CREDIT/ A Tale of Two Banks

Everybody is aware that the great and powerful banking institutions run by the new class of “masters of the universe” have failed, and now exist only by their privileged access to the public purse. And you will no doubt be happy to know that they are once again profitable and paying big bonuses. Of course, they are not profitable due to their lending activities, which largely they aren’t doing, but by the same sort of financial speculation that got them—and us—into this mess in the first place. The banks won’t lend because they can’t find borrowers who will pay them back, and the borrowers can’t pay them back precisely because of the way the banks wrecked the financial system and the economy along with it.

Yet through all this there is a bank that did not fail, that is not in trouble, that has no difficulty in finding borrowers and in getting repaid. That bank is the Grameen Bank, the institution that practically invented micro-finance. I had the distinct pleasure last night of hearing an address by its founder and guiding light, the Nobel-laureate Dr. Muhammad Yunus. The Grameen banks lends 100’s of millions of dollars to poor people in Bangladesh and around the world. The good doctor now heads a vast organization which employs 27,000 bankers in Bangladesh. Yet he was not a banker, but an economist. So how did he learn to run a bank, to set up the complex procedures and safeguards that such institutions require? It was very simple, he explains. They just went to the existing banks, the experts who have been in the business for a long time and who know how to get they job done. They examined all their practices and procedures, and then did exactly the opposite.

The banks lend to the rich; Grameen lends to the poor. The banks require collateral; Grameen’s borrowers have none. The banks require complex legal documents and teams of lawyers; Grameen has no such documents, nor any lawyers. The banks lend mostly to men; Grameen lends mostly to women. But there is an even more fundamental distinction between Grameen and Citibank. The too big to fail banks are mostly in the business of creating money and investing it in financial speculation; their activities have only a remote connection with the real economy, the economy of production and jobs and the creation of real wealth. Yet their speculative activities have the power to wreck the real economy. Grameen, on the other hand, is connected with the real economy. When they lend $50 to a women, she buys chickens, or goats, or a sewing machine, or some actually productive asset, something that actually adds to the real wealth of the borrower and the nation.

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