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A Nobel Prize Winner Under Siege – WSJ.com

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The Bangladeshi government is moving to exert control over the celebrated Grameen Bank.

By GEORGE SHULTZ AND MADELEINE ALBRIGHT

With so many banks making headlines, it is easy to overlook news about Bangladesh’s Nobel Peace Prize-winning Grameen Bank. No, this bank does not need a bailout. Quite the contrary, it has been prospering as it continues to provide life-changing microloans to millions of poor people. The borrowers also run the bank—they are the majority owners. But the Bangladeshi government recently moved to change this arrangement. We urge the government to reconsider.

At issue is whether the bank’s managing director should be appointed by the board of directors (most of whom are elected by the millions of small shareholders) or by the bank’s chairman, who is appointed by the government. Preserving the right of the board of directors to make this choice would be in keeping with the bank’s most distinctive feature—that the institution’s customers are also its owners and managers.

The Grameen Bank model has been strikingly successful; it should be emulated, not changed. With 30 years of experience, Grameen delivers exceptional loan-repayment rates (97%) while vastly improving the lives of its members. Credit is given only to start or expand businesses, and members join as groups of five, who provide mutual support and accountability.

With 8.3 million borrowers, Grameen is a primary source of capital for women entrepreneurs and has used its influence and resources to support education, community-hygiene initiatives, affordable health care and better nutrition. In the process, the bank has contributed mightily to social, civic and environmental awareness throughout Bangladesh.

In 2006, Grameen’s owners and Muhammad Yunus, its founder, were honored with the Nobel Peace Prize in recognition of their efforts to reduce poverty. Dozens of countries have developed institutions based on the Grameen model, providing benefits to hundreds of millions of people in Asia, Africa, the Middle East, Latin America and even the United States.

A major reason for the bank’s success is its loyalty to the principle that the same people who rely on it for credit also have a direct role in managing its operations. The idea that poor people can run their own bank successfully has been very empowering—especially for women, who make up the vast majority of borrowers and who often have little or no access to conventional sources of commercial lending. That is why it would be a mistake for the government of Bangladesh to deprive the board of directors of the right to appoint the managing director.

Borrowers elect nine of the 12 members on the board while the government appoints three directors, including the chairman. The board as a whole has been responsible for bank operations, a governance structure that has served the rights and interests of its member owners since Grameen’s founding several decades ago. We believe that Secretary of State Hillary Clinton was right, in her visit to Bangladesh in May, to caution against any step that “would undermine or interfere in the operations of the Grameen Bank or its unique organizational structure.”

Grameen Bank is more than just another financial institution. It is a living demonstration of how people who lack advantages of any kind can nevertheless lift themselves out of poverty through hard work and personal accountability. It is a testament to the capacity of women to succeed in business when accorded the opportunity to do so. And Grameen is—or at least it should be—a fundamental source of pride for the government of Bangladesh.

With the world watching, the government should consider carefully how to proceed now that its steps to seize direct control over the bank’s leadership have stirred controversy. We hope it will choose instead to preserve a system that has worked well, earned credit for Bangladesh on the world stage, and inspired followers across the globe.

Mr. Shultz, a former secretary of labor, Treasury and state, is a distinguished fellow at Stanford University’s Hoover Institution. Ms. Albright, a former secretary of state and permanent representative to the United Nations, is a chairwoman of the Albright-Stonebridge Group.

Microfinance as a Tool to Alleviate Poverty – Forbes

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For millions of people without access to traditional banking, the internet is a lot more than a place to share the latest family photos. It’s an opportunity to tell their stories and gain access to small loans that can change their lives.

Just 10 percent of the global population has access to traditional banking, according the Gates Foundation. To bridge the gap, microfinance institutions step in. Microfinance entails loans of as little as $25 to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services, providing low-income people with opportunities to become self-sufficient.

Back in 1974, a Bengali man named Muhammad Yunus created the concept of microfinance with Grameen Bank, winning him the Nobel Peace Prize in 2006 for the dramatic global impact of his idea. The World Bank estimates that more than 500 million people have benefitted from microfinance to date.

Different than charity, these loans are repaid to the individual lenders. Since 2005, Kiva, a person-to-person microlending organization, has provided more than $329 million from 786,000 lenders in 62 countries, with the astonishing repayment rate of 98.97 percent. Borrowers are able to tell their stories online, along with details of their business idea – say, opening a shop or buying materials to make goods by hand.

Kate Cochran, COO of education microlender Vittana, notes the ripple effect these small loans can have across entire families and even generations. “In India, an education can increase earning power by 200 to 300 percent. In many cases, siblings are able to pay for younger brothers and sisters to complete their education with that extra income, and the upward cycle repeats.”

The Dell Foundation also supports and funds microfinance, with a focus on promoting family economic stability by working to increase the number of high-caliber Microfinance Institutions (MFI) in urban communities through Ujjivan. Other microfinance organizations include ACCIONMicroplace, and Grameen America. Many MFI’s also offer microloans in the U.S. for entrepreneurs with solid business plans but who don’t qualify for traditional bank loans.

Global Philanthropy Group partner Maggie Nielson, who helped develop and implement the United Nation’s Year of Microcredit  program in 2005, sums it up nicely: “People just want access to the same financial tools we have so that they can help themselves. They don’t want someone else to build them a big project or give them a handout. They are perfectly capable of creating their own success even though they weren’t born into the same circumstances. That is the kind of assistance anyone can give. You can literally change someone’s life.”

Microlending has helped make BTPN one of Asia’s most profitable banks – Economist

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Indonesian microfinance -Rich pickings

Apr 20th 2011 | Jakarta | from the print edition

MENTION microfinance in Asia and thoughts usually turn to India, which is struggling to regulate the industry, and Bangladesh, where Muhammad Yunus, the Nobel prize-winning founder of Grameen Bank, has been turfed out of his job. Indonesia offers a brighter picture. There, a range of lenders is successfully funnelling credit to its entrepreneurial poor.

They include Bank Rakyat Indonesia, a state-owned behemoth that had a whopping $7.4 billion in microloans outstanding in September and operates throughout Indonesia’s many islands. Non-profit lenders, pawnshops and co-operatives also swim in the microcredit sea.

So, too, do private-sector banks. Among the keenest of them is Bank Tabungan Pensiunan Nasional (BTPN), which entered the market in 2008 after a buy-out by Texas Pacific Group, a private-equity firm. BTPN’s microloan portfolio doubled in 2010, for the second year in a row, to 4.6 trillion rupiah ($500m) or roughly 20% of the bank’s total loan book. The bank, which was founded in 1959 to serve retired bureaucrats, boasted a racy 4% return on assets in 2010. Microloans, which command higher yields to reflect greater risk, had a 14% net interest margin.

Most of BTPN’s firepower is concentrated on Java, Indonesia’s most populous island, and on the family firms that are the lifeblood of the informal economy: market traders, household producers, repair shops and so on. A typical loan is for $3,000, usually for a year or two, with annual interest rates of around 25%. Many opt for daily or weekly loan repayments. With the economy growing rapidly, many small businesses are eager to expand.

Customers are often too busy to drop in to the branch so BTPN equips its staff with portable electronic devices that have been customised to scan fingerprints as well as bank-issued cards. A fingerprint detector is handy for customers who are illiterate or have an inconsistent signature. The device also zaps data back to head office so that management can keep tabs on loans and deposits in real time, instead of waiting for forms to arrive from BTPN’s 1,000-plus branches, triple the number in 2008.

The new branches are mainly outside city centres and are decidedly bare-bones. At a poky BTPN branch in Ciracas, on the southern rim of Jakarta, a dog-eared sign hangs on the door and the floor could use a polish. This is deliberate, says Jerry Ng, the bank’s chief executive. Low-income customers “don’t dare” to walk into a posh banking hall (BTPN’s branches in central Jakarta are much plusher). Retired people get a tailored approach, too: BTPN operates branches that open at 5.30am on the first of the month, when state pensions are paid.

For its microborrowers, BTPN offers free training courses on financial skills. On a recent afternoon in Ciracas, 20 or so mostly female customers squatted on straw mats as an instructor handed out envelopes marked with different coloured squares to signify things like household expenses and savings. The courses seem to be popular with entrepreneurs. They also give bankers a way to size up borrowers: those who struggle to separate petty cash from capital might not be ready for the big time.

BTPN’s breakneck expansion is bound to slow this year, though Mr Ng predicts the bank’s overall loan-growth rates will still be in the high 20s (from 48% in 2010). Mr Ng is working on a strategy for what he calls the “productive poor”, who are a rung or two below micro-entrepreneurs, and are mostly served by non-profits.

In India some politicians have cast commercial microcredit lenders as villains. So far, there is no whiff of a backlash in Indonesia. Most Indonesians accept the principle that nobody will invest capital unless they expect a return, says Nick Cashmere of CLSA, a brokerage. BTPN’s customers seem happy enough, too. Daniel Ginting, a fruit vendor, already has a 100m rupiah loan charging 2.6% a month. Now he plans to open a string of air-conditioned shops to sell his produce. “I’m sure BTPN will give me the loan because it needs customers like me,” he says.