Grameen Bank in Bangladesh first micro credit bank
Argument
Grameen-style initiatives have limited capacity to fight global poverty
Does not work in countries with neoliberalism: include macroeconomic policies focused on eliminating inflation rather than expanding job opportunities. Have produced slower economic growth, increasing inequality, and no progress in reducing poverty
Grameen's model develops an alternative to traditional collateral as a basis for lending to the poor. Poor would become destitute if these things were taken from them because they couldn't make their payments
average lending rates of Grameen= far exceed standard measures of affordability.
Annual interest rates on group loans range between 30-50%
Defenders: contend that, accounting for the risks to the lender, these rates are appropriate; and that anything less will not attract profit-seeking bankers into this market
Response: According to this approach, microfinance can only reach its full global potential if it can attract profit-seekers into the business, not just aid agencies and private do-gooders.
For any of the poor's microenterprises to be successful they need access to decent roads and affordable means to move their products.
Proposal
government guarantees be set at 75% of the total amount of loans that commercial banks make to microfinance institutions (means that, with a 75% government loan guarantee, if the market rate for a microcredit loan was 40%, the subsidized rate would be 10%). This would make the loan affordable for borrowers while still maintaining market incentives for lenders.
With this new proposal, can Microcredit save the poor?
source: global issues in context, microcredit
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