PASSAGE 16 (Questions 1-5)

Today, with a Noble Prize to its credit, Grameen is one of the largest microfinance organisations in the world. It started out lending small sums to poor entrepreneurs in Bangladesh to help them grow from a subsistence living to a livelihood. The great discovery its founders made was that even with few assets, these entrepreneurs repaid on time. Grameen and microfinance have since become financial staples of the developing world. Grameen's approach, unlike other micro-financers, uses the group-lending model. Costs are kept down by having borrowers vet one another, tying together their financial fates and eliminating expensive loan offices entirely. The ultimate promise of Grameen is to use business lending as a way for people to lift themselves out of poverty. Recently, Grameen has taken on a different challenge —by setting up operations in the US Money may be tight in the waning recession, but it is still a nation of 100000 bank branches.

Globally, the working microfinance equation consists of borrowing funds cheaply and keeping loan defaults and overhead expenses sufficiently low. Microlenders, including Grameen, do this by charging colossal interest rates-as high as 60% or 70% — which is necessary to compensate for the risk and attract bank funding. But loans at rates much above the standard 15% would most likely be attacked as in America. So, the question is whether there is a role for a Third World lender in the world's largest economy? Grameen America believes that in a few years it will be successful and turn a profit, thanks to 9 million US households untouched by mainstream banks and 21 million using the likes of payday loans and pawn shops for financing. But enticing the unbanked won't be easy. After all, profit has long eluded US microfinanciers and if it is not lucrative, it is not microlending, but charity. When Grameen first went to the US, in the late 1980s, it tripped up. Under Grameen's tutelage, banks started micro loans to entrepreneurs with a shocking 30% loss. But Grameen America says that this time results will be different because Grameen employees themselves will be making the loans, not training an American bank to do it. More often than not, the borrowers, Grameen finds, in the US already have jobs (as factory workers e.g.) or side businesses—selling toys, cleaning houses, etc.

The loans from Grameen, by and large, provide a steadier source of funding, but they don't create businesses out of nothing. But money isn't everything. More importantly for many entrepreneurs, group members are tremendous sources of support to one another. So, even if studies are yet to determine if Grameen is a clear-cut pathway out of poverty it still achieves something useful. 

[Allahabad Bank(PO), 2010]

What has adversely affected the success of microfinance institutions in the US?