Muhammad Yunus and Grameen America
Muhammad Yunus is in town, plugging the new movie about Grameen America, the US version of his hugely successful Bangladeshi microfinance institution. It’s three years old at this point, and growing fast: it already has four branches, in Queens, Brooklyn, Omaha, and Manhattan, and plans to open another two by year-end. At the moment it has about 6,500 members, growing at a rate of about 5,000 a year.
I had a fascinating conversation with Yunus yesterday; he really is a very impressive individual. He’s not letting his setbacks at Grameen slow him down: he’s busy building lots of social businesses like Grameen Danone, where the startup capital is provided in a form where the original investor can never take out more than they initially put in. In short, he’s still working hard at what he’s done for most of his life, and what got him the Nobel Prize: using the power of capitalism to power improvements in developing-country living standards, rather than predatory behavior.
I asked him, then, what he was doing in the US, with a relatively small organization working in the world’s richest country. And he pointed to his left, where Gayle Ferraro, the director of the documentary, was sitting. “We have been doing this for 35 years in Bangladesh, we never got into a movie” he responded. “You do it in the richest country in the world, just a tiny little bit, it becomes a movie.”
Frankly, I’m not a huge fan of Grameen America, which is being parachuted into the media capital of the USA with no real understanding of what has come before it: it looks like a media stunt as much as a real attempt to help the poor. Case in point: if you’re online, it’s much easier to find celebrity endorsements from the likes of Matt Damon and Hugh Jackman than it is to find the addresses of Grameen America’s branches. When I asked about this, Vidar Jorgensen, one of Grameen America’s lead board members, told me blithely that their borrowers weren’t online.
Jorgenson also told me that, essentially, Grameen America had nothing to learn from the credit union movement. He told me that Grameen America was already the second-biggest microfinance institution not only in New York but in the country; that kind of thing only makes sense if you consider member-owned community development credit unions not to be microfinance institutions. He told me that almost no credit unions are profitable. And he was adamant that none of Grameen America’s borrowers could ever get a loan anywhere else. “Credit unions won’t touch these,” he said. “Every time they make a loan, they have to reserve against it 100%. These are people at or below the poverty level. Anybody with enough assets to get a loan would actually be above our standards. We actually go to people’s houses to make sure they’re not too affluent. They have to be down to our standards in terms of income and assets.”
That kind of talk contrasted quite starkly with what I was hearing from Yunus. When the conversation came around to Kiva, for instance, Yunus told me that he found the emphasis on very poor borrowers to be “undignified”.
If you go to the Kiva website, said Yunus, you see an individual whose poverty is being used to gin up donations. Which doesn’t dignify her. “After all, she’s paying interest. Why should you advertise her as someone who’s deserving of donations? It’s an undignified way of doing it. She’s running a business. Respect her as a client. As somebody who’s paying full cost.” Meanwhile, Grameen America, a registered charity, is asking for donations, saying that “your contribution is a tax- deductible way to help families in need”.
As someone who sits on the board of a profitable community development credit union which is significantly larger than Grameen America, I’m aware that Grameen America has spent a good amount of time talking to New York credit unions, and even toyed at one point with the idea of becoming a credit union itself. But it decided to go its own way, and has partnered with banks, not credit unions — Citibank and Capital One are the main ones — to get its members fee-free microsavings accounts.
And here’s the biggest shortcoming of Grameen America, for me. It’s not a depository institution, so it can’t offer savings accounts of its own. And it’s not even much of a lender: for all that its officers love to talk about dreadful payday lenders with their predatory loans, Grameen America only really has one product: the micro-business loan for people to start up small home-based businesses. Making sandwiches for local construction workers, helping people out with hair braiding, baking delicious Dominican pastries — that kind of thing. They take a relatively small initial investment, and yield a relatively small income.
But demand for loans is so much greater than that. Most people, especially if they’re poor, need consumption-smoothing loans. Many just need cash until payday. Others want to be able to buy a television, or a car, or just pay overdue bills. Perhaps they’re in hock to a loan shark, and desperately need money to get out of that particular vicious spiral. For all those people, and many more, Grameen America offers no help at all. (And, of course, men need loans too; so far, all Grameen America’s borrowers have been women.) I specifically asked about people who were looking to get a job, rather than to become self-employed; I was told that Grameen wasn’t for them, either, and that such ambition is probably silly right now, given the unemployment rate.
Grameen America is even limited on its own terms: while it will help women get from zero to a slow walk, in terms of building a business, it won’t help them much after that. At Lower East Side People’s, we lent one woman money to expand her baking-at-home business, and then, when that was successful, graduated her to a much larger small-business loan so that she could rent her own storefront in the East Village. That kind of thing wouldn’t be possible at Grameen America — they stay small.
Grameen America, then, is quite good at reaching the goals that it sets for itself, not least because its board includes some fabulously wealthy people who are more than capable of throwing millions of dollars at the organization until it does what it’s designed to do. At the end of 2010, Grameen America had $3 million of cash in the bank, another $2 million pledged and on its way, and just $3.3 million in total loans outstanding; it actually had fewer loans than it had equity. (The financial statement is hard to find on the web, so I’ve put it here.)
Meanwhile, Muhammad Yunus is, still, spot-on in his diganosis of the microfinance industry globally. He’s trying to get it more regulated, he’s pushing for national ID numbers so that lenders will know when someone already has too many loans; he thinks there are too many players right now; he wants microfinance institutions to be funded domestically and sustainably, rather than from for-profit or even not-for-profit foreigners bearing cheap dollars. The only thing I worry about with regard to Yunus is that since he got his Nobel Prize, he’s being co-opted as a kind of mascot by do-gooders in the US at places like Grameen America and Whole Foods. The publicity is welcome, I’m sure. But it does have a tendency to perpetuate the idea that the microfinance involves rich people making charitable donations to improve the lives of poor people. Which is not really the story of Grameen at all, even if, for the time being, it is a large part of the story of Grameen America.