Thursday, May 14, 2009

Muhammad Yunus and collateral

Muhammad Yunus makes another point about the failure of big banks in the global recession. He points to the differences in the use of collateral between the big banks and microcredit banks.

Yunus spoke at the launch of a new study to gather statistics on microcredit. Bangladeshi newspaper The Daily Star collected Yunus' comments.

Nobel laureate Prof Muhammad Yunus said yesterday microcredit could safeguard many retrenched employees from the effects of deepening recession through self-employment.

“It's (microcredit) an important tool to create self-employment. It bears more significance in times of recession, as it shows laid-off employees a way to stand up again on their own,” said Yunus at the launch of Bangladesh Microfinance Statistics for 2007 at the LGED auditorium.

Regarded as the banker to the poor, Yunus said microfinance has so far been immune to the global economic crisis at a time when big banks sought bailout packages to survive, although they had extended loans to borrowers against collateral.

“The banks are failing to retrieve loans although there are collateral, documents and lawyers to get the money back. Now the documents have proved fake,” he said.

The microcredit system is a driver of employment, savings and women's empowerment, he said.

“Microcredit is not free from criticism though. But microcredit is a big achievement for Bangladesh and the list of achievements is long,” said the Nobel laureate.

He observed traditional banks are mobilising deposits from the rural economy and investing the money in urban areas, which means a loss of liquidity in the rural economy.

“But microcredit doesn't take the money away from the rural economy. Rather it puts the money in circulation there. We are giving money to those who did not avail themselves of credit earlier,” Yunus. He called for transparency in the activities of microfinance organisations.

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