Nobel Laureate Slams Loans

from Forbes

By VIJAY JOSHI

KUALA LUMPUR, Malaysia -

Some small-loan schemes for the very poor are no better than usury because they charge high interest under the guise of microcredit, Nobel laureate Muhammad Yunus said Tuesday.

Yunus popularized the concept of microcredit by giving small loans - as little as a few dollars - to poor women so they could start businesses in his native Bangladesh.

Grameen Bank, which Yunus started in 1976 with a loan of $27 to 42 women, is a globally acclaimed project that today has 7.3 million borrowers, 97 percent of them women.

Now that microcredit has become a "popular word," many want to use it for their lending operations - even though they do not fulfill the conditions Yunus abides by - he told reporters.

"Are you addressing the poorest? If not, sorry, it is not microcredit. Are you focusing on women? Are you sustainable? These are the kind of parameters that you want to see in a good microcredit program," Yunus said in Malaysia, where he was to give a lecture Wednesday.

"There are some microcredit programs charging enormous interest," he said. "They call themselves microcredit. In our eyes it is nothing but money-lending. Just because somebody uses the word, it doesn't have to be the real thing."

Grameen Bank has been emulated in Asia, Africa and Latin America as a model for helping the entrepreneurial drive of poor people who are deemed not credit worthy, and are thus unable to get loans from conventional banks.

Yunus won the 2006 Nobel Peace Prize for his efforts to help millions break the poverty cycle.

Grameen Bank has a very low default rate because of its flexible terms: No collateral or guarantee is necessary; borrowers can repay in weekly or monthly installments; and there is no threat of legal action against borrowers who do not repay the loans.

Yunus said he also wants to see no-profit, no-loss businesses set up to help eradicate poverty.

He noted that the purpose and objective of business is to maximize profits, but said humans are not single-purpose, one-dimensional beings, because they are also caring and compassionate.

"So I am arguing that maybe to justify and to accommodate the real human being, we should (do) business to do good without any intention to make personal gain," he said. "I am calling it social business. It is non-loss, non-dividend company with a social objective."