Downturn giving microcredit second chance in U.S.: Yunus

Reuters News
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Posted: Sep 25, 2011 11:18 AM
Downturn giving microcredit second chance in U.S.: Yunus

By James B. Kelleher

CHICAGO (Reuters) - The economic slump that has thrown millions of Americans out of work also jump-started the moribund U.S. microcredit sector, a Nobel laureate who pioneered nonprofit lending to the poor said.

The idea of using small, uncollateralized loans to help the poor had failed to catch on in the United States despite the efforts of backers like former President Bill Clinton, who helped get a microfinance venture up and running briefly in Arkansas when he was governor in the 1980s

But Muhammad Yunus, the founder of microlender Grameen Bank, said the brutal recession and lackluster recovery has made poverty alleviation a growth industry in the world's largest economy.

Yunus said Grameen America -- a separate, nonprofit he started in the United States -- has established a firm foothold over the past three years, with branches now open in New York, Nebraska and Indiana.

Grameen America plans to expand next into San Francisco and, possibly, Detroit, where -- as in so many cities -- the disappointing economic recovery that followed the deep recession has pushed more Americans into poverty.

"People said, 'Look, it will not work in this country,'" the 70-year-old told Reuters of the Grameen approach to finance, which is founded on the belief that even the poorest of the poor are credit-worthy.

"I said, 'No. It will work in any country because the issues are the same whether it's the United States or Bangladesh or Mexico. It doesn't matter."

Poverty has never been a problem confined to the developing world, but it has become a growing embarrassment in the United States. Just last week, the U.S. Census Bureau reported 46.2 million Americans are living under the poverty line, the highest number in the 52 years the bureau has tracked it.

BETTER THAN BANGLADESH?

Yunus said loan performance in New York City, where Grameen America now has four branches and 6,000 borrowers, has been as good if not better than he had seen back home in Bangladesh.

"The average loan," Yunus said, "is $1,500 and the repayment rate is near 100 percent -- 99 plus percent."

The model Grameen America uses in the United States is quite different from the one Grameen Bank uses back at home, largely because U.S. banking regulations are stricter.

Unable to get a U.S. banking license because of high initial asset requirements, Grameen America has adopted a donor-supported model, opening branches in cities where local benefactors provide funding -- typically at least $6 million -- to get the poverty-alleviating lending program up and running.

Getting donors to pony up given the uncertainty haunting the global economy is tough. Adding to the challenge is the controversy that has come to surround Yunus, the winner of the 2006 Nobel Peace Prize, and microlending in general.

After criticizing the Bangladeshi government for corruption, Yunus was thrown out of his job earlier this year as managing director of Grameen Bank, an institution he founded 30 years ago and with which he shared the peace prize.

But he remains chairman of the board of Grameen America, a separate entity that seeks to do for urban areas of the United States what Grameen Bank has done in Bangladesh.

Associates of Yunus said his removal from the Bangladesh parent company was government retaliation after he briefly considered a challenge to Prime Minister Sheikh Hasina.

The action against Yunus coincided with growing criticism of microlending in developing countries, where a controversial for-profit version of the idea has enraged borrowers by pursuing aggressive marketing and collection campaigns.

Yunus has also had to defend himself from claims made in a Norwegian documentary that Grameen Bank was dodging taxes.

Yunus has denied any financial irregularities and the Norwegian government found no evidence of wrongdoing.

Asked about the controversy in Chicago this week, where he was honored for his anti-poverty efforts by DePaul University, Yunus said his fight to clear his name -- and regain his position at Grameen Bank in Bangladesh -- was not over.

"It's still on," he said.

(Editing by Cynthia Johnston)