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Flashback: Nobel For Unsecured Loans

Just a flashback to help us all remember the spirit of the times just two short years ago, via the AFP:

‘Banker for the Poor’ wins Nobel Peace Prize

Saturday, October 14, 2006

OSLO: The Nobel Peace Prize was awarded on Friday to Muhammad Yunus of Bangladesh and the Grameen Bank, which offers loans to poor people without any financial security.

“Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means,” said a statement from the Norwegian Nobel Committee.

Yunus expressed his “pride” at winning for Bangladesh and the recognition it brings his microcredit bank.

“I think this is a wonderful recognition for our efforts at Grameen Bank, and for all the women who work for us and who have made Grameen Bank a success,” he told reporters at his home in Dhaka.

“I am also proud for the whole country,” the 66-year-old said.

The economics professor began fighting poverty during a devastating famine in Bangladesh, setting up the tiny Grameen Bank in 1976 to provide access to credit to people too poor to qualify for traditional bank loans…

His “microcredit” scheme gives entrepreneurs very small sums to start up their own enterprises. It reversed conventional banking by not obliging borrowers to offer collateral for a loan.

It loans the money based on the borrower’s desperate plight. As Yunus puts it: “The less you have, the higher priority you have.”

The Grameen Bank now has more than 6.5 million borrowers, 96 percent of whom are women. Its borrowers are also the bank’s owners…

Yunus, 66, started the bank with just $27 out of his own pocket, according to the Grameen Foundation.

His vision was to give the poorest of the poor money so they could become self-supporting…

By giving small loans to landless rural people, it aimed to break the exploitation of the poor by money lenders.

Borrowers used the loans to buy their own tools and equipment, cutting out the middlemen and transforming their lives through self-employment. Loans are repaid in very small amounts.

Grameen’s lending activities now contribute more than one percent of Bangladesh’s GDP, and its loan recovery rate is 98.85 percent.

By the way, even Wikipedia lists some of the criticisms of the Grameen Bank:

Grameen Bank

Sudhirendar Sharma, a development analyst, claims that the Grameen Bank has “landed poor communities in a perpetual debt-trap”, and that its ultimate benefit goes to the corporations that sell capital goods and infrastructure to the borrowers.

It has also attracted criticism from the former Prime Minister of Bangladesh, Sheikh Hasina, who commented, “There is no difference between usurers [Yunus] and corrupt people.” Hasina touches upon one criticism of Grameen Bank: the high rate of interest that the bank demands from those seeking credit. Similar to all microfinance institutes, the interest charged by Grameen Bank is higher compared to that of traditional banks, as Grameen’s interest (reducing balance basis) on its main credit product is about 20%.

The Mises Institute’s Jeffrey Tucker has criticized the Grameen Bank, asserting that the Grameen Bank and others based on the Grameen model are not economically viable and depend on subsidies in order to operate, thus essentially becoming another example of welfare.

Another source of criticism is that of the Grameen’s Sixteen Decisions. Critics say that the bank’s Sixteen Decisions force families and borrowers to abide by the rules and regulations set forth by the bank.

But just two short years ago our betters in the interntional intelligentsia (as epitomized by the Nobel Committee) were telling us what a wonderful thing it is to give the poor unsecured loans.

And look where it has gotten all of us.


From today’s Der Spiegel:

Muhammad Yunus says that profit should not be the only reason that businesses exist.

‘Capitalism Has Degenerated into a Casino’

Nobel Peace Prize laureate Muhammad Yunus says that greed has destroyed the world’s financial system. SPIEGEL ONLINE spoke with him about the profit motive, social consciousness and what should be done to end the financial crisis.

SPIEGEL ONLINE: Mr. Yunus, for years you have been preaching a more socially conscious way of doing business and have denounced the narrow focus on maximizing profit as harmful. Now, the entire financial system is wobbling …

Yunus: The current turn of events makes me sad. It is certainly not something I am happy about. The collapse has hurt so many people and has suddenly made the entire world unstable. We should now be concentrating on making sure that such a financial crisis does not happen again.

SPIEGEL ONLINE: What should be done?

Yunus: There are huge holes in the current financial system that need to be plugged. The market is clearly not able to solve these problems itself, and now people are having to run to the governments to ask for emergency assistance. That is not a good sign because it shows that trust in the markets has evaporated. At the moment, there is unfortunately no other option than for government takeovers and government support. That is currently the method being used to combat the crisis — a method kicked off with the $700 billion bailout package passed in the US. In Germany, the government has likewise jumped into the fray.

SPIEGEL ONLINE: Where exactly do you see the problem with such a strategy?

Yunus: The point is that we have to return as soon as possible to market mechanisms that can ameliorate the crisis and solve problems. Solutions should come out of the market and not from governments.

SPIEGEL ONLINE: But you just said yourself that the market is not capable of doing so.

Yunus: That is exactly what we need to work on. For a long time, the main priorities have been the maximization of profits and rapid growth — but that focus has led to the current situation. Each day, we have to look to see if there is potentially harmful growth somewhere. If we find there is, then we need to react immediately. If something grows unnaturally quickly, then we have to stop it. Why don’t companies all pay into a fund that buys up securities that have become too risky? I can even imagine a business model for such a program.

SPIEGEL ONLINE: On the one hand, you say that the market has to solve the problem itself, on the other hand, though, you criticize overly quick growth. That sounds like you think that profit-oriented capitalism has failed.

Yunus: Not at all. Capitalism, with all its market mechanisms, has to survive — there is no question. What I excoriate is that today there is only one incentive for doing business, and that is the maximization of profits. But the incentive of doing social good must be included. There need to be many more companies whose primary aim is not that of earning the highest profits possible, but that of providing the greatest benefit possible for human kind.

SPIEGEL ONLINE: And you think that those two incentives are mutually exclusive? The bank you founded, Grameen Bank — which led to your receiving the Nobel Peace Prize in 2006 — both helps people and earns healthy profits.

Yunus: It is a company which is focused on the social good and which makes a profit, but it is not focused on maximizing its profits. I am not interested in turning all profit-oriented companies into socially conscious operations. They are two different categories of companies — there will always be businesses whose primary goal is that of earning as much money as possible. That is okay. But earning as much money as possible can only be a means to an end, not an end in itself. One has to invest money in something meaningful — and I would make a case for it being something that improves the quality of life for all people.

SPIEGEL ONLINE: What, though, does an increase in the number of socially minded companies have to do with the financial crisis?

Yunus: Were there more socially minded companies, people would have more opportunities to shape their own lives. The markets would be more balanced than they are today.

SPIEGEL ONLINE: You are talking about saving the world with altruism …

Yunus: There are many philanthropists in this world, people who help people by providing them with homes, education, etc. But that is a one-way street. The money is spent and never comes back. Were one to invest that money in a socially minded company, it would stay in the economy and would be much more effective because it would be used according to the criteria of the market and would thus develop a certain amount of market leverage.

SPIEGEL ONLINE: Who do you think is guilty for the current financial meltdown?

Yunus: The market itself with its lack of adequate regulation. Today’s capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions. These are all things that have to end.

SPIEGEL ONLINE: The current financial crisis began as a credit crisis — homeowners in the US could no longer pay down their mortgages. At Grameen Bank, which provides microloans, the repayment rate is close to 100 percent. Do you think your bank could be a model for the entire finance world?

Yunus: The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don’t exist at all. That was the point at which the financial system collapsed.

SPIEGEL ONLINE: Is it now time for governments to intervene in the market economy and strengthen regulation?

Yunus: There has to be regulation, but governments should not be allowed to steer the market. On the other hand, it has become clear that Adam Smith’s “invisible hand” which supposedly solves all the market’s problems doesn’t exist. This “invisible hand” has completely disappeared in the last few days. What we are experiencing is a dramatic failure of the markets.


Except that it isn’t funny.

This article was posted by Steve on Friday, October 10th, 2008. Comments are currently closed.

4 Responses to “Flashback: Nobel For Unsecured Loans”

  1. Steve says:

    Mr. Limbaugh is talking about this article as we type.

  2. therightguy says:

    Like most liberal socialist agenda, intentions are everything, and consequences or results are secondary. I wonder if Mr. Yunus can give his Nobel back along with the money. May be they can get a two for one deal with he and Al Gore, the other Nobel fraud. Nobel=Socialist Mutual Admiration Society.

  3. GuppyNblue says:

    Unfortunately the Nobel Peace Prize has been high jacked by the shameless liberals and used for their propaganda. I remember Glen Beck discussing how a real hero had been passed up for the prize that was given to the thief Al Gore instead. “Irena Sendler: During World War II helped save 2,500 Jewish children”. Take a look at the link and tell me this wasn’t a travesty.

  4. “…the Grameen Bank has “landed poor communities in a perpetual debt-trap”, and that its ultimate benefit goes to the corporations that sell capital goods and infrastructure to the borrowers.”

    Welcome to the new indentured servitude.

    But it makes the nanny statists feel better.

    Thing is, it’s still a private capitalist venture which makes unsecured loans for profit. If that’s what individuals wish to invest their money into, fine. God bless ’em & good luck. It’s only when the gub’mint forces it’s hand into those pockets that the real trouble starts.

    Right, Wall Street?

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