Usury

Abstract: Banker to the Poor: Micro-Lending and the Battle Against World Poverty Muhammad Yunus, with Alan Jolis (New York: Public Affairs, 1999) 288 pps. Start with two assumptions: 1) Entrepreneurial spirit is a wide-spread human trait and no less prevalent among the poor than among others. Or, as Muhammad Yunus puts it: "The poor are very creative. They know how to earn a living and how to change their lives. All they need is opportunity;" and 2) Putting an entrepreneurial idea into "practice" requires some amount of start-up capital--not necessarily much, but more than ever seems within reach if you are living on pennies a day. If you believe these fairly uncontroversial assumptions, microcredit--which allows poor people to borrow small sums to start their own business enterprises, enabling them to retain the value added by their labor and to pay back their loans incrementally--seems like an attractive strategy for economic development, and one that can directly improve the standard of living of many of the developing world's poorest inhabitants. Indeed, micro-credit programs have in recent years begun to attract the attention of both private and governmental national and international aid agencies and organizations. First, existing financial intermediaries are not suited to provide micro-credit: the amounts involved are often barely worth the loan paperwork for traditional banks. Second, many developing countries provide an inhospitable socio-political climate: beyond the lack of a tradition of incremental loan re-payment, one frequently finds--particularly in rural areas and among (systematically disproportionately poor) women--a bias against lending and borrowing, which is often deeply ingrained in the local culture and based on religious injunctions against usury and/ or the experience of exploitative practices of money lenders. These problems can be overcome at the local level, but expanding beyond the initial locale has proven difficult for those who have attempted to institute micro-credit programs in developing countries. Thus, A. Holmberg's 1950s project, enabling Indio farm workers in Peru to gain independence from overlord land holders, which proved a strong incentive to overcome quickly their seemingly deeply engrained passivity and lethargy, remained limited to the project's farming communities. And the 1960s Mit-Ghamr banking project--brilliantly described and analyzed by its founder Ahmed El-Naggar in his study "Zinslose Sparkassen: Ein Entwicklungsprojekt im Nildelta" (which regrettably remains available only in German and Arabic)--was terminated by a jealous Egyptian government, despite the fact that this first modern "Islamic Bank" had created not only broad-based economic growth in the rural province, but also financial intermediaries where none had existed before and a new "culture" of saving and investment, compatible with, and in fact strengthened by, Islamic law and tradition. Grameen Bank, founded by Muhammad Yunus in 1983 based on his late 1970s micro-credit pilot projects, is an exception in that it succeeded in expanding from one village to all of Bangladesh and has inspired a number of smaller successful projects elsewhere. Because of its success, Grameen bank has over the years attracted not just "imitators" Yunus notes 65 micro-lending projects set up along similar lines in poor areas of 27 countries--but the attention of scholars, leading to studies and reports by the UN, the World Bank, numerous other INGOs and various news media. Many of these studies provide thorough analyses of one aspect or another of Grameen bank. Yunus' autobiography complements these studies by providing an account of the project's history from its very beginning (long before it started to attract outside attention) and of the personal motivations behind it. Muhammad Yunus, author of Banker to the Poor, describes how he stumbled upon micro-credit through a study of the famine-stricken extreme poor in a university-adjacent village during his tenure as professor of economics at Bangladesh's Chittagong University in 1974. …