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Microcredit funds should not charge an interest rate of more than 10 percent on top of the cost of fund, Muhammad Yunus says
By Thin Lei Win
BANGKOK (TrustLaw) – The man dubbed the father of microcredit has criticised companies that exploit the poorest of the poor by charging high interest rates and aggressively collecting loans.
Economics professor Muhammad Yunus from Bangladesh set up microlending pioneer Grameen Bank 30 years ago, gaining world fame as a banker to the poor and winning the Nobel Peace Prize in 2006.
However, after criticising the Bangladeshi government for corruption, Yunus was thrown out of his job last year as managing director of Grameen Bank.
"Microcredit is designed to help poor women to create income-generating activities so she can overcome problems. The whole idea was to help her, not making money out of her," Yunus said.
"We do not accept (companies and initiatives making money from the poor) as microcredit at all because that's total departure from the idea of microcredit," he told reporters on the sidelines of the Bangkok-hosted Social Business Symposium where he was the keynote speaker.
Microcredit funds should not charge an interest rate of more than 10 percent on top of the cost of fund, Yunus said.
The rise of for-profit microfinance has made billions of dollars in credit available to millions of poor people in India and elsewhere, but it has also spurred controversy.
For example, some farmer suicides in the southern state of Andhra Pradesh, the hub of India's microfinance sector, have been blamed on mounting debts.
However, Yunus stressed the importance of microcredit to alleviate poverty and he called for more investment in social enterprises to tackle problems such as poverty, malnutrition and the lack of available clean water.
PRIORITISING THE POOR
Dressed in a traditional cotton tunic, Yunus recalled visiting a village in southeastern Bangladesh more than 30 years ago. The villagers were extremely poor and the country was going through famine, but the banks refused to lend them money and were sceptical about the poor's creditworthiness, he said.
"I thought very logically that the banks should prioritise giving to people who do not have money first," Yunus said, calling the banks' practice of lending only to those who had collateral or were already rich very unreasonable.
So he entered into a long negotiation with the banks and offered himself as a guarantor. In 1976, the Grameen Bank Project was born and in 1983, it became an independent bank. Today, Grameen Bank, with branches worldwide including in the United States, lends $1.5 billion a year.
The bank continues to look for people who have nothing, Yunus said, adding that microcredit gave women in patriarchal societies more power.
"The story of microcredit is people, of how you transform a person", and not how many loans were made or at what repayment rate, Yunus said.
SOCIAL BUSINESS IS GOOD BUSINESS
Over the years the Grameen group of social entreprises has expanded to include Grameen Shaki which provides solar home systems in Bangladesh where more than half of the population do not have electricity, and Grameen Kalyan which offers healthcare to the rural poor.
It all started when Yunus noticed children were unable to see at night during his routine home visits to people borrowing money.
He found out "night blindness" was caused by a Vitamin A deficiency and started selling vegetable seeds to mothers so they could feed their children much-needed nutrients.
"There was so much demand ... we soon became the largest seed seller in Bangladesh. In the process, night blindness disappeared," he said.
It was not only up to the government to tackle issues affecting communities, Yunus said. "Doing business can solve problems," he said.
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