Banker of the Poor

Urstruly: OK, point taken about your not having had the time to respond. I think I added a bit more on microcredit operations, and had the benefit of first hand experience on which to relate it, than is possible by reading an article.

As for ``interest-free loans``, obviously those will yield higher returns than interest-bearing loans. By this line of reasoning, outright grants will yield even higher returns than these ``interest-free loans`` you mention.

What you forget is - interest-free loans and grants are like charity. Charity may be the only way out for people living on the edge. But it is not a long term solution. The long-term solution is for individuals to have control over their lives (as has been done in bangladesh), rather than having to depending on charity.

The international, national, public, private and non-government development agencies of the world are in fact quite mindful of these realities - and thus billions of dollars worth of funds are being generated in rich countries and transferred to the poor countries in the form of direct investments (of which ``islamic banking`` is merely one form), interest bearing loans, interest free loans (which is basically what IDA credits are, and which are geared for poverty allevaition), grants (which are provided for things like disaster relief) and loan write-offs (for countries where the corrupt elite stole money meant for the poor, and with conditions geared to provide incentives for public sector reforms to eliminate corruption).

So, the global development efforts are much richer and varied to suit the varied realities (ugly realities like the corrupt elite, as well as the healthy realities like poor people making a life for themselves when given a chance) of different communities and countries in different parts of the world. It is interest free loans - and much, much more - with the welfare of the most vulnerable in the world being the goal, not a means to promote one`s own welfare in the next world.

Take your time to reflect upon this.

tahmad

I am not ignoring you; you posted your post 20 minutes ago and expect a response with in 15, .....please. I have a life-thank you very much.

I have read your post. Most of it describes the procedure through which the loan is disbursed; the procedure is already elaborated in the article as well.

On the point that you felt exhilirated by helping poor families, you have to ask youself this question `` Would I have felt more exhilirated had I disbursed interest free loans to the needy and poor instead thus making their life easier and doing God`s work at the same time?``

For the tenth time on this board I have asked the question, why peddle a product while an alternative and better product already exists?? Can you answer.

There is no system in the world which is perfect. Many tend to believe that even God could have done a better job of creating our universe.

``There is micro-credit and there is micro-credit,`` as zeemax mentioned. If Dr. Yunus`s Grameen Bank is helping the poor, that should be a laudable thing. Criticism arising from ideologies is worthless. Ideology is an ideology and not a practical measure. Dr. Yunus`s system is workable, at least at present, and improvements to it can be made by others.

My intention to write this article was to acknowledge and appreciate Dr. Yunus`s efforts to put his system into action and not to discuss ``interest`` from religious viewpoint. Discussion of interest from religious viewpoint is centuries old and Mr. Urstruly hasn`t added anything new to my previous knowledge.

I, once again, thank tahmed32 for sharing his experience here with us and others for making several positive comments.

Mohammad Gill

urstruly - i took the trouble to relate to you some first hand experience. you chose to ignore that. thus demonstrating your inability to handle anything more substantial than hot air and slogans.

Re: # 16

Folio

All you have to do is to ask yourself the question posed in Reply# 3. Please let me know of the answer - Mr. Axe didn`t.

Re: # 19

Zeemax

Could you or someone else, in heaven`s name tell me, how micro-credit through banking system is any different from the local usuary lender when interest rates are exhorbitantly high and at par with each other in either case? The fact of the matter is that usuary lenders existed since times immemorial, but with Greeman, the Western style organized lenders (i.e. banks) are seeing a new market to extend their business. An anology can be made with Walmarts and Kmarts replacing the Moma Pappa corner stores. If exhorbitant rate of interest with usuary lenders was bad then how it becomes good with new lenders - please explain. Has someone gathered stattiscs as to what was the default rate with usuary lenders; was that also 2% or was that 0%. Why the hell did the usuary lenders not go out of business if everyone defaulted? Why on earth can`t we use our brains to critically what west forces us down our throats.

zeemax: The pakistan microcredit operations are a bit different than the ones in bangladesh - but basically due to different socio-economic conditions. thus, the average loan size in pakistan is much more than in bangladesh, and it is accompanied by investments in rural infrastructure which was not the case in bangladesh. i was associated at the early stages when microcredit operations were starting in a big way in pakistan, but am not up-to-date first hand on their success. From what i hear though, they are having an impact. This model is being replicated in brazil as you say - and also in other Asian, African countries and even in some places like Chicago in north america as a way to address issues of urban poverty.

The fertility dip in Bangladesh, and lately in Pakistan too are events of far greater importance than anything one sees in the newspaper headlines. Since this dip, accompanied by grass-roots education and organization, have lifted tens of millions from poverty.

Ahmed Saab,

Thanks.

There is microcredit and there is microcredit. The microcredit of Akhtar Hameed Khan and Dr. Yunus is not the same as it is commonly understood to mean. It is intended to lift the poorest of the poor to poor on a sustainable basis. They do this by using a holistic approach e.g lending for a cow, verifying that a cow has indeed been bought, and then lending further for transportation of milk to the market and so on. The interest is too high so the business rarely grows, but at-least it lifts the poorest of the poor out of the daily struggle for survival. It still does not contribute anything to overall growth and/or poverty alleviation in the country.

The models in Pakistan and India, Brazil etc are completely different as these are not holistic towards sustainable income generation. These are just adding the relatively less poor people of, say Pakistan, to the consumption pool as it is a huge and high-volume market with minimal risk and immensely profitable. Urstruly is referring to these kinds of microfinance institutions. Dr. Yunus model at-least does some good.

folio: thanks. #17 elaborates a bit on my experience in this field. Working with those borrowers was more spiritually and emotionally uplifting for me than what I felt even when I first saw the muslim holy land around jeddah.

#15 urstruly: microcredit borrowing is for investments, not consumption as you assume. I was myself uncertain of how well it was working - and so spent a good deal of effort to find out for myself how microcredit operations were working. Including witnessing those investments for myself, and sitting down on the dirt floor with the borrower to get the information i needed to develop cash flow statements - e.g. taking the cost of a milk cow purchase (a typical microcredit investment in bangladesh), determining the annual revenue obtained by selling its milk, determining the cost of maintenance, the resale value of the calf and so on. And I determined for myself that even with what seemed like very high interest rates to me (20-20%), the borrower actually came out ahead. And I determined the reason for the high interest rates as well - the high cost of supervision and an ingenious accounting and control system devised by Grameen Bank (which I documented by actually having over 50 forms translated from bengali to english, and whose operation i witnessed by going to branch offices and checking treasury registers; by watching field workers hold ``samity`` (i.e. borrower committee) meetings, by examing the passbooks maintained by the borrower women. Only after satisfying myself that the scheme was not just another gimmick did I make a positive recommendation on my part to the organization I worked for to lend support to microcredit operations.

As a result of these operations, tens of millions of families in bangladesh have found a means of living, literacy rates and awareness of the value of education is at the grass-roots level across bangladesh, and the status of women has risen. Nothing gave me more pleasure than to see women talking business while their husbands stood in the background taking care of the children.

So forget ideology - put the welfare of the people first, and ideology will take care of itself.

The article is enjoyble though it`s not comprehensive. Global recognition came at last in the form of Nobel prize. Dr. Amartya Sen was by Dr Yunus` side recently. Dr. Sen advocated the cause of have nots but Dr. Yunus showed with his application of the ideas (not models; Micro- Credit is Dr. Yunus` contribution to this world, no doubt.) that Dr. Sen championed. Look now, Dr. Yunus went a step ahead and signed-up with the MNC Danone with a view to supply yoghurt at dead-cheap prices in Banghladesh. Dr. Yunus forsook the rostrum in favour of the mud and thatched houses in the poverty stricken country in Bangladesh. His models are now a roaring success in southern India now.

Urstuly sahib,

Pl dont see dogmas in each and every angle of our lives. If interest is a sin, then profit is no less. Imagine the wealth of arabs in pre-oil economies! They were smart traders. They bought goods in India and China and sold them to the Romans and Europeans. Do u think that arabs (Muslims) did that trade for free i.e no profit?

If there`s no interest or profit, economies stop expanding. Interest could be haram if it exploits the helpless people AND that could be the case in 7th century when your religion decreed it to be a sin.

As I said, `NO INTEREST AND NO PROFIT` rule would kill the organised nature of the economies. Economies stop expanding.

Ahmed saab,

That was a touching addition to this article!

Re: # 14 Further..


I n my post I wrote ``Since that happened, the local banking system has gone haywire, and started lending to every tom, dick and harry on exhorbitant APRs.``.

The point in this statement is that the lending in this case is the consumer debt and not business debt. In other words a huge percentage of middle class has already been trapped in vicious debt circle and they are upto their eyeballs into debt. Now what global soodkhors want is to extend the interest based lending to the grassroot level through micro-credit under the garb of business loans. This is my contention with freethinker. Consumer debt is one thing but why on earth business loan has to be with interest when it can be manged without it??

Re: # 11

Mr. freethinker

Asa a matter of fact I am not giving you lecture, instead I am only refusing to buy what you are trying to sell here by questioning your merchandise. The fact of the matter is that you are trying to misguide and incite Muslims into openly rejecting the word of Allah who has specifically forbidden any interest based transaction. You are standing there along with the enemies of God and trying to tell us how backward we are only because we obey our Lord? Here, I am telling you why I find your merchandise disgusting and refusing to buy. Now do you have the courage to admit why you are selling, what you are selling, even though there is a better product avaliable in the market. Why can`t you peddle a better product when you have a choice??


Kaalchakra

The Qarz-e-Hasna micro-credit schemes was introduced in Zia era and it helped millions. Please read my post # 7 . The scheme continued until second term of Nawaz Sharif, after which global soodkhors like IMF and World bank started appointing prime ministers and governors of state bank in our country. Since that happened, the local banking system has gone haywire, and started lending to every tom, dick and harry on exhorbitant APRs. It is common sense that, once a large number of individuals are trapped in vicious debt circle they (the lenders, who control the government through their appointees, as mentioned above) will impose deadly taxation to get their money back, while taxation in Pakistan is already the most cruel taxation in the world. In other words, the game that East India Company played in sub-continent i.e. by lending to local Nabobs, landlords, and even heads of princely states and then encroaching step by step and taking over is being replayed. That is the reason I call interest the cancer of a society - it progresses in increments - it takes out one organ after the other. It doesn`t kill you right away, first it makes your life miserable. That is what happens to the nations who do not learn from their mistakes. They are condemned to repeat them.

Today, in North America, the average household debt stands somewhere at $65K; most of it is high APR credit card debt. It was the money spent by individuals on consumer goods - the money that was never earned by converting goods and services into capital. There is no way in the world that an average family can pay off this amount of debt in their lifetimes - the reason is that the goods and services that an individual converts into capital can never match the amount of debt since interest keeps offsetting it by a large number. Have you ever asked the question what happens to the finances of a North American when he dies? Well it is compensated through the insurance, and his estate which is used to pay his debt. Then who pays the insurance costs. Well for this very reason Western countries have to occupy foreign lands and steal their money to off set the debt costs and keep them from spiraling down into the bottomless pit. So in other words 650K Iraqis die to keep Americans and European rich. But look, this whole vicious circle started when first dollar was lended on interest- isn`t it.

Urstruly

The DailyTimes once reported the Qarz-e-Hasna being launched in Pakistan. Once the idea succeeds better than Muhammad Yunus` program, people who reject ideas with religious undertones will naturally fall silent.

Anyone knows how Qarz-e-Hasna programs are thriving in Pakistan?

People who disagree with microcredit for reasons that interest rate are very high forget that the option is even worse- no credit or credit from moneylenders at even worse terms. besides one of the reasons that microcredit is expensive is that being small ticket loans, administrative costs are very high and the microcredit instituions have relatively high borrowing costs. Microcredit is not the be all and end of all poverty reduction but is certainly one of the tools.

Regards