and family planning. The 16 Decisions are:

1: "We shall follow and advance the four principles of Grameen Bank – discipline, unity, courage and hard work – in all walks of our lives."

2: "We shall bring prosperity to our families."

3: "We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest."

4: "We shall grow vegetables all year round. We shall eat plenty of them and sell the surplus."

5: "During the plantation seasons, we shall plant as many seedlings as possible."

6: "We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health."

7: "We shall educate our children and ensure that they can earn to pay for their education."

8: "We shall always keep our children and the environment clean."

9: "We shall build and use pit-latrines."

10: "We shall drink water from tubewells. If it is not available, we shall boil water or use alum."

11: "We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughters' weddings. We shall keep our centre free from the curse of dowry. We shall not practice child marriage."

12: "We shall not inflict any injustice on anyone, neither shall we allow anyone to do so."

13: "We shall collectively undertake bigger investments for higher incomes."

14: "We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her."

15: "If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline."

16: "We shall introduce physical exercise in all our centres. We shall take part in all social activities collectively."

Currently, the Grameen Bank boasts a 95% repayment rate on loans with a 16% interest rate. In case you didn't realize, that's totally awesome. It has 1,118 branches serving 38,766 villages. It has 2,357,153 customers (2,232,905 women, 124,248 men), has loaned 2.5 billion dollars US and built 448,031 houses.

Could the Grameen credit delivery system really be a better, free market alternative to the Western model of welfare socialism? I've heard some things that suggest that the Grameen Bank has some inconsistencies in the way it's run. For example, there is some concern that some of the female customer base go to Grameen at the behest of husbands, and pay back loans with the assistance of husbands. Of course, this isn't so much a problem considering Grameen is a bank and therefore could theoretically have many programs, but it does show some of the difficulty in reaching the target clients. Also, I heard that their pledging of the Decisions is a little ritualistic.** Obviously, the Grameen Bank system transplanted whole-hog into the Western World wouldn't help us any more than our economic theory helped Bangladesh. However, the principle of a private peer support institution geared to promoting economic self-sufficiency could be just the thing needed by Western nations questioning their own 19th- and 20th-Century welfare model.

Information preened from:
http://www.grameen-info.org/
http://www.grameen.org/

* Note that, although the Grameen Bank began in Bangladesh (a Muslim country), it still demands interest on its loans. Charging interest is strongly discouraged (some read it as being forbidden) in the Qu'ran as usury (riba), on the assumption that it further indebts the poor borrower to the rich loaner. This idea is not unheard of in the West either, where in Medieval times the Christian church forbade banking on similar grounds (leaving it to the Jews). The existence of an organization like Grameen, in theory and in practice, shows that "usury" can be mutually profitable, and is an important step in improving the standard of living for the poor – it provides the borrower with more incentive to make the most of what they recieve, and it provides the better-off with more incentive to loan the money in the first place.

** The woman who told me this complained about the "Western bias" of having the women do housework as well as economic work. I pointed out that the reason the West is so concerned with the cleanliness in the household is because of hygiene, which does have an impact on economic productivity, especially in a country where streets are mud and water is diseased. I mean, these dudes got dirt like you never even heard of: diphtheria, dysentery, cholera, malaria, bubonic plague, tuberculosis, anthrax – Mother Nature's very own biological weapons, preventable diseases all. She shut up about it after that, except to say that the pledging "ceremony" is ridiculous and ritualistic. She didn't seem to notice that that was a Western bias, too, and a harder one to rationalize than hygeine, at that – solemn pledge is an integral part of many social institutions in other countries, so why not a bank? Granted, I myself thought the idea of a ritualized "solemn pledge" to pay back a loan was a little silly – my point was that it was hypocritical to condemn their standards for being Western-influenced, and then condemn their other standards for not being Western.

Part of the World Peace project, and first in a line of writeups about free-market alternatives to government programs. Onward to yufu.