Saturday, May 09, 2009
While most giants of the banking industry continue to slog their way through the sub-prime mortgage disaster, one bank is quietly succeeding with a clientele of poor people. The institution is Grameen Bank, which has set up a branch in New York City after proving the success of micro-credit lending in chronically-poor countries like Bangladesh. First started in 1976 by Professor Mohammad Yunus, Grameen specializes in small loans to help the working poor begin their own businesses. The bank opened its first branch in the U.S. in January 2008, in the Jackson Heights area of Queens, and Grameen America loaned $1.5 million to more than 700 New Yorkers last year—with a repayment rate of 99.9%.
To receive a micro business loan from Grameen America, borrowers must be below the poverty line, have two forms of identification and an income tax return. Loans are given at the fixed rate of 15%, and amounts range from $250 to $3,000. As the loans are repaid, more loans can be taken, up to a limit of $25,000.
But borrowing also comes with obligations. Every new borrower has to join a group of five people, who meet with a bank official every week to discuss money management skills and make their loan repayments. If one person defaults on a loan, no one in the group will be eligible for a new loan. Borrowers also must open up a savings account with Grameen America and deposit at least $2 a week. In the first year, about 600 borrowers deposited more than $80,000 in savings accounts.
Yunus, who received the Nobel Prize in 2006 for his work with Grameen, says the bank has not been affected by the global downturn. “Micro-credit has been one area where there has been no impact of the current banking crisis,” he told the BBC News. “It is still as robust as ever.”
-Noel Brinkerhoff
Small loans Lead to Big Returns (by Salim Rizvi, BBC News)
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