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Nobel Peace Price

DanishDynamite

Penultimate Amazing
DanishDynamite
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Aug 10, 2001
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Time for a bit of non-controvertial good news in this forum inhabited by sourpusses.

Just saw a short clip on TV regarding this year's recepient of the Nobel Peace Prize, Economist Professor Muhammad Yunus. I was impressed and googled a bit, finding among other things his acceptance speech. Here's a man truly worthy of the Prize.

He founded a bank which provides micro-loans, i.e. very small loans to poor people with no collateral. Loans to start very small businesses, such as a loan to buy a sewing-machine (for making clothes to sell) or for buying a mobile phone (for selling phone-calls to people in villages), etc. And the concept and the bank has become an incredible succes!

An excerpt from the speech:
Today, Grameen Bank gives loans to nearly 7.0 million poor people, 97 per cent of whom are women, in 73,000 villages in Bangladesh. Grameen Bank gives collateral-free income generating, housing, student and micro-enterprise loans to the poor families and offers a host of attractive savings, pension funds and insurance products for its members. Since it introduced them in 1984, housing loans have been used to construct 640,000 houses. The legal ownership of these houses belongs to the women themselves. We focused on women because we found giving loans to women always brought more benefits to the family.

In a cumulative way the bank has given out loans totaling about US $6.0 billion. The repayment rate is 99%. Grameen Bank routinely makes profit. Financially, it is self-reliant and has not taken donor money since 1995. Deposits and own resources of Grameen Bank today amount to 143 per cent of all outstanding loans. According to Grameen Bank's internal survey, 58 per cent of our borrowers have crossed the poverty line.
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The concept behind the Grameen Bank has now spread to close to a 100 countries.

Fighting poverty from below. What an amazing man.
 
Goes to show that when you treat people like adults they tend to behave like adults.
 
Good ED man! This TERRORIST must be stopped! This concept would destroy the American banking system. Not to mention his COMMUNIST way of helping the poor and uplifting them so that, one day, they might actually be permitted to live next door to us! Why, economic equality would DESTROY AMERICA!!! Are there no poorhouses???
 
Non-controversial? No way.

Here's a critique which I think is balanced and well-informed:
http://www.thenation.com/doc/20061030/bello

Some citations:
"The awarding of the Nobel Peace Prize to Muhammad Yunus, regarded as the father of microcredit, comes at a time when microcredit has become something like a religion to many of the powerful, rich and famous."

"There is no doubt that Yunus, a Bangladeshi economist, came up with a winning idea that has transformed the lives of many millions of poor women, and perhaps for that alone, he deserves the Nobel Prize. But Yunus--at least the young Yunus, who did not have the support of global institutions when he started out--did not see his Grameen Bank as a panacea. Others, like the World Bank and the United Nations, elevated it to that status (and, some say, convinced Yunus it was a panacea), and microcredit is now presented as a relatively painless approach to development."

"after 8 years of borrowing, 55% of Grameen households still aren't able to meet their basic nutritional needs--so many women are using their loans to buy food rather than invest in business."

"the poorest people can do little productive with the credit, and the ones who can do the most with it are those who don't really need microcredit, but larger amounts with different (often longer) credit terms."

"In other words, microcredit is a great tool as a survival strategy, but it is not the key to development, which involves not only massive capital-intensive, state-directed investments to build industries but also an assault on the structures of inequality such as concentrated land ownership that systematically deprive the poor of resources to escape poverty."
 
CFLarsen said:
Does anyone know what the repayment rate on loans is in a "normal" bank?
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I tried googling for an answer but I simply don't understand most of the hits. What the hell does "the mean bank loan value in default is 69.5% for Sr. Secured and 52.1% for Sr. Unsecured..." mean?
 
Clearly the repayment rate, as most of us would understand that phrase, must be well over 100%. Otherwise, plain logic dictates that banks would be going out of business all the time.

But maybe the 99% figure refers to the number of loans that are paid back, with interest. Or maybe it's just another one of those completely theoretical figures invented at the World Bank.
 
Merko said:
Clearly the repayment rate, as most of us would understand that phrase, must be well over 100%. Otherwise, plain logic dictates that banks would be going out of business all the time.

But maybe the 99% figure refers to the number of loans that are paid back, with interest. Or maybe it's just another one of those completely theoretical figures invented at the World Bank.
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The bolded part was my understanding of the term. I suspect it is every non-banking person's understanding.
 
DanishDynamite said:
Would you know what that rate is for "normal" banks?
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What is a "normal" bank? Clearly, there is a relationship between interest rate and expected repayment rate (by your definition). The interest rate must pay not only the profit of the banker, but also the expected loss arising from defaulting customers. I think you could use this connection, combined with an assumption of expected profitability, to predict a fairly accurate repayment rate for a particular form of loans given.
 
Merko said:
What is a "normal" bank? Clearly, there is a relationship between interest rate and expected repayment rate (by your definition). The interest rate must pay not only the profit of the banker, but also the expected loss arising from defaulting customers. I think you could use this connection, combined with an assumption of expected profitability, to predict a fairly accurate repayment rate for a particular form of loans given.
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You've lost me. Is the question posed not answerable given the definition above?
 
DanishDynamite said:
You've lost me. Is the question posed not answerable given the definition above?
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No, I think you're asking about the length of a rope.

If you go to a bank and ask for a loan, you'll be given different options depending on your personal financial situation, the kind of security you have, if it's a business loan or a private loan, the sums involved, your previous credit history, etc etc. The reason for the different interest rates is (in theory) the bank's estimate of how likely you are to repay the loan. In practice the (lack of) competition between banks probably also has a major impact in many cases.

Different banks have different "product profiles" so we can't just simply average all these kinds of loans. I guess we could do something for "loans to house buyers", "loans for startup 1 person businesses" or similar. Not sure what would be the most relevant comparison, though.
 
Merko said:
No, I think you're asking about the length of a rope.

If you go to a bank and ask for a loan, you'll be given different options depending on your personal financial situation, the kind of security you have, if it's a business loan or a private loan, the sums involved, your previous credit history, etc etc. The reason for the different interest rates is (in theory) the bank's estimate of how likely you are to repay the loan. In practice the (lack of) competition between banks probably also has a major impact in many cases.

Different banks have different "product profiles" so we can't just simply average all these kinds of loans. I guess we could do something for "loans to house buyers", "loans for startup 1 person businesses" or similar. Not sure what would be the most relevant comparison, though.
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In that case, what do think this economics professor meant when he said the Grameen Bank had a repayment rate of 99%?
 
Like I said, I have no idea. It could be that 99% of loaners repaid their loans, with interest. It could be that 99% of the funds are being returned, in total. But as far as I know this is a for-profit company and no charity, so that seems less likely (although I won't rule it out). Seeing that it was an economics professor I would also very much suspect that it could be a completely theoretical number drawn out of a hat, having no connection at all with reality.

But in any case, either definition would of course be completely possible to apply to the Grameen bank specifically. It offers a very specific kind of loans anyway. But you wanted to compare it with "normal" banks, which prompted me to ask what you mean by a "normal" bank.
 
Merko said:
Like I said, I have no idea. It could be that 99% of loaners repaid their loans, with interest. It could be that 99% of the funds are being returned, in total. But as far as I know this is a for-profit company and no charity, so that seems less likely (although I won't rule it out). Seeing that it was an economics professor I would also very much suspect that it could be a completely theoretical number drawn out of a hat, having no connection at all with reality.

But in any case, either definition would of course be completely possible to apply to the Grameen bank specifically. It offers a very specific kind of loans anyway. But you wanted to compare it with "normal" banks, which prompted me to ask what you mean by a "normal" bank.
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Could it perhaps also be that he knows what he's talking about and...lesser souls...perhaps don't?
 
Between this and the School in a Box ( http://news.bbc.co.uk/2/hi/uk_news/education/4148563.stm ), India is still a force for humanistic achievement. These aren't interest-free loans I'd imagine, otherwise there'd be no incentive for others to do it. I wonder how this kind of thing would fly in other Third World countries, or even low-income areas in the US.
 
Polaris said:
Between this and the School in a Box ( http://news.bbc.co.uk/2/hi/uk_news/education/4148563.stm ), India is still a force for humanistic achievement.
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What might India have to do with anything?
These aren't interest-free loans I'd imagine, otherwise there'd be no incentive for others to do it. I wonder how this kind of thing would fly in other Third World countries, or even low-income areas in the US.
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They are certainly not interest-free, in fact they are high interest loans. As to how they would fly in other Third World countries, the answer is: very well. As you could have surmised by reading the OP, bonehead.
 
DanishDynamite said:
What might India have to do with anything?
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This was an error on my part as I frequently confuse Bangladesh with the city of Bangalore.

DanishDynamite said:
They are certainly not interest-free, in fact they are high interest loans. As to how they would fly in other Third World countries, the answer is: very well. As you could have surmised by reading the OP, bonehead
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Thank you, that's very helpful. Have there been any attempts at trying this out in other third world countries or is that just speculation at the moment? Don't bother answering the question if you still feel the need to name-call.
 
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