Mark Brandon is the Managing Partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.

Saturday, October 14, 2006

Grameen Founder Yunus Wins Nobel Peace Prize

If Community Investment and Microcredit are your particular flavor of social responsibility, one has to rejoice over Bangladeshi Muhammad Yunus' win of the Nobel Peace Prize. The selection represents clear acceptance by the Nobel committee that poverty reduction will trump even the best statesmen as a tool for world peace and stability. Grameen Bank, the for-profit institution founded by Yunus, claims to have helped lift 100 million people out of poverty in its 30 year existence.

As a refresher, microcredit involves lending small amounts to poor, often rural, often undocumented individuals on an unsecured basis. These individuals are unlikely to find sympathy at a traditional lending institution, at least not at reasonable rates. The average size of Grameen's loans is $200, though they are often as small as $50. While one would expect that loans made to people living on the razor's edge of poverty to have a high default rate, Grameen claims to have a better repayment rate than even the stodgiest of traditional lending institutions. They achieve this by having a complex social pressure system in place. The loan applicants must be part of a group of five, endorsed by the other members, and if one of those members is not current, all members will be unable to get more loans. Some of the success stories involve loans to buy egg-laying chickens, beauty shop supplies for hairdressers, even corrective eye surgery to enable a parent to get back to work.

Though widely considered as the father of the microcredit movement, Yunuf and Grameen have spawned a worldwide movement, reaching almost every corner of the globe, including the United States. Sadly, some of the best financial innovations of the last century have yet to meaningfully be applied to microcredit. The securitization of bundled loans is in its infancy. Loan insurance, a la MBIA (NYSE:MBI) or FGIC for U.S. municipal entities, is almost non-existent. Standards of grading credit, a la Moody's (NYSE:MCO) and S&P, are not uniform enough to attract the largest pools of capital.

We see hope on the horizon. Pierre Omidyar, founder of E-Bay (NASDAQ: EBAY) has made $100 million available to for-profit enterprises engaged in poverty reduction through the Omidyar-Tufts (University) Microfinance Fund. Accion International, a global non-profit making microcredit loans, has just partnered with AIG, one of the largest financial institutions on the planet, to deliver financial literacy and education campaigns across the globe. Lots of success stories involving companies finding profit from the poorest 80 percent of world population can be found in a wonderful book by C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.

5 Comments:

Anonymous Ken Liffiton @ Grameen Foundation said...

Thanks for posting the recent great news, and for highlighting a key obstacle facing microfinance -- access to capital markets. Along with the other examples of progress you cited, Grameen Foundation's Capital Markets Group is working to bridge this gap. The Growth Guarantees program has already leveraged the assets of guarantors in the US to back over $8 million in local currency loans to microfinance institutions, and more deals are in the pipeline. Meanwhile, the group is working to apply additional financial innovations to microfinance.

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