Thursday, May 28, 2009

What Are Microcredit and the Grameen Bank?

Muhammad Yunus, winner of the Nobel Peace Prize, gave the commencement address at Wharton this year. And Knowledge@Wharton interviewed him. Everyone interested in improving the state of the world or in microfinance should read this interview. It squashes a lot of misconceptions and explains how microcredit works with the Grameen Bank, which has nearly eight million borrowers.

Here is an excerpt from the interview:
"Another aspect that I want to draw attention to -- there are many microcredit programs going around advertising themselves saying, "Oh, this is a great opportunity to make money." And they encourage people who want to make money to join in and do that. Again, we say, "Look, our purpose is not to excite people about making money. Our purpose is to help people get out of poverty. The focus is not on profit making. The focus is on helping people to get out of poverty. Those who are seeing this as an opportunity to make money have to raise their interest rate to the extent that they make a lot of money. The interest rate issue becomes a sensitive one. We are saying interest rates should be kept as low as possible, preferably to cover costs. If you want to make a little profit on top of it, it should be a very modest profit, so that it doesn't look like this was your intention. Those who are doing that -- using microcredit, microfinance, to make a lot of money -- we keep saying that this is not microcredit in the sense that we do it. We came here to fight the loan sharks, not become loan sharks ourselves. This is their moving into the direction of loan sharks. We want to disassociate ourselves from them."

Please read the whole interview.
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