Banker of the Poor

Freethinker -

Come to think of it, they will form a great couple. East and West - an ideal recipe. Proactive. Focused. Result-Oriented. Driven.

Z

ZahraJ:
Thanks for sharing your views with the readers.
I wish you a happy new year also, better than the previous ones.
Mohammad Gill

Dear Mr. Gill - Happy New Year to you. I just got the book on ``Banker to the Poor``. It`s authored by Mr. Yunus. After watching Oprah Winfrey`s recent admirable effort in Africa, I strongly believe that Oprah and Mr. Yunus can join hands to make a significant difference in the way the current day and age world functions. No doubt their approach and strategy to eliminate poverty are quite different. Still, two great minds and souls working toward a common goal can cause miracle in this world.

Re: # 53
I am amazed at your crass post. Who has appointed you to start labeling people Muslims vs. Non-Muslims? With all due respect, no one in their sane mind would like zakaat deducted from their bank accounts. All conscientious muslims would prefer to give zakaat to the charity or poor of their liking. Just because someone disagrees with this automatic deduction policy of some chor and dakus does not mean that he or she is a non-muslim. This is 2007. At least, refine your approach towards the interactors you love so dearly.

#54 urstruly: it is heartening to read that the zakat fund is being used to give micro-loans, rather than mere stipends. Ishrat Hussein has been a strong advocate of microcredit loans, and as I recall wrote a book on the subject as well (although I have not read it). Therefore, I have no doubt that ishrat hussein played a key role in switching zakat funds towards microcredit - since I am quite certain that microcredit schemes did not pick up in any big way in pakistan until the late 1990`s, when zia was long gone.

My basic point I think you will agree with - that microloans are liberating for the poor, since it makes them economically independent. it is this spirit of new-found self-confidence that i saw in the eyes of the women borrowers in bangladesh that i found so inspiring and memorable. A stipend keeps the receiver dependant. This has been the big genius of Younus, and the great truth that he has ``discovered`` (or rather reminded us of): that poor people, given a chance, can prove as enterprising as bill gates.

Urstruly,

Arguably there is some validity to your viewpoint. That is, a system based on interest may eventually be used to exploit the needy. Conceivably, once this micro-credit system takes hold, traditional banks may acquire its controlling stakes. This will be followed by various fees and penalties being applied (disclosed beforehand in fine print, of course), slow ratcheting of interest rates, the president making $10 million annual salary … and the rest will be good old fashioned usury.

For example, the toys I see at “Toys R Us” seem to share one common theme: to cultivate the next generation of net users, Comcast subscribers, and Barbie-wanna-bes. Winnie-the-Pooh was a lot more fun before Disney acquired its copy-rights. Arguably small steps, taken over time, can potentially lead to significant shifts in the way people think.

Alternative viewpoint

A case may be made for the micro-credit system which is presently helping people while paying for itself. If people are able to derive some financial benefits from it, while being gainfully employed, that’s not so bad after all. Could such a system eventually lead to mass exploitation? Yes, it very well may. But that applies to pretty much every institution around us. And your Islam is no exception here.

+++++

My sense is that chowkies here may not necessarily have a problem with the content of your posts. It is your obsession with imposing Islam that scares them. As a result they view your “islamization of charity” as a hidden attempt to propagate a hateful ideology to those hungry enough to go to anyone who gives them a loaf of bread.

Fanatics cannot be reasoned with. You advocate compassion on one hand, and then go on to insist that an apostate, an adulterer should be killed. And that is probably exactly what you would do in order to appease your god if law of land was not holding you back. And this is part of the underlying problem here …

Such aspects of your Islam are bound to scare a person … who would justifiably see Islam as a dangerous ideology. Last thing this person wants is to let fanatics control the flow of money and decide who gets what, how much, and under what terms.

tahmad

The following is an article by Ishrat Hussain, published in 2005, the previous Governor of State Bank - see how he is taking credit for the schemes initiated by an Islamic dictator 20 years ago.

PAKISTAN’S ECONOMIC TURNAROUNDAN UNTOLD STORY

ISHRAT HUSAIN

Social Safety Nets

As part of Social Safety net programme, the government has launched
direct cash-transfer programmes for poor families through medical assistance,
and educational stipends from the Bait-ul-Maal (a public welfare programme).
The Food Support Programme covers 1.2 million of the poorest households with
monthly incomes of up to Rs.2,000 per family (US$35). A system of needstesting
has been adopted for the identification of beneficiaries by linking the
programme with the zakat system.


The zakat programme that targets widows, orphans and the disabled has
been strengthened. About two million beneficiaries received assistance from the
Zakat Fund, of which 0.5 million receive assistance on a regular basis. It is
envisaged that an additional 1.5 million will be added to the list of zakat
recipients through rehabilitation schemes, which will provide micro loans of
Rs.10,000 (US$160) to Rs.50,000 (US$800) each for starting up small
businesses. An allocation of Rs.5 billion (US$80 million) has been made for these
schemes in addition to the normal stipends to mustahqeen (the needy) out of
the Zakat Fund. It is estimated that zakat contributes 10-15 percent to the
government’s poverty reduction programme.


http://www.sbp.org.pk/about/speech/economic_management_policies/2005/Pakistan_Economic_Tunaround.pdf

Re: # 48

``No one touches my bank account without my permission.`

This is true. No one touches your account without your permission. Non-Muslims like yourself are exempt from zakaat deduction, but interestingly enough they poor ones can receive zakaat. In addition, shias are also exempt from the deduction of zakat, since they have a slightly different system of zakat collection. If you are a Muslim and you do not want zakaat deducted from your account, you can transfer it to a current account (checking account) from your savings or simply withdraw the money for couple of days at the start of Ramadan. There are several other ways that you can take exception from the deduction of zakaat. All these rules were established in zia era.

Re: # 49

Let me guess... and you have basis for your harrangue, right? Pahleez, I personally have witnessed deserved people being given out from zakaat fund. The closest example being our housemaid. I did not mention in my last post, but Zakaat education scholarships/stipends were also establsihed for poor students in higher education along with interest free loans in that era. I have classmates who have benefitted from this stipend as well.

There is no denying on mismanagement and low level corruption. But it does not mean that zakaat fund was squandered away like the national treasury. There are only two recorded instances when the sanctity of this sacred trust was violated. Once it was violated by your very own secular phuphi jaan, benazir in her second term, who paid off about 80-100 million rupees to Balochi sardars thugs (who used to be your ``progressive`` compatriots in good old soviet days as well); out of that a minimum of 20 millions were paid to Bugti alone. This was to pacify the balochi opposition to her government. The other recorded instance when large amount of money was transferred to pay off other expenses was during the early days of your roshan khyal secular phupha jaan Mushraf who diverted large funds to pay off salaries of public officials when sanctions were toughened against Paksiatn in the aftermath of nuclear tests and Mushraf`s martial law. Whereas what Benazir did was a crime against the state of Pakistan, but Musharaf can be exceused given the dire circumstances Pakistan was in. But never ever there has been any accusation against any moulvi that he squandered zakat money. I do not give a character certificate to moulvis, since sarkari moulvis are as much thuigs and haramzadas as the so called ``enlightened ones``, but what is right is right.

But above was just the digression. The point is that a viable practical system to help needy and poor exists and there is absolutely no reason to allow interest based financing to make money out of the misery of helpless.

in #49: That sentence in bold is also messed up. Here is how it should read: By aiming to make beneficiaries independant entrepreneurs, microcredit is a tool to break the very real chains of enslavement to which the poor in developing countries are tied. In this way, contrary to what urstruly seems to think, it is vastly superior to charity - even real charity, let alone a corrupt system like zakat in Pakistan - as a means to promote the welfare of the most vulnerable members of society.

in #49: That sentence in the last para should be ``You think that commerce makes it immoral? `` and not ``You think that commerce makes it unviable. ``

Urstruly: On what basis do you claim that zakat funds went to widows and orphans? While some stipends may have been given, where was the transparency and accountability to make sure the stipends were not made to maulvis and other thugs whom Zia is known to have promoted. The main orphanages which are subject to close oversight by donors that are run in Pakistan are not funded by zakat funds. Zakat funds were basically another crime committed by zia, since it meant taking away people`s savings (many of whom were indeed not wealthy) and putting them in the zakat fund that lay outside the budget control process - and thus was misused by zia to give maulvis the funds they used to buy pajeros and go romping around pakistan with their gunmen. The money was stolen from ordinary savers - the rich borrowed money with no intention of repaying the money and so ``qarzaa maaf`` became a huge scandal in pakistan.


Also - you need to understand that charity is the best way to enslave someone. What Younus stressed was the opposite of charity - namely, he stressed (and stresses still, as far as I know) commercial viability. You think that commerce makes it unviable. Think again. By making beneficiaries dependant on charity, rather than independant entrepreneurs, microcredit is a tool to break the very real chains of enslavement to which the poor in developing countries are tied.

Re: # 47

Isn’t it amazing that you need a dictator to introduce Islamic banking? No one touches my bank account without my permission.

Re: # 43

Yes you can go only this far....

but let me take you a little further with real facts and figures. In the mid `80s a sytem of zakat (mandatory alms) and Usher (manadatory alms on the income from agriculture) was introduced in Pakistan. These two are different entities and funds are managed separately, therefore, I will only elaborate on Zakaat. Zakaat is mandatory on all Muslims and it is 2.5% on the fixed assets and those liquid assets that remain fixed for one year. Almost every eligible Muslim in the world calculates this amount annually and helps his unfortunate relatives and people in the community. That happens world over. Zia government organized the effort and started deducting zakaat directly from the savings accounts of every bank annually. It is a 2.5% deduction. This deduction goes into a capital pool called Zakaat fund. In a country like Pakistan where there is poverty and savings are abysmal this pool stands on average at Rs. 60+ billion (with a `b`) at any given time. Hundereds of thousands of poor, needy, widows and old are given stipends out of this fund monthly ranging from Rs. 500 to Rs. 1000+. I know this is not much but it is something. There is mismanagement, there is corruption, and sometimes this money is disperesed on political basis; and yet this pool of funds has maintained itself for the past 20+ years.

Now imagine if this pool of capital is managed scientifically and with control and less corruption. If it is collected with more control and people trust that their alms would not end up in some haramkhor politician and government official`s pocket this pool of fund can bvecome 100 times its current size or even more. We can start not only a welfare system at par with Europeans, of our own; but also we can lend interest-free loans to the entreprenuers out of this fund.

So in short, money is not the problem; the problem is the will to do it. If you are a hypocrite, or you work for someone else`s agenda, and if you have just madening hatered for any thing Islamic not only you will not let this system established but you will try to fail it.

Our dream is that when we will establish Pakistan as a Welfare Islamic state, no one in Paksitan will sleep hungry and every Pakistani will have two pieces of clothes on his body and most of all he will have dignity that he is not lesser because he is poor because he will find God on his side. Inshallah.

94% of Grameen loans go to women. The impetus behind Grameen for Yunus was the crushing poverty in Bangladesh, more specifically women’ poverty. He didn’t open the bank for profits, but to help the poor. The model has been very successful not only in BD, but also in many other developing countries (with various permutations from Zaire to Philippines). If interest free lending can be worked out, fine, if not, then there is no need for going in circles arguing in favor of 7th century banking practices suitable for camels. Developing countries need innovative solutions to poverty alleviation, and not some stupid religious sermons.

#44 by Urstruly

Again I will point to the vital difference in the Muhammad Yunus model to the reason why he got the Nobel. It is because the project is completely commercially viable, but the borrowers themselves are equity holders as well who get a cash share after ploughing back much of profit in expansion. Grameen Group is now not only a bank but a cellphone/payphone company too.

On the other hand, the ones in Pakistan and elsewhere are just viable commercial ventures like any other and owned by professional retail bankers and financiers, with obviously `zero` altruistic motives. So you are right and wrong :-)

Re: # 42

Have you entertained the possibility that certain people might have vested interest in not letting interest-free lending becoming successful, like for example, making money?

Look, if micro-credit banking is not a welfare scheme then I fail to see the reason for this article; shouldn`t it be portrayed as just another business venture (which in fact it is). In that case there is no reason for the adulation that is being shed upon Dr. Yunus, and there was no reason for tahmad to feel exhilirated by lending money to a potential cow owner. The fact of the matter is that this business venture is being tactfully touted as a ``welfare elevating millions (I really doubt the millions figure) out of poverty``.

So if it really is a welfare scheme ``elevating millions above poverty`` then why can`t it be interest-free. Why can`t it be a government effort to lend small business loans to farmers and other entrepreuners interest free. If with 40% interest rate the number of non-defaulters is touted out to be 98% then with interest-free loans it would be 100% - common sense isn`t it?

I want micro-credit to be a public welfare scheme initiated by the governments interest-free lending. Can`t we just restrian ourselves from making money out of lending money to the miserable of miserable and just lend him the money because it is morally uplifting and right?

Urstruly,

I saw ur question. ``IF`` the option is available...I guess u dont have that option so far.

I suggest u a proposal to make this Quranic precept possible in Pakistan. For a start, pl collect Rs.10 from each Pakistani (as share capital) every month. Excluding children and retired, u are left with 10 crore people. The sum comes to abt Rs. 100 crores. If u seek help from overseas Pakistanis @ USD 10 per month...it wud probably be $10 mio (assuming that u have a million overseas Pakistanis) i.e roughly Rs. 60 crores. So a monthly sum of Rs. 160 (100+60) crores. If we can trim this to even Rs. 100 crores that wud be a great sum. Keep giving interest-free loans to the poor Pakistanis. By an year you`ll have been amassed a bigger sum of Rs. 1,200 crores.

This is not a silly idea but a concrete proposal. As a votary of Quran you should do this to remove poverty whilst complying with Quran. The question is, can u undertake this mammoth proposal? (U need diamond balls to do this).

Dr. Yunus is an achiever. Dont get disturbed by 20-30% interest rate. This annual rate boils down to Rs. 2-3 per month for Rs. 100 which I think is FAIR and affordable. The golden rule in Dr. Yunus`s model is collective responsibility for loan repayment which is making his model successful, I guess.

In India, national banks had obligation to lend 1% of their net assets as DIR loans (Differential Interest Rates; last heard that the rate was 4%. bankers call this scheme with poking fun: Dont Insist on Repayment Scheme) without any collateral security. That DIR was a proven failure but the rule was not changed so far.


I can go only this far......

Urstruly one more thing. Have you entertained the possibility that your idea is not in practice because it may not be practical?
As they say, even a thousand mile journey begins with a single step. You can set ambitious goals but if you are not taking any steps to implement them, then they are no use.

#33 urstruly, i am beginning to wonder if there is not a serious disconnect. Microcredit is NOT a welfare system so stop comparing it to what`s going on everywhere else. As others have mentioned its purpose was to finance those who would not otherwise be financed by traditional institutions and make them self reliant. In that it seems to have achieved notable success. Several million lifted out of poverty due to a non-governmental effort is phenomenal and Dr. Younis has deservedly gained recognition for that.
Going back to distributing risk over the entire community of borrowers, it doesn`t sound cruel to me and i don`t quite grasp what your problem is. My insurance rate goes up, among other things, if there are catastrophes that put heavy demand on insurance companies. I can either agree to share in the burden or go without insurance. I know what i`d choose every time. Borrowers having to shoulder the burden of a fraction defaulting is very reasonable. Why should i pay for building some fancy freeways in michigan when i can get around just fine on my bicycle? It`s part of the social compact.

khurram:

Thanks for your feedback. I read one of the websites that you had mentioned in your feedback. It is captioned “Grameen Bank, which pioneered loans for the poor, has hit a repayment snag,” by Daniel Pearl and Michael M. Phillips. It was published in the Wall Street Journal on November 27, 2001.

It is true that the article mentions that Grameen Bank faced some problems such as the repayment snags, etc. It was reported at the end of 2001 and now we are into the year 2007. The bank is still operating. The article did not mention that the bank was closing shop because of those problems.

Dr. Yunus gave his Nobel lecture on December 10, 2006 and he didn’t mention any serious problem. I am certain that the websites that you have mentioned would have come to the notice of the selection committee for the Nobel award also. I don’t see any good reason why Dr. Yunus would hide such problems if they were really grave.

Please do not misunderstand me. I am not a spokesman for Grameen Bank nor am I trying to promote it and its business affairs. I was impressed by one man’s (Dr. Yunus’s) yeoman effort to help the poor and that was the only reason I wrote the article. The bank was established in 1976. Although 30 years is a short time in the history of a successful bank yet long enough in another sense. If the bank were sitting on weak or defective foundation, it would have sunk by now. Any new venture encounters some budding problems but if the problems are not fundamentally grave, it should be able to ride out of them. I hope that Grameen Bank would survive for the poor to draw sustenance from it. I don’t have any personal stake in the bank.

If nothing else, Dr. Yunus has created a model in the form of Grameen which others can follow and improve upon. Dr. Yunus ended his Nobel lecture by stating, “I believe this honor that you gave us will inspire many more bold initiatives around the world to make a historical breakthrough in ending global poverty.” Let us hope so.

Mohammad Gill

Jeez, looks like the mullah types think that Prof. Yunus was a kaffir for his innovative help to the poor. What is it with muslims these days that they just cannot tolerate anybody`s success, especially if he is a fellow muslim? Anyone succeeding is immediately tarred and feathered as an agent of the west. Should everyone remain in the dumps to provide a never ending supply of suicide bombers?

Re #8,

``The appropriate thing in the context of the article is to see if Grameen is helping the poor or not....``

Indeed!
I wish Mr. Gill had examined both sides of the issues.
Here are some perspectives from the other side,

http://www.hinduonnet.com/businessline/2002/09/25/stories/2002092500810900.htm
``Is microcredit a debt trap?``
http://www.leftbusinessobserver.com/Micro.html
``Microcredit, microresults``
http://www.zmag.org/sustainers/content/2006-10/19bond.cfm
``Nobel Loan shark?``
http://online.wsj.com/public/resources/documents/pearl112701.htm
``Grameen Bank, Which Pioneered Loans
For the Poor, Has Hit a Repayment Snag``

#34 You seem to be having some trouble understanding that talking to a cow owner could be for any reason other than that of doing a feasibility study that particular cow owner. Let me explain the difference - if had had so chosen, I could have spent all my time in dhaka, wearing a suit and tie, being driven around in air-conditioned cars, and talking only to central bank officials and senior government officials in their air-conditioned offices and fine restaurants in dhaka. I could have written a report based on these discussions and that would have been sufficient. Instead, I chose to also go out in the field and meet with your ``cow owners`` and satisfy myself that what I was going to recommend was going to make sense. I was evaluating the entire nation-wide system, not just one cow-owner.

Now do you get it?

#22 by Urstruly Re: # 19

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 ... with Walmarts and Kmarts replacing the Moma Pappa corner stores. ... 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.

Urstruly ... in case of Bangladesh, the factors are a bit different.

First, the organised `Arhti` system does not exist in B`Desh, who traditionally finance from the seeding till the harvest at very high interest rates, against pledge of the crop and in case of crop failure, the pledge of the borrowers daughters` hand in marriage (or slavery) and so forth. This system cannot be broken so far in Pakistan because agriculture is vast unlike B`Desh and the `Arhtis` have a stranglehold over the entire agricultural supply chain. Therefore the MF banks in Pakistan cannot move into this sector. It is too high risk and if banks try to move in, they cannot recover anything since guns are drawn if a debt collector dares to enter the `Arhtis` domain. B`Desh does not have this problem.

Second, Microfinance requires a non-migrant population because there is no collateral. B`Deshis culturally are not as mobile as Pakistanis/Indians, besides their borrowers are too poor to move anywhere. So it works.

So yes, at-least in Pakistan, the Walmarts/K-Marts are trying to take over the business of the typical moneylender (the sood khor Pathan if you will) for consumption in time of dire need. That`s all. But at-least they will not kill or kidnap the entire family for default. However I do agree with your central thesis.

As for the matter of interest, it is simply forbidden in Islam. There`re no ifs and buts. And yes, a system can work without `rent` for capital, which is interest. But that requires a realization that money does not have any `time value`, which gives rise to interest in the first place. But I guess that`s not the subject here, as well as it is a subject of deep introspection into why Islam forbade interest to begin with.

Later ...

How is Interest I earn by lending my money any different than the rent I get if I rented my house? Any non religious explanation is appreciated,

Thanks,
Avkrishna

Re: # 32

The technical name for the procedure that is used to evaluate the potential cow owner is called feasibility study. A feasibility study is done by every bank for every potential business venture.

For charities you do not do feasibility studies or worry about repayment.

Re: # 31

As I said, borrowers cannot be charged for the default of others. This is as cruel as it sounds. Since what I am proposing is a publically administered fund which is established with public taxes and zakaat, the whole society bears the cost of defaults. Which means there would be a greater check and balance from the public to keep the freeloaders off the program. What I am proposing is not a scheme that has just been transmitted from planet Mars. The publically funded welfare programs are established in almost every West European country and in North America. This has not made people leave their jobs and start living off of welfare. In other words, an overwhelming number of people want to excel in life and would find ways to further themselves.

urstruly #30: ``charity`` means giving something for free. a grant is money given for free with no repayment required. an interest-free loan is money given for free with repayment of the principal only required. what is so shocking in this?

and btw, that was not a ``feasibility study`` to give a loan to one cow-buyer as you say, but (as i explained earlier) was part of a broader effort to satisfy oneself that there was real substance to microcredit and it was not merely a gimmick. Which, as I explained in #27 is part of a vast global effort at poverty alleviation. And these efforts, as I also mention in #27, includes debt forgiveness as part of a broader measure geared to bring some law and order in these countries.

The only ``debt forgiveness`` in the ``Islamic polities`` that you talk about has been as in Pakistan, where the rich have taken vast sums in loans with no intention of repaying and getting their ``qarza maaf``!!

#29 You`re just arbitrarily defining terms. If, say, there`s $10k available and $1k of that is annual administrative cost, then $9k is available to lend in the first year. If 10% of the borrowers default, cow died, business failed, whatever the reason, at the end of the first year, there`s only $8100 in assets. Now what?
You can view that part of the interest that goes into growing the program as tax that the successful borrowers pay into the program so more people can borrow.

Re: # 27

``- interest-free loans and grants are like charity.``

lahol wila quwat. How the hell is this charity. Never in my life I have knocked at the door of a begger and demanded the dime back which I gave him in charity two years ago. Interest-free loans are business transactions like any other with documentation and the promise of payback. Just as you or a Grameen banker do feasibility study of a potential cow buyer before lending him loan, you also do feasibility study of the interest free debtor for his potential business venture. Just as interest based loan`s debtor, the promise of payback by a interest -free debtor, is only a promise. His business may fail - but he has to payback through some other source - may be through another loan just as a defaulted Grameen customer does.

In an Islamic polity the forgiving of loan to the unfortunate defaulters would also be institutionalized as well as it would be a societal virtue too, as directed by our Holy prophet (pbuh).

Re: # 28

Administration costs to disburse loans through an organization are valid and do not fall into the category of interest and so are the cost of inflation and depreciation of capital over time. These are valid costs. What is invalid is the ``profit`` and the ``risk`` factor cost``; risk being invalid because it is purely speculative and every business in the world has risk associeted with it, yet no business charges ``risk cost`` to its customer and yet billions of businesses survive in this universe.

As far as diminishing capital is concerned, there are many other ways to replenish the pool of money other than charging interest, e.g. investments, trusted business ventures and many many more. In an Islamic polity, citizens enjoy an added benefit through Zakaat (mandatory alms), a part of which can be used to replenish the capital pool. Not to mention the taxes.

My point is that that the micro-credit and all business loans should be disbursed through publically funded semi-governmnet non-profit organizations.

Look, I may be an idealist but I am not an idiot. I sit on the board of a non-profit housing organization that ``rents out`` houses to low income families. Rental cost is 30% of the income whether the earner(s) in the house make $100 or $1000 a month - the only restriction is that they should have a source of income. Of course this is just token money, so that we do not find ourselves supporting free loaders. Those who cannot pay 30% of their income are put on a list of welfare housing which is provided free of cost (it has a separate administration). All our administration and budget costs are covered by two sources; municiple taxes, and rent from a number of houses that are rented out at market value. Business is absolutely non-profit, yet capital pool is maintained in a way that there is room for growth. The point is that if you put your mind to it, nothing is impossible.

What I really find mind boggling is that, as consumers, the people on chowk are propbably the only ones who want to pay extra money from their pockets for their borrowed money when they shouldn`t. Would you ever try to pay $120 at Walmart while your total bill was only $80 had you find out that paying $80 would be Islamic? This is ridiculous for crying out loud. It is insane.

Urstruly, ask yourself this - why are you hanging out here theorizing on the impossible when you could be out there putting your ideas into practice?
When you give out a loan, there`s a cost associated with it due to cost of administration, credit risk and a built in margin (``profit``) to grow the program, even at zero inflation. This cost is reflected in the interest charged. In the case of interest-free loan, there will be a net diminution of principal when you factor in these costs. You simply cannot sustain something like that without fresh injection of capital every time.

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

Mr. Urstruly:

In all your discussions, you avoided mentioning Grameen Bank excepting your last one. In that, you acknowledged that ``Grameen is helping the poor;`` that is what is pertinent to the discussion of my article. Your assertion that ``it is helping poor in the wrong way,`` is subjective and your own opinion.

Do not lecture me on ``interest`` because I have grown up with this concept. What is important is that the needy people receive the help without exploitation. They lead a purposeful and dignified life with Professor Muhammad Yunus`s help. Religion does not feed the poor.

tahmed32:

Thanks for your feedback. Your personal experience is valueable. The examples that you have quoted from your personal experience enhance the scope of my article.

Wishing all the Chowk readers a happy and prosperous new year.

Mohammad Gill

Gill Sahib,

As I have mentioned on chowk before, I worked on microcredit operations in Bangladesh and Pakistan in the late 1990`s. In this connection I had the privilege of meeting a number of other people associated with this movement, including Dr. Yunus whom I met a couple of times to discuss his views on the subject, and also met a large number of other bangladeshi and foreign workers in microcredit as well as over a hundred microcredit borrowers.

This was probably the most exciting part of my career since I could see the impact the work we were involved in was having on literally millions of the poorest people on our planet. I saw sights that I will never forget, people that I will always remember: The great dignity and hope that comes with being an entrepreneur (as opposed to being a downtrodden woman) was reflected in the eyes of these women, and I will never forget that. I visited their homes - and in one of them I saw a high school student sitting on the dirt floor in a room that was almost barren, and with a pile of books being the only thing in that room. I visited a hindu temple which doubled as meeting room for a group of hindu woman borrowers, and felt truly honored that they let me enter and learn from them. Then there was the 10 year old girl in another dirt poor household who told the translator to tell me that she planned to become a computer specialist one day. There was young dutchman, dressed in bangladeshi lungi, who was doing his PhD in some related subject and had come to spend 6 months in ``total immersion`` in a bangladeshi village who obviously knew details of bangladeshi life that ever dhaka residents were unfamiliar with. There was the mukti bahini fighter who fought us for 6 months and embraced me as a brother and who was now a leader in poverty alleviation efforts in his area.

Thanks for the article.

Re: # 8

This is typical looser reply; when you can`t address an issue objectively you attack someone`s faith with ad hominum. Bottonline is that a good idea is a good idea whether it was originated yesterday or 15 centuries ago. By the way your ``micro-credit`` idea in fact originated during the times of crusade which makes it at least 9 centuries old; when does an idea expire, can you tell.

Yes, Grameen bank is helping the poor but it is helping poor in the wrong way. Look, let me make you undersytand the concept of interest with an example. Interest is like blood cancer. It is an auto-immune disease which turns on its own body. If a cancer patient is to survive, it has to infuse fresh blood from a third party. That is what West did. They had to occupy colonies and plunder their wealth, which they still do with impunty, to replace that cancerous blood. And despite all that one has to read Charles Dickens to see how the life of an ordinary European was right until the end of 19th century. It did not change much from the times of crusades. Europeans must thank Communism and Anarchism, the fear of which compelled Capitalists that either risk losing all or share the morsel with poor; otherwise the system had almost eaten itself from inside out.

Compare this to Bangladesh or any other third world country. They do not have colonies to compensate for their cancerous blood. They do not have social benefit programs to compensate for the loss of work of the workforce. Once the level of national debt goes beyond a certain level it is all downhill unless you find oil or (win lottery, or help colonialists attack your neighboring country) some other source of income. Therefore, Grameen is a bad idea for developing nations. Micro-credit yes, but it must be interest free.

Mr. Urstruly:
One of us is living in the 21st century and the other is still in the 7th.

What is wrong if Grameen Bank is helping the poor? Why can`t we empathize with the poor? The appropriate thing in the context of the article is to see if Grameen is helping the poor or not. Harangues about interest is nothing new.

If you have a better idea, try to put into practice. Doing is better than preaching.

Mohammad Gill

Re: # 6

So a good idea should be rejected because it has religious undertones?? Sounds quite irrational to me, coming from those who claim to be the harbinger of rationality.

The fact of the matter is that Qarz-e-eHasna is not just an idea it works. For example, during Zia era a Qarz-e-Hasna scheme was established to disburse student loans to the needy students in higher education. Even in my class, there were couple of students who used to skip one time meal since they could not afford it. The only time they used to buy clothes was when they would get student loans; whereas the number of people that I know who were relatively fortunate but still had difficulty in paying tuitions is phenomenal. In those days when tuition fee was Rs. 360 per semester, an interest free micro-credit of Rs. 5000 per anum was the lifeline. Later this scheme was extended to foreign higher education as well (Rs. 100K per annum), and I know many people who benefitted from it and leading successful lives in their country and abroad. Most of them couldn`t have made it without it. This scheme did not drive Pakistan to bankruptcy; what drove it to bankruptcy were the interest based loans that were given on political basis.

What needed to be done was to extend the idea, debugg it and extended it to lower education level and business as well. (As a matter of fact Nawaz Sharif did start an interest free micro-credit scheme in his first term, disbursing Rs. 25000 to entreprenuer but it fell victim to the military intervention). I am not sure whether the system of student loans still exists or some leeches and munafiqs have abolished it because they cannot make money out of the misery of unfortunate.

Mr. Gill, there are doers that exist beyond the pathetic little universe that you live in and they have already done which your prejudices tell you, can`t be done. Please educate yourself before you write something - there is a whole new universe that exists beyond internet and wikipedia.

Those who can, do; those who can`t, teach, is a famous maxim.
Muhammad Yunus is a doer.

It is true that Grameen Bank lends money at interest. The interest rate is however not killing the poor people, particularly women, who borrow money from Grameen. They (98% of them) repay their loans. Grameen has transparency in that many of the borrowers are members of the Group that approves loans.

Muhammad Yunus started the bank to help the poor people and they are helped. His good intention is above board. The poor people who borrow from Grameen don`t have any collateral to borrow from the commercial banks. What other options do they have? They can go to the loan sharks and be held hostage for their whole life. Or, they go without money and die helplessly. These are the people whom Grameen helps to stay above water.

Qarz-e-Hasna is a good idea but practically it is nothing but an idea.

Mohammad Gill

Re: # 4

So what, there are bugs in every system. We have to look at the practicality of the concept. The concept works. Do not forget that in a Muslim society if and when this system is established, it will be butterssed by a dual system of taxes and zakat. We all know what taxes are and what they do but most people do not know that zakat is the only system in the world that liquidates a certain value of the fixed assets and converts them into usable capital (and yet it keeps the fixed asset at their level). This is miraculous in its own right.

Even in secular and Western capital management system, economies can do very well without interest considering all the investment options. Interest is just a racket if you look at the big picture.

Re: # 3
Urstruly Sahib, these feel good models are not applicable to today’s world, as they do not take account of the Human element in policy making. Your model is based on an assumption that capital is freely available to be distributed. Wealth creation is not as simple as that. The whole self-management experiment failed in places like Yugoslavia because of “free-riders”. Any interest-free lending will die under it’s own inertia. Soon you will have big bullies getting “interest free” loans and investing them in high yield investments. How does your model deal with that situation? How come microcredit has close to 100% return rate (compared to 60-70% in other types of loans)? There must be something that is working.

Re: # 2

Ask yourself this question:

``Would I rather incurr a credit with 20-35% APR because it is secular or would I rather have an interest free debt for my business with an interest free economic system``.

An honest answer will set you free.

Urstruly Sahib, 05 was declared to be the international year of Microcredit by the UN (some 200 odd countries if you didn’t know). As you would know (since you studied it) that over 90% of microcredit borrowers are women, who were mainly left behind because of that lovely male-domination concept so widely prevalent in certain parts of the world. Microcredit has also been sighted as a tool to liberate people from fanatical extremism.

Good job Gill Sahib. The Noble committee couldn’t have found anyone better than Dr. Yunus.

At first I was quite impressed with the concept of micro-credit but more I read about it and more I go in depth in the technicalities of it, I am convinced that all the adulation of this system by west is due to the reason that this system establishes one of the core principle of capitalism at the grass root level i.e. interest based debt. This is the foundation stone on which the senseless and irresponsible consumerism is established upon. With annual interest rates as high as 35-40% APR, micro-credits do not hurt when lending is ``micro`` in value, but that is how it starts.

If we look at the Western societies who pioneered the concept of micro-credit at the time of crusades and further enabled artisans to form trade guilds in European cities during rennaisance, we see that the method did not result in the creation of wealth but only resulted in one way flow of the wealth from poor to rich or from consumer to capitalist. For creation of wealth Europeans had to attack and occupy colonies around the globe and broom all the wealth into their countries. So it will be wrong to attribute the cause of affluence in Western societies to interest based economies; the true credit goes to colonialism and plunder from the foreign lands.

The alternative to interest based micr-credit is interest free loans i.e. Qarz-e-hasna administered by state on non-profit basis. That is the only way wealth can be generated and consumerism remains at par with the real weatlth and not the `preceived wealth`. God save us all from this cancer called interest, that eats away the human societies - amen.