USINESS Grameen Bank: Banking Against Poverty is part of a five-member group tha
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USINESS Grameen Bank: Banking Against Poverty is part of a five-member group that approves each oth- ers loan and provides oversight. The group doesn't have any legal obligation to repay the loan, but in practice the group usually does take financial responsibility if a borrower gets into difficulties. If everyone in the group repays on time, each member is able to borrow a larger amount the next time. Grameen operates in over 100 countries, from the United States to Uganda. The great majority of its cus- tomers are rural women secking to escape poverty by starting small businesses. Since its inception it has lens over $15 billion to well over eight million women. Even in a rich country like the United States, microlending-defined as a loan less than $50,000-has ulties become a booming business. Since 2008, when it was founded, through 2016 Grameen America has made over $265,000 in loans and dispensed nearly $591 million. s old joke sanys that a banker will only lend you money fou don't need it. So when Guadalupe Perez found it urd to pay the rens for her party decoration store in The company estimates that borrowers have increased parens, New York, as the Great Recession hurt her busi their income by an average of $1,200 annually any? ess she normally would have been forced to close her However, microcredit isn't a panacea. Multiple stud bors Instead she was able to turn for help to Grameen ies have found that while microcredit does increase ed a tmerica, obtaining a loan to tide her over. "It opened small-business investment, its impacts in reducing pow- g a way for me to keep my business," she said. "It was erty and improving family well-being are limited. And a loas that I could pay little by little: I felt it was a good in some cases it leads to excessive debt. Still, the overall hoice for me. And she returned to Grameen, borrow impact of microcredit is positive, especially when com- ng several more times to expand her store and invest in bined with other efforts to expand access to the finan- oore inventory cial system. Grameen America is a subsidiary of Grameen Fittingly, in 2006 Yunus and Grameen received the Bunk in Bangladesh, which pioneered the business of Nobel Peace Prize for their contributions to develop- ncrocredit, providing small loans to poor individuals. ment and poverty reduction. à was created in the mid-1970s by Mohammed Yunus, a Bangladeshi economist with a PhD from Vanderbilt ahersity. Regular banks require a borrower to have QUESTIONS FOR THOUGHT as etablished credit history and/or assets that are put 1. What market inefficiency is being exploited by Grameen p as collateral for the loan (and will be seized if the ua in't repaid on time)-requirements that a poor person can rarely meet. lastiead, Grameen Bank relies on collective responsi What do you predi Bank? What is the source of this inefficiency? 2. What tasks of a financial system does microlending perform? bilty to ensure that its loans are repaid: each borrowerlenading on a community? ict is the effect of Grameen Bank'sExplanation / Answer
1. Lack of credit is the market efficiency to small business owners. Commercial banks need a credit history of the customer and collateral for loans which would be sold in case of non-repayment. This requirement makes a large number of small business ineligible for loans.
2. Micro credit gives financial loans to small business owners who otherwise would not get loans. The main feature of micro credit is group responsibility and loyalty. Group members support each other and loan is collectively given to a group. Good credit habits like prompt repayment of loans makes the loanee eligible for bigger loans. Repayment is based on the capacity of the borrower.
3. A big future awaits micro finance. Community empowerment is the main feature of micro finance.
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