How a revolutionary third world bank lifted millions out of poverty… but hit the buffers in Scotland
Edd McCracken, The Herald
It is a concept that turns the western idea of banking on its head. With no shareholders, no collateral, no profit margin, relying purely on trust, and lending only to the poor and disadvantaged, the Grameen banking system has already been a huge success in alleviating poverty around the globe. But this revolutionary idea from Bangladesh could be prevented from doing likewise in Glasgow because of a legal loophole.
Professor Muhammad Yunus – who in 2006 won the Nobel Peace Prize for his work – pioneered the concept of micro-credit, lending small sums of money to start businesses, when he founded the Grameen Bank in 1976 with a $27 loan. It is now at work in 38 countries, mainly in the developing world. This Third World idea might be stopped by a uniquely First World problem, however: Glasgow’s welfare culture.
Under current legislation, if someone takes out a business loan, they forfeit their benefits. Locals from Sighthill, where the first Grameen Bank branch hopes to open, have already said this would discourage many of them from starting their own business.
Grameen Glasgow is petitioning the Department of Work and Pensions for flexibility to allow people to remain on benefits while they try to establish their business.
‘It can still work without this, but with reduced numbers likely to come forward,’ said Pamela Gillies, principal of Glasgow Caledonian University and one of the driving forces behind the project.
‘For this to have its full potential, it would be absolutely desirable to have benefits remain in place, but it’s not essential to start the project.
‘When projects like this begin they have their own momentum and are very compelling. It would be a great pity if the government weren’t flexible on this instance.’
In Scotland’s Brand New Bank, a BBC Scotland documentary about the Grameen system to be screened this week, Yunus also stressed the need for the government to assist.
‘Our problem is the legal issue. Does the law allow people to take out a loan while still on welfare?’ he says.
Scottish Secretary Jim Murphy has indicated that he will take the plea to the Westminster government.
Yunis’s banking system relies upon small circles of trust, peer pressure and community spirit. Instead of lending to individuals, Grameen banks lend small amounts to five businesses at a time. If one defaults on the small weekly repayments, the other four have to make up the difference. Crucially, borrowers do not need a credit rating.
In Bangladesh, Grameen has eight million borrowers, 97% of whom are women. Repayment rates are well over 90%. It is credited with lifting millions out of penury in a country where 63 million live below the poverty line.
It is hoped that it can have a similar effect in Sighthill, an area where 59% of households are workless and many are unable to get credit.
Gillies has travelled to Bangladesh and New York to see the system in practice.
She said: ‘It creates huge confidence and self esteem in people who previously haven’t been able to get into work or start businesses. There is no reason why it can’t happen here, to help people break out of that circle of deprivation.
‘It could reduce some of those inequalities that we’ve struggled with in Glasgow for so many years. There is a huge amount of talent in our local communities. This could be such a positive force for good.’
Grameen Glasgow has a number of investors interested in providing the capital base. A prominent Scottish banker, close to retirement, is also ‘extremely keen’ to work on the project on a voluntary basis, according to Gilles. The plan is to launch before Christmas.
Entrepreneur Sir Tom Hunter is helping Grameen Glasgow identify the start-up money. He visited Yunus in Bangladesh two years ago, and has already donated $500,000 to support his work around the world.
‘Muhammad is a genius,’ said Hunter’s spokesman. ‘If you can make it work in Bangladesh, one of the poorest countries in the world, I think you can make it work in Scotland.’
Warner Woodworth, a microfinance expert from Brigham Young University in the United States, said: ‘The Grameen model is far and above everything else. If they follow it precisely the same way, it could be successful.’
Social Investment Scotland, the organisation which manages the Scottish Government’s £30 million social investment fund, said Grameen Glasgow could deal with the exclusion of the poor that is inherent within Scotland’s financial system.
‘There is a bit of a misconception that the poor are a bigger risk than the rich,’ said Ray Perman, SIS’s chairman. ‘I have to say that’s not been our experience with Social Investment Scotland; our exposure to bad debts is very low. It’s obviously not Grameen’s experience either. Wherever they have operated in the world their bad debt level has been extremely low.’