Muhammad Yunus brings microcredit to Scotland

Muhammad Yunus is one of this blogger's biggest heroes. But it has been a while since we have linked to any news about him... so lets put a stop to that right now.

Yunus is in Scotland this week to begin a new school at Caledonian University to study poverty fighting efforts. This will coincide with the launch of a new Grammen Bank branch in Glasgow. Yunus' Grammen Bank is spreading its microcredit efforts throughout the developed world. Still, there is some debate on whether it would work in richer nations.

BBC reporter Gillian Sharpe takes a look at the new branch of Grammen Bank.

In her corner office, Glasgow Caledonian University Principal Prof Pamela Gillies is explaining how she sees the possibilities offered by the bank.

"I think this is going to be one of the biggest public health interventions in Scotland since the banning of smoking in public places," she says.

"It is an idea that crosses cultures and economic boundaries and gives control and responsibility for the health and well-being of their everyday lives back to the poorest people in society."

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There's a transformation of another kind taking place in the Provanmill area of Glasgow.

At three or four tables people have come to a lunch club run by local women. There is lentil soup, as well as a roll and sausage on offer, a chance to chat and a couple of games of bingo - all for a couple of pounds.

The women - all volunteers - who run this place are part of a self-reliance group facilitated by the Church of Scotland.

Each member contributes a small amount of money each week which goes to buy ingredients for the following week.

One of those involved is Jake Crawley, whose dream is to set up her own laundry and create herself a job.

The ultimate aim of this project is to help her do that - there are potential premises in the church where the lunch club is run.

Since they set up about 18 months ago, the women have driven the lunch club forward by their own efforts.

Now they are getting together costings with a view to setting up the laundry as a business.
For that they will need some kind of micro loan and Ms Crawley says she will need help to ease her off benefits and hopefully into her own business.

"Myself, I would rather move on," she comments. "Get our laundry set up and I create myself a job, because that's what I want to do - not because a job centre or work programme is forcing me to do jobs."

Muhammad Yunus hopes to still do something for Bangladesh

Muhammad Yunus may have been ousted from the Grameen Bank but he is still keeping busy. Yunus still works to promote social business throughout the world including the launch of new institutes in Glasgow and Paris. His heart still is in Bangladesh as he seeks to still develop new social businesses for that country to help alleviate poverty.

The Guardian was able to obtain an interview with Yunus, one of the very few he has given since being ousted from his Grameen Bank by the government of Bangladesh. Writer Madeleine Bunting says that Yunus is still trying to be graceful even though he doesn't understand why the government started a smear campaign against him.

"I'm not hurt by the vilification in the press; I'm disappointed and I'm worried. I don't want to see an organisation which has come all this way and brought so much good to the country and brought power to the people, come to this. Many people are angry but anger doesn't solve anything," he says.

"I want to calm things down. If we are prepared, we can do damage control."

This is his first interview since the crisis broke early this year. Yunus is refusing to talk to the Bangladeshi media for fear of further inflaming the controversy, and he is adamant that he will not be drawn into speculating as to why the government has forced his recent resignation. He simply says: "I can't see the purpose, I can't see what the country gains, what the government gains."

There is certainly a lot to lose. Any bank depends on confidence and the last few months have been turbulent for Grameen's 22,000 employees and 8.36 million borrowers, 97% of whom are women. So far, repayment rates on the millions of small loans are holding steady and borrowers are not withdrawing deposits – either could bring the bank to collapse. Yunus's calmness in London is all about steadying the confidence of his Bangladeshi audience. As one of the most efficient and stable economic institutions in a desperately poor country, there are many who are hoping he will succeed and that Grameen will weather this storm.
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"We never said microfinance was a silver bullet," he insists. "Or why would I bother to create 50 other companies ranging from agriculture to telecommunications? Job creation is the solution to poverty. Loans should only be given to fund enterprises. They mustn't ever be used for 'consumption smoothing' or how can people pay back the loans? It has to be about income generation."

"When microfinance spread across the world, some people abused it. Some went berserk. In my opinion, if there is any personal profit involved, it should not be called microfinance, which should be totally devoted to the benefit of poor people. People used the respect for microfinance. In every country where there was microfinance they needed proper regulatory authorities to oversee the sector and legislation to define it. I knew that the sector was crippled by an inadequate legal framework."

Yunus recognises there was some "overbilling" of microfinance, but sees that as part of the way you win donors' interest in a project. He certainly used powerful rhetoric to urge on efforts in tackling poverty. But beyond that he is unapologetic. He didn't oversell it; when he talked of putting poverty in a museum it was a "hope", he says, it was not a plan. And he is emphatic: "Microfinance does reduce poverty. Look at the people who have joined Grameen. It's the most intensively researched organisation in the world."

Yunus gives first interview since his ousting from Grameen Bank

Muhammad Yunus has given his first public interview since being ousted as the chief of his microcredit bank. Yunus only said that the Bangladesh prime minister who led the charge to remove him was "badly advised"

Yunus was removed from his Grameen Bank because of a seldom enforced Bangladeshi law that says leaders of the country's licensed financial institutions have to be below the age of 70. Critics say that the Bangladesh ruling party made Yunus the target of smear campaign. At one time, Yunus briefly flirted with the idea of entering politics with a competing party.

From this AHN story that we found at Gant Daily, writer Saleem Samad summarizes the interview for us.

In an interview with the BBC’s Lesley Curwen broadcast on Wednesday, Yunus said he was forced to stand down last month. He said Prime Minister Sheikh Hasina had only done so because she had been “badly advised.”

Yunus spoke to news media for the first time since he was forced out of Grameen Bank following a brief legal battle.

Microcredit guru Yunus was alleged to have siphoned money from Grameen Bank. Hasina on Dec. 5 last year told journalists that he was “sucking blood from the poor.”

Hasina, criticizing Yunus, said “there is no difference between a person who enjoys taking interest on money and one who takes bribe.”

The pioneer of microfinance contested the prime minister’s observation that the bank of the poor failed to play its role to eradicate poverty.

Bangladesh concludes investigation on Muhammad Yunus

The Bangladeshi government has concluded their probe on Muhammad Yunus and his Grammen Bank. The findings of the investigation contain a mixed bag or results. The probe has cleared Yunus of any allegations of evading taxes. However, they did uphold the central bank order that Yunus must quit his post at Grammen Bank due to advanced age.

From the Guardian, we find the government's statement on concluding the probe.

Yunus denied any wrongdoing and a Norwegian government investigation later also cleared him of any malpractice.

The Bangladeshi finance minister, Abul Maal Abdul Muhith, told reporters on Monday that a committee appointed by the government to investigate Grameen Bank's operations had also found no evidence of financial irregularities.

But officials and experts said the finding would have no impact on the government's decision to fire Yunus as the bank's managing director, because he had overstayed the official retirement age for bank managing directors in Bangladesh of 60 years.

Associates of Yunus say his removal was government retaliation after he briefly considered a political career to challenge the prime minister, Sheikh Hasina.

Bangladesh high court rejects Yunus' challenge

A news source from India gives us an update on the legal proceedings for Muhammad Yunus and his Grammen Bank. Yunus is fighting in court the forced dismissal of his post as head of his Grammen Bank. The government of Bangladesh is citing seldom enforced law for his dismissal. The law sets a age limit on who can have leadership positions at Bangladeshi banks. Yunus at the age of 70 has surpassed the age limit.

The legal proceedings have not started out very well for Grameen. The Indian website Sify says that the High Court rejected the banks petition to challenge the law. The article from Sify only briefly mentions this at the end. This the only source we have found so far on this update to the story.

The Dhaka High Court Tuesday rejected Yunus's writ petition challenging the legality of his removal as managing director of Grameen Bank.

It's not every day that Nobel Peace Prize winner gets fired

The Central Bank of Bangladesh says that they have relieved Muhammad Yunus of duties at his Grammen Bank. Bangladesh says that Yunus is past retirement age and was improperly installed into his office as the bank's managing director. Grameen is going to take the matter to the courts. 

From the BBC, we find out more about the politically motivated firing. 

The government owns a 25% stake in Grameen, which pioneered the microfinance concept of lending small amounts of money to the poor which has been replicated worldwide.

Our correspondent says that the dispute over Prof Yunus' sacking is now likely to end up being resolved by the courts.

Bangladesh Bank, the country's central bank, said that Prof Yunus had violated the country's retirement laws by staying on as Grameen's head long past the mandatory retirement age of 60. Prof Yunus is 70.

"Bangladesh Bank has relieved Yunus of his duties as managing director of the Grameen Bank," Muzammel Huq, the government-appointed chairman of Grameen Bank, said.

Mr Huq also said that Prof Yunus had did not received the required approval from Bangladesh Bank when he was appointed managing director in 1999.

"Grameen Bank by-laws clearly state that the managing director should be appointed by the board with the prior approval of the Bangladesh Bank,'" he said.

Mr Huq said a letter from the central bank ordering the removal of Prof Yunus had been sent to Grameen Bank.

"The bank's senior-most managing director automatically becomes the [interim] managing director. I will convene a board meeting very soon and it will soon appoint a committee to find a [permanent] managing director."

But a Grameen Bank statement later on Wednesday said that the matter was now "a legal issue" and that the bank had complied with "all applicable laws in respect of appointment of the managing director".

"According to the bank's legal advisers, the founder of Grameen Bank, Nobel laureate Professor Muhammad Yunus, is accordingly continuing in his office," the statement said.

US puts pressure on Bangladesh to stop harassing Yunus

The US is putting pressure on the Bangladesh government to stop harassing Muhammad Yunus and Grameen Bank. US diplomats have told Prime Minister Sheikh Hasina to give Yunus time to find a successor at the bank and not force him out prematurely.

Bangladesh is calling for Yunus to step down from his microcredit bank Grammen. They say a Bangladeshi law prohibits people past a certain age from working in the country's financial sector. The law is rarely ever enforced but is being used against Yunus because he has somehow been made an enemy of the government.

From the paper New Age, writer David Bergman tells us more.

Hasina was told directly by US officials that a possible visit to Bangladesh early April by the US secretary of state, Hilary Clinton, following her trip to Delhi, was contingent on a resolution of this high-profile crisis.

Hasina, who is planning to visit Washington in April to take part in the World Islamic Forum, has also been informed that she will not be given a meeting with the US president, Barack Obama, unless Yunus is personally agreeable to the terms of any compromise.

The prime minister’s press secretary Abul Kalam Azad said that he could not comment since he was unaware that these conversations had taken place. He added that he did not know that there was a possibility that Hilary Clinton might come to Bangladesh.

While many countries share US concerns about the Bangladesh government’s handling of the Grameen bank, no other country is known to have come close to the US in imposing these kinds of sanctions in support of Muhammad Yunus.

The government’s attack on Yunus has already resulted in the loss of some US financial support.

The US Millennium Challenge Corporation, an independent US foreign aid agency funded by the US congress, decided in January against putting Bangladesh on its ‘threshold’ programme where countries must ‘demonstrate a commitment to just and democratic governance, investments in the people of a country, and economic freedom.’

Humayun Kabir, who until 2009 was the ambassador to the United States, told New Age, ‘Maintaining high-level contacts is important for both the countries as these are building blocks to the relationship which is a very important one for Bangladesh. United States is one of the country’s most important trading partner and a partner in security.’

Although Hasina has shown no signs of relenting, it is understood that discussions between Muhammad Yunus, the finance minister, Abul Maal Abdul Muhith, and former Grameen Bank chairperson Rehman Sobhan, took place in Delhi over the last few days where they all attended the same conference.

‘Muhith has been told what the Grameen Bank wants. It is now in the minister’s hands,’ said a person privy to the conversations.

Yunus will not leave Grameen Bank

Yesterday, we posted on demands for Muhammad Yunus to retire. The Finance Minister of Bangladesh says that Yunus should retire citing a seldom enforced law. Yunus is now firing back and says he has no plans to leave his Grameen Bank.

From CNN, writer Farid Ahmed gives us Yunus' reaction.

"We established Grameen Bank through a special ordinance, with rules that are specific, according to which my current term as managing director is fully valid. Government has three representatives on the board and they have unanimously approved these rules," he said.

Bangladeshi Finance Minister Abul Mal Abdul Muhith has said that Yunus is too old to continue as managing director of the bank. "Normally the retirement age of a bank's managing director in Bangladesh is 65, and Professor Yunus is now 70," Muhith has said.

Yunis has been the target of three recent lawsuits.

Muhith said the move had no link to politics, but many analysts said Yunus was still under fire at home for criticizing politicians and trying to form a political party four years ago during an interim, unelected government that was backed by the military. That party was later abandoned.

Bangladesh government calls for Yunus to retire

Several years ago Muhammad Yunus toyed with the idea of entering politics. He began to set up a new political party in Bangladesh. Ever since he attempted that he has been at odds with the Bangladeshi ruling party.

A recent Norwegian documentary alleged improprieties within Yunus' Grammen Bank. He was since cleared of any wrongdoing by the Norwegian government. Despite that clearing Bangladesh started their own investigation.

The government of Bangladesh is now calling for Yunus to retire. From the BBC, writer Anbarasan Ethirajan finds out more about how a seldom used law is being used against Yunus.

Finance Minister Abul Maal Abdul Muhith told the BBC that Professor Yunus has reached the normal retirement age for executives at private banks.
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Mr Muhith said that the government began talking to Prof Yunus around a year ago about who would succeed him and redefining the bank's role.
'Give it to others'

The finance minister pointed out that according to Bangladeshi rules, the retirement age for executives at private banks had been set at 65 and that Prof Yunus was five years beyond that.

"He should give it to others to continue because you never continue all the time in any institution," Mr Muhith told the BBC.

But the minister conceded that retirement rules in Bangladesh had not been imposed for many years.
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"I suggested to Professor Yunus after instituting the inquiry... that it might be a good thing for him to withdraw himself temporarily during the period of the review," Mr Muhith said.

"Professor Yunus told me that no, if he withdraws now, the whole of Grameen will collapse."
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The finance minister's comments came days after supporters of Prof Yunus - including former Irish president Mary Robinson and former World Bank president James Wolfensohn - launched Friends of Grameen to "save the bank from a government takeover".

The bank's borrowers and savers own 75% of the company, while the government has a 25% stake.

Yunus says for-profit lenders are taking advantage of poor

A lot of us who have been advocates of microcredit have had our confidence shaken with the recent scandal in India. A rash of suicides amongst borrowers have led to government investigation into the practices of the for-profit microcredit lenders. Many borrowers have stopped repaying their loans until new regulations are set in place.

In a new op-ed piece in the New York Times, the founder of microcredit Muhammad Yunus says that India does need a regulatory body to protect the poor. He says the commercial enterprises with excessive interest rates should not be called microcredit at all. Yunus explains why the high interest rates are unfair to the borrowers and describes how his bank operates.

IN the 1970s, when I began working here on what would eventually be called “microcredit,” one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor. In 1983, I founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty. At that time, I never imagined that one day microcredit would give rise to its own breed of loan sharks.

But it has. And as a result, many borrowers in India have been defaulting on their microloans, which could then result in lenders being driven out of business. India’s crisis points to a clear need to get microcredit back on track.

Troubles with microcredit began around 2005, when many lenders started looking for ways to make a profit on the loans by shifting from their status as nonprofit organizations to commercial enterprises. In 2007, Compartamos, a Mexican bank, became Latin America’s first microcredit bank to go public. And this past August, SKS Microfinance, the largest bank of its kind in India, raised $358 million in an initial public offering.

To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were being harmed. In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.
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Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh. It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program, to micro-enterprise loans of about $1,000. Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis. When borrowers join the bank, they open a savings account. All borrowers have savings accounts at the bank, many with balances larger than their loans. And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.

More microcredit institutions should adopt this model. The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor.

Stricter government regulation could help. The maximum interest rate should not exceed the cost of the fund — meaning the cost that is incurred by the bank to procure the money to lend — plus 15 percent of the fund. That 15 percent goes to cover operational costs and contribute to profit. In the case of Grameen Bank, the cost of fund is 10 percent. So, the maximum interest rate could be 25 percent. However, we charge 20 percent to the borrowers. The ideal “spread” between the cost of the fund and the lending rate should be close to 10 percent.

Yunus calls for a regulatory authority over microcredit in India

Muhammad Yunus has been asked often about his take on what is going on in Andhra Pradesh, India. A rash of suicides amongst microcredit borrowers has officials stepping into regulate microcredit companies that don't seem to be playing fair. Yunus says a that India should establish a regulatory body over microcredit similar to the one in Bangladesh.

From Rediff, we read more on Yunus' comments.

"They (MCI) were created to fight the loan sharks and not to create one. There should be some regulatory authority when you have so many micro credit programmes running. It's time to have one for transparency purposes so that people are given out information in a transparent way," he said during a video conferencing session organised at IIM-A.

"Bangladesh has created a micro credit regulatory authority to address these issues because we have so many programmes in the country now. I think it would be a good idea for India to do that," he said.

Grameen Bank offers small loans for self-employment to some of the poorest people in Bangladesh, including beggars.

The bank, with 2,600 branches and total deposits of $1.5 billion - of which 46 per cent come from its borrowers - has 8.3 million borrowers, 97 per cent of them women.

"The bank lends over $120 million per month in Bangladeshi currency," said Yunus, who received Nobel Prize [ Images ] for peace in 2006. Yunus maintained that government should not be running the micro credit programmes. Instead, they must create some sort of fund so that there is an easy source of funding for the NGOs who want to start such programmes.

"The government should not be running the micro credit programmes. They should be run by other people," Yunus said in reply to a query.

The reason why I say government should not be lending money directly to the borrowers is that the moment they do that, politics gets involved into it," Yunus said.

"The government should stay away from the credit side so that quality of credit is good." Yunus' remarks on MFIs come in the backdrop of a controversy over alleged strong-arm tactis adopted by MFIs in loan recovery from poor farmers and charging exorbitant interest on loans.

Muhammad Yunus on the microcredit troubles in India

Muhammad Yunus has weighed in on the microcredit crisis in India. The suicides of 17 borrowers has led to a government investigation of microcredit bank practices. Some new laws have been implemented and some accuse the banks of charging outrageous interest rates.

From this AFP article that is hosted at Google News, we read more comments from the man who started microcredit.

India's biggest lender to the poor, SKS Microfinance, has been in the spotlight following a series of suicides among debt-laden villagers in Andhra Pradesh state, where authorities have reacted by ordering a crackdown on microfinanciers.

"A lot of people are misusing and abusing the concept and use it as vehicle to make money. And SKS is a big example in this regard," Yunus told reporters in Dhaka, the Bangladeshi capital.

He said SKS boss Vikram Akula had set up a non-governmental organisation and transformed it into a profit-making company which he then launched on the Mumbai stock exchange.

"It's a complete detour and nothing but a quitting of the (microfinance) mission," said Yunus, who won the Nobel Peace Prize in 2006 for his Grameen Bank's microfinance work.

"The original micro-credit concept cannot be blamed for their faults," he added.

The microfinance industry in India, once seen as a saviour of the poor, is in crisis after criticism of the alleged abusive practices by debt collectors and high interest rates.

Norway clears Muhammad Yunus' Grameen Bank of any wrong-doing

Norway has cleared Muhammad Yunus' Grameen Bank of any wrong-doing from a misuse of funds accusation. The claims that Yunus' Grameen Bank diverted money away from its intended use was made by a recent Norwegian documentary. A loan Norway gave to the Grameen Bank was transferred to another company within the Grameen family for tax purposes. Norway stated on Tuesday that Grameen was innocent and that the funds were used for housing loans as intended.

From the Economic Times, we read more about the statement from Norway and another statement from Bangladesh that will continue to beat a dead horse.

The claims were based on series of letters dating from 1996 to 1998 -- a decade before Yunus and Grameen were awarded the Nobel Prize in 2006 -- showing a conflict between the Norwegians and Grameen over the aid transfer.

After a review, Norway's minister of international development Erik Solheim said in a statement Tuesday that there was "no indication that Norwegian funds have been used for unintended purposes, or that Grameen Bank has engaged in corrupt practices or embezzled funds."

Grameen maintained the transfer of aid to Grameen Kalyan, another part of the group, was legitimate and done to minimise tax on the money.

"We are very happy that actual proof (of Grameen's innocence) has come to light and we hope this will end all debate about Grameen," Grameen spokesman Mohammad Shahjhan said.

Yunus and microfinance have come under fierce attack from Bangladeshi Prime Minister Sheikh Hasina , who called Sunday for a full investigation of a sector she said "does not lift people from poverty."

"Is there any other business that forces people to pay 30 to 40 per cent interest on loans?" Hasina asked, describing Grameen's transfer of Norwegian and other European aid money in 1996 to avoid tax as a financial "trick".

Bangladesh to investigate money diverting claims against Yunus' Grameen Bank

The controversy surrounding accusations a Norwegian documentary made against Muhammad Yunus' Grameen Bank has taken another step. The government of Bangladesh is going to begin its own investigation into the claims.

A TV documentary said that a loan made from the Norwegian government to Grameen Bank was diverted into another Grameen company. The loan was meant to aid low income housing. Grameen has other companies that serve the interest of the poor in addition to the microcredit bank.

The matter does appear to already have been settled between the Bank and Norway but the TV show has stirred the pot again.

From Monsters and Critics, we find out more about this new investigation on some old news.

Nobody is above the law, no matter how big or how honourable he or she is; finding out the truth is more important,' Foreign Minister Dipu Moni told reporters Tuesday.

Yunus, a Bangladeshi economist, is founder of the micro-credit organization Grameen Bank. He was awarded the peace prize in 2006.

Norwegian state television last week reported that Yunus had diverted nearly 100 million dollars in aid from Norway, meant to support the poor through micro-credit programmes, to one of his own companies.

In Oslo, Environment and International Development Minister Erik Solheim appeared to be reassured, citing a fresh report he commissioned from development aid agency Norad.

The measures were taken in 1998, the report said.

'According to the report, there is no indication that Norwegian funds
have been used for unintended purposes, or that Grameen Bank has engaged in corrupt practices or embezzled funds,' Solheim said in a statement.

Muhammad Yunus' Grameen Bank accused of diverting money

A Norwegian documentary on microcredit has made some allegations of diverted money within Muhammad Yunus' Grameen Bank. Money that the Norwegian government gave to Grameen Bank for housing loans was instead diverted to another arm within the Grameen Family of companies. Grameen has other branches including medical care services, developing other microcredit banks and more. Grameen counters that the money was diverted only for tax purposes.

From this NewsCore story that we found at Fox News Detroit, we learn more about the allegations.

But letters obtained by a Norwegian filmmaker suggest that Oslo’s embassy in Dhaka was furious to discover that cash donated to his micro finance vehicle, Grameen Bank, for housing loans was diverted to another company without its knowledge or permission. The arrangement, which Yunus claimed was made for tax reasons, was not mentioned in Grameen Bank’s annual report.

When his actions were challenged in formal correspondence, Yunus wrote to the head of an aid agency, Norad, asking for its help.

“This allegation will create a lot of misunderstanding within the government of Bangladesh. If the people, within and outside government, who are not supportive of Grameen get hold of this letter, we’ll face real problem[s] in Bangladesh,” he wrote.

Yunus was ordered to return the money but while about £17.6 million was repaid, the rest of the funds were used for other social causes including victims of cyclones, according to the Norwegian government.

The chain of events -- which took place between 1996 and 1998 -- came to light this week after the letters were aired as part of a documentary on micro finance that was shown on Norwegian television.

Although it said that there was no suggestion of tax fraud, a minister in the current Oslo administration said that it was “totally unacceptable” that aid was used for purposes other than what was intended. A report into the matter has now been ordered by the International Development Minister after questions in the Norwegian parliament.

Using the SKS IPO money to begin more social bushiness

The initial public offering of stock for SKS Microfinance was one of the most controversial events we followed this year.

The India microcredit bank was accused by many as only being into microcredit to make themselves rich. Some including microcredit's founder Muhammad Yunus, believe that those who begin microcredit services should do so without seeking to gain much profit for it. The microcredit "purists" say that only those who receive the loans should reap the benefits.

However, the man who helped to start SKS Microfinance is going to use the money he gained from the stock IPO to begin more social businesses. Further, SKS investor Vinod Khosa says that for-profit microcredit banks work better than the non-profit banks.

From the New York Times, writer Vicas Bajaj profiles Khosa and his plans to help more of those on the bottom of the pyramid.

An Indian transplant to Silicon Valley, Mr. Khosla plans to start a venture capital fund to invest in companies that focus on the poor in India, Africa and elsewhere by providing services like health, energy and education.

By backing businesses that provide education loans or distribute solar panels in villages, he says, he wants to show that commercial entities can better help people in poverty than most nonprofit charitable organizations.

“There needs to be more experiments in building sustainable businesses going after the market for the poor,” he said in a telephone interview from his office in Menlo Park, Calif. “It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”

Mr. Khosla’s advocacy of the bootstrap powers of capitalism is part of an increasingly popular school of thought: businesses, not governments or nonprofit groups, should lead the effort to eradicate global poverty.

Some nonprofit experts say commercial social enterprises have significant limitations and pose conflicts of interest. But proponents like Mr. Khosla draw inspiration from the astounding global growth of microfinance — the business of giving small loans to poor entrepreneurs, of which SKS Microfinance is a notable practitioner.

Advocates also find intellectual support for the idea from the work of business management professors like the late C. K. Prahalad, who have argued that large corporations can do well and do good by aiming at people at the so-called bottom of the pyramid.

Besides Mr. Khosla, entrepreneurs like Pierre Omidyar, a co-founder of eBay, and Stephen M. Case, a co-founder of America Online, have started funds with similar aims.

But Mr. Khosla, 55, who moved to the United States from India as a graduate student in 1976, has another motive, too. He wants to goad other rich Indians into giving away more of their wealth.

India’s torrid growth over the last decade has helped enrich many here — Forbes estimates that India now has 69 billionaires, up from seven in 2000 — but only a few have set up large charities, endowments or venture capital funds.

“It surprises me that in India there is not a tradition of large-scale giving and helping to solve social problems and set a social model,” Mr. Khosla said.

SKS Microfinance offers another wrinkle to microcredit debate

India's biggest microcredit lender made an initial offering of stock earlier this week. This move proved very profitable for SKS Microfinance, but very controversial for the many involved in microcredit. Some say that such a stock offering only profits the company at the expense of the poor. The other side of the debate says that such offering of stock helps to raise more money for even more loans to the poor.

From Fortune Magazine at CNN Money, writer Nin-Hai Tseng explains the debate further.

An IPO is a rare and controversial step for a major microfinance company to take, since these lenders typically rely on donations, governments and international organizations such as the World Bank for funding. Only a handful have raised public money on the idea that helping small entrepreneurs like farmers and basket weavers gain access to financing is not only the right thing to do, but also a profitable venture.

But after SKS's strong reception, others will likely follow its lead to the public market. SKS founder Vikram Akula says going public is perhaps the only way to shore up more capital to serve more of India's poor. He wants to prove critics wrong, including Yunus, who argues an IPO would essentially mean profiting off the poor. The Bangladeshi banker and economist has been credited for pioneering microfinance, and in 2006, his founding of Bangladesh's Grameen Bank earned him and the bank a Nobel Peace Prize.
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The industry faces a sticky dilemma: to pursue morals or profits. But public microlenders argue they can have both. By getting stockholders involved, SKS raises more capital, which leads to more loans for India's poor. And more loans could eventually drive down interest rates charged to poor borrowers.

But somewhere, the economics of scale gets lost. These are high-risk borrowers. They have few, if any, assets to use as collateral. Some might own land, but don't always have titles proving this. It's hard to see how interest rates could fall much, if at all. Indeed, the pressure of answering to public shareholders could have the opposite effect, leading to higher rates for borrowers.

How Grameen Bank uses peer pressure

Grameen USA says that they will become a self-sufficient company by 2013. That is really saying something during this time of tight credit markets and failing financial institutions. Grameen Bank is the first of the microcredit lenders begun by Muhammad Yunus in Bangladesh. The company started in the US in 1997 and is still seeing a payback rate of 98 percent.

From Newsweek, writer Rana Foroohar gives this example that sums up Grameen Bank's unique way of lending.

Laura Falcon, an Ecuadoran immigrant working as a babysitter in New York, became an entrepreneur by accident. About a year ago, when her uncle back in Ecuador was having hip problems, Falcon sent him some vitamins that seemed to help. She began to think there could be a broader market for the products, which are not widely available in her home country. But she needed a loan to buy them in bulk, and as a person with no credit history she couldn’t get one from any local bank.

An agent at a local immigration center pointed her to Grameen America, the U.S. offshoot of the Bangladeshi micro-lending operation. If she put together a group of five entrepreneurial friends and relatives, Grameen officials told her, they could each take a $1,500 loan, to be paid back in weekly $30 installments (plus $3 in interest). If one person in the group defaulted, all would be responsible. Falcon quickly organized a cadre of women who now run businesses, including an ice-cream stand, a cupcake-catering operation, and a fruit stall. Every Monday at 7 a.m. sharp, they meet in a brownstone in Brooklyn to make their payment to a Grameen center manager, and talk about the challenges of running their businesses. Then it’s off to their regular day jobs. Falcon herself is now doing a brisk export business and is well on her way to saving the $4,000 she needs to renovate part of her home and open a child-care center.

Three years ago, no one could have predicted that one of the few financial institutions to be expanding in America would be a Bangladeshi bank specializing in tiny loans to people below the poverty line (most of them women). But microcredit has become a bright spot in the global financial system, with governments and the private sector looking to it as a way to create prosperity in the most vulnerable populations. Micro-lending has been popular in the developing world for decades, but is gaining steam in rich countries now too. Grameen, founded by Muhammad Yunus, who won the 2006 Nobel Peace Prize, has operated in the U.S. since 2007. It has branches in New York and Omaha, and is expanding to San Francisco. It joins other microlenders like the Latin American Acción, which offers larger loans to more affluent borrowers.

Yunus to guest star in Simpsons

Renowned micro-creditor to be in the Simpsons cartoon in October. This news found at Finance Markets, written by David Masters.

The Bangladeshi anti-poverty banker Muhammad Yunus is to feature in an episode of hit TV cartoon The Simpsons.

Yunus, whose pioneering work on micro-finance earned him the Nobel Peace Prize in 2006, will appear in the TV show as a cartoon version of himself.

The episode will focus on his micro-credit work in Bangladesh, which has helped to lift millions of people out of poverty.

His voice has already been recorded for the special episode, which will air in October.

Grameen Bank expands into rich nations

The financial world may be crashing down around him, but Muhammad Yunus' Grameen Bank continues to expand. The bank that began giving small loans to people in Bangladesh is expanding into rich nations. Three years after the Grameen Bank started in the US, they will open a new office in San Francisco, as well as a new office in Glasgow, Scotland.

From Newsweek Magazine, writer Rana Foroohar talks about giving tiny loans in the rich world.

It’s pretty safe to say that three years ago no one could have predicted that one of the few financial institutions to be opening new branches and expanding lending in America would be a Bangladeshi bank that specialized in loans to people below the poverty line (the vast majority of them women). But that’s just what has happened. Grameen America, the U.S. offshoot of the famous Asian microlending institution founded by Nobel laureate Muhammad Yunus, is now in its third year of operation in America, and even as the major banks, still battered from the financial crisis, are keeping credit tighter than ever, particularly to the small and midsize businesses that need it so desperately, Grameen is expanding. This summer, the little Bangladeshi bank—already operating in New York; Omaha; and Washington, D.C.—will move into its fourth U.S. city, San Francisco, fueled by a series of loans from institutions like Wells Fargo and Capital One that, aside from basking in the glow of good PR, have realized that they are more likely to get their money back by lending to African-American hairdressers in Queens or Latina food-cart operators in D.C. than by chucking money at middle-class whites who have bought more McMansion than they can afford.

Ironically, Yunus himself has characterized Grameen as “sub-sub-subprime.” In this case, it’s not a bad thing. Since its establishment in 1983, Grameen has given out billions to borrowers around the world, mainly women below the poverty line, and has recouped 98 percent of its loans. Admittedly, those loans are tiny—$1,500 on average in the U.S., but much less elsewhere. Interest rates are high (15 percent in the American operation), but they are much less than the poor would pay a black-market lender. According to its proponents, the Grameen model works because of peer pressure. Each borrower is required to attend a weekly meeting with other borrowers, all of whom are responsible for communal payback rates (the group can’t borrow more if individuals don’t pay back). Each borrower must also contribute to a personal savings account to help create a financial cushion while building a business.

It’s a model that is the antithesis of the big-bank system of recent years, in which the “know your customer” approach of the local savings and loans went out of fashion and the complex bundling of thousands of mortgages came in. The Grameen way recalls the Latin meaning of the word credit, which is “to believe in.” Grameen builds community at the same time it builds financial security among its members. “I think the financial crisis will be an opportunity,” said Yunus in a speech to borrowers last year, “to create an entirely new type of financial system.” At the opening of a branch in lower Manhattan this past May, Yunus pointed out that “Wall Street does banking to the world, but it doesn’t do banking for its neighbors. We are here to show there’s nothing wrong with banking with neighbors.” Indeed, they may be among the most creditworthy.