Muhammad Yunus Comments on the Financial Crisis
Tuesday, October 28, 2008
A Nobel Prize-winning academic turned micro-finance banker for the poor has important advice for Washington. Muhammad Yunus believes that the government bailout of the banking system is but the first step in redesigning the global credit system. In the end, Yunus believes that a new self-correcting market system will have to be created.
In 1983, Muhammad Yunus set up the Grameen Bank in Bangladesh and ushered in the era of micro-finance and social entrepreneurship. By offering tiny amounts of credit to poor people, mostly women, to finance small businesses, he contradicted the established banking norms of the day. As a consequence, he received an unrelenting barrage of criticism from bankers and economists. Today, however, Grameen Bank, which won the Nobel Peace Prize jointly with Yunus in 2006, has a portfolio of loans a lot more solid than the portfolios of most large, global commercial banks-and Dr. Yunus is smiling. “Our system is based on trust, not collateral or guarantees, and still the people pay back,” he said recently in an interview with BusinessWeek. “Conventional banking has always been represented as a perfect, self-correcting system. We see that it is not. It is collapsing as banks run to the government for a bailout.”
And that is a huge mistake, says Yunus, who holds a PhD in economics from Vanderbilt University. In the past, government charity didn’t help alleviate poverty in Bangladesh or most of the Third World. Instead, market-driven micro-finance offerings from Grameen Bank and others have enabled millions of people to get themselves out of poverty. It’s also a system with a very good pay-back history: Poor people pay back their loans at average or above-average rates.
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