Bill Totten's Weblog

Wednesday, December 31, 2008

Grass-roots banking

While Wall Street was in meltdown, Sigrid Rausing found an alternative model of lending thriving in Queens, New York.

by Sigrid Rausing

New Statesman (October 16 2008)

On the morning of Friday 10 October, as even the mainstream US media were speculating about the possibility of the end of capitalism as we know it, I went to visit Grameen Bank in Queens, New York. Founded by Professor Muhammad Yunus, who invented microcredit in Bangladesh in 1976, Grameen is often thought of as a bank for the developing world. But 36.5 million people in America live below the poverty line. Up to 28 million have no bank account. Many are immigrants. They rely on payday loans or cheque cashiers, and short-term loans - some legal, some not - with annual average interest rates reaching 300 or even 400 per cent. They, too, need "Banking for the Unbanked", as Grameen's slogan puts it. The Queens branch, its first in America, opened last November and made its first loan in January.

The office is on a peaceful street in a mainly Bangladeshi area of Jackson Heights. Ritu Chattree, vice-president of finance and development, formerly of Insead and J P Morgan, opens the door to a shabby, steep staircase with a torn patterned carpet. Upstairs is a single room with six worn desks, some photos and hand-drawn maps of Brooklyn and Queens on the walls.

All the staff are out visiting clients, apart from Shah Newaz from Bangladesh, who runs the office. He gives me instant coffee with sweet powdered creamer. The contrast is beguiling - the runaway success of the bank, its Nobel Peace Prize-winning founder, the great and the good on the leadership council; and this tatty, tiny office. The ethos of providing financial services to the poor permeates the room. That day, in the context of the collapse of Bear Stearns and Lehman Brothers, this form of grass-roots banking seems not only ethical but also solidly safe: its payback rate, so far, is over 99 per cent.

Grameen Bank started 34 years ago, in Bangladesh, when Professor Yunus lent $27 to a group of 42 women. That was the beginning of the microcredit movement, which has spread to most of the developing world, not least through Grameen, whose model has been replicated in more than a hundred countries. The core principles are simple: the poor need credit, not aid. They need loans, given with respect and received with dignity, within the context of supportive groups, and in close contact with Grameen staff. Loans are given to women because evidence shows that they put the money to better use. The sums lent are carefully considered: the right amount is empowering; too little, or, interestingly, too much, is thought to be damaging.

There are four aspects to the client relationship: the loan, the savings account through the Citibank partnership, five days of financial literacy training (important for the many clients who did not previously have bank accounts) and a partnership with Experian, which establishes credit ratings for Grameen clients.

Initially it was difficult to reach the target group in New York. Leafleting proved ineffective, and Shah found it a culture shock to work with such atomised and individualistic communities where suspicions of Mafia connections or moneylender abuse were widespread. He speaks of Americans with the thoughtful concern of NGO workers worldwide, who always mirror the societies they work in. This, more than anything, strikes me as the essence of Grameen America. Shah is not only talking about the poor, he is talking about Americans, and the nature of America, just as westerners in Bangladesh talk about Bangladeshis.

The culture shock may be mutual. American women may wonder why a bank based on an explicitly woman-oriented theory of change is so lacking in feminist language. According to its leaflets, Grameen America anticipates its clients using their loans for purposes such as selling beauty salon products, clothing and jewellery, bakery goods, handicrafts and flower arrangements. There are many things that women's borrowing groups might do, and specifically suggesting the most traditionally female crafts strikes a surprisingly conservative note.

Grameen will open six more branches in the city over the next two years, as well as a mix of urban and rural branches in the rest of America. It is hoping to reach between 18,000 and 20,000 people within the next five years.

This is a fraction of the millions of people below the poverty line in the US, but the model is easily scaleable. Perhaps a part of that $700 billion bailout ought to have gone not to Wall Street, but to a community bank providing small loans and a personal financial service to the poor.

Two days after my visit, the tatty Stars and Stripes flags on Fifth Avenue barely move in the humid heat. We are trapped by the Hispanic Columbus Day parade, led by eight young women marching with replica guns. Countless cops with real guns are lined up, obsessively controlling movement across the street. Election tension is palpable. Never before have I felt a sense of so much being at stake in this country. I don't know if Grameen's arrival in the US is a sign of hope, or a sign of the end of the American era. Perhaps, on reflection, it could be both.

Bill Totten


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