Micro-lending for a Brighter Future
A confluence of events has led me to my focus for this column. Firstly, I have been frustrated for years with the difficulty that students and recent graduates have in raising small amounts of money to start entrepreneurial businesses both in the United Kingdom and now in the US. Lack of credit history (or lack of a good credit history) and lack of collateral usually create particular barriers to graduate entrepreneurship, despite evidence that this form of entrepreneurial activity can have attractive benefits (Google; Facebook; Microsoft; Twitter etc…). Secondly, I recently attended an event hosted by the Technical College of the Low Country in South Carolina that demonstrated to me the continuing economic challenges that some rural counties have in this part of the country. Finally, while attending the above event and carrying my ongoing frustrations with the finance industry I happened to read Muhammad Yunis’ book Banker to the Poor, which focuses on his micro-lending approach and the history of the Grameen Bank in Bangladesh.
Well what can I say, I am without doubt a micro-lending convert and I can see its real merits for supporting both student-led entrepreneurial activity and for supporting entrepreneurship in rural locations. Yunis’ basic philosophy is both inspiring and surprising. The basic premise behind his approach to poverty is that charity and grants are no solution, that such approaches take the initiative away from the poor and only appease our (middle-class) consciences. He argues that massive state bureaucracies have been created to look after the poor, have consumed excessive tax and have failed. Instead he argues (and has good experience to back it up) all humans are inherently entrepreneurial, even in the deepest poverty if given an opportunity they will take initiative, develop enterprises and look after themselves. The real issue in addressing poverty for Yunis is creating a level playing field, changing the institutional frameworks that keep people in poverty. The Grameen Bank did exactly this by upending some of the key principles of banking. Through this lens the traditional approach to banking discriminates against those who are less well off in society. The accepted tenets of the banking system as we know it does not create ‘free enterprise’. For example, you must already have ‘collateral’ to borrow, which implies you only have access to credit if you are already wealthy. You must have good credit, which implies you can only borrow when you have a history of borrowing and have kept to the terms. The terms of course are not always designed with flexibility and fairness in mind if the borrower is poor (e.g. sub-prime mortgages). You can only borrow if you lack the two criteria above if you have a ‘counter-signer’, which implies that you have better access to credit if you come from a wealthier family who have collateral. Even the Small Business Administration’s loan government guarantee falls into accepting many of these basic banking criteria but are these criteria really promoting ‘free enterprise’ in the sense of promoting equality of opportunity?
Yunis’ Grameen Bank turned all this upside down. They gave loans without collateral, they gave loans to groups of women to encourage peer pressure and enhance trust. They gave loans mainly for entrepreneurial activity. They gave small loans, asked for regular repayments (weekly) and gave larger loans as the borrower paid back previous loans. They gave loans in a flexible way, changing the repayment requirements as the borrowers experienced different challenges but never forgave the loan, reduced the interest or completely removed the repayment schedule. What the success of this approach proved is that people are: first, trustworthy and secondly, inherently entrepreneurial.
Pulling these strands together it strikes me that we need to look to micro-lending methods to do a better job of supporting our graduate entrepreneurs and supporting enterprise in areas of rural poverty. Since the Grameen Bank started micro-lending has taken off worldwide. There are many micro-lending organizations in the US and even an association (Association of Enterprise Opportunity) but only six listed members of AEO in Georgia (mostly based around Atlanta) and only to my knowledge Acción based in Savannah. Perhaps this is something we all need to consider examining, should Coastal Georgia be trying to develop more micro-lending opportunities based in the region in order to expand the equality of opportunity and enhance entrepreneurial activity?
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