Banker of the Poor

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.

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.

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.

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: # 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.

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: # 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.

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: # 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.

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.

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

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

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?

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.

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??

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!