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Levy Bruno/Sipa

Recession-proof banking?

Finance | Grameen Bank and microfinance guru Muhammad Yunus came to America just a year ago with ideas-and success stories-on how the poor can survive a credit crunch

Issue: "Is Christianity in the U.S. doomed?," June 20, 2009

NEW YORK-There he was-silver-haired and in a Bengali tunic-arguably the most popular banker of the year in New York City. As soon as he stepped out on the street in Queens, vendors at an outdoor market abandoned their wares-necklaces, a cart of Italian ice, rice pudding, and yards and yards of saris-to get a picture with him and shake his hand. Muhammad Yunus, the 2006 Nobel Peace Prize winner for his development of a microfinance model that has spread around the world, is as famous as a rock star among Asians just about anywhere. He offered high fives and hugs in return.

Yunus, who turns 69 this month, brought his revolutionary model to New York just over a year ago. Grameen America, a microfinance bank that provides loans to low-income entrepreneurs, is "banking for the unbanked" as its slogan goes.

"And ka-ching I take your money . . ." boomed a stereo system out over the crowd playing "Paper Planes" by Sri Lankan rapper M.I.A.

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This is not a good year to be in the credit industry-unless you are Yunus. His U.S. bank has distributed $1.5 million in loans to small business owners in its first year while enjoying a 99.5 percent repayment rate. Yunus has said "you need a dollar to earn a dollar," and Grameen offers the first dollar-tiny loans that the poor can repay and build their own businesses, one week at a time.

Right now, Grameen America is a small operation, with only 600 borrowers. But the success of the last year in the midst of a credit meltdown has encouraged its staff to expand the business, recently opening another hub in Omaha, Neb., citing high demand from the strong immigrant community in South Omaha. Grameen is also looking to open other branches in Boston and Fayetteville, N.C. Grameen America president Vidar Jorgensen has said the bank hopes to operate in all 50 states.

"In three years it should grow to 50,000 [borrowers]," said Yunus. Then shrugging his shoulders, he asks, "Why not?"

Yunus began the Grameen Bank in Bangladesh in 1976, offering small loans (microcredit) to entrepreneurial low-income women. The model was profitable and showed evidence it could create jobs, pulling families out of poverty. It spread to villages around the country, generating $155 million a year in revenue by 2006, and blossoming into offshoot businesses around the world. But the bank gained little recognition until Yunus won the Nobel.

In 2008, Grameen planted itself in New York City, the financial capital of the world, raising eyebrows among many in microfinance. Few thought it would succeed, and some doubted that it was needed. First, the U.S. credit system is a labyrinth compared to the informal systems in Bengali villages. Second, banking experts scoffed at a financial institution from the developing world coming to the developed-especially with Bengalis saying they would have a profitable bank in the city in five years. Even in April at Grameen America's one-year anniversary, one reporter described the Grameen operation as "Third World"-a term that denotes dependency or underdevelopment-drawing a forbearing protest from Yunus. "It's not a Third World bank," said Yunus. "It's a good bank."

Along with the challenges in perception, microfinancing in the United States faces real cultural challenges: The model relies on group accountability for repayment, and most Americans would like to be left alone with their finances. The individualism pervading American culture, experts said, would suffocate the program.

And it still might. I stood in the street market and asked Shah Newaz, one of Yunus' right-hand men and the director of the Queens program, how he works in an individualistic-but he interrupted before I finished. "That is our struggle," he said, nodding his head and closing his eyes. He first came to the United States in 2006 from a Grameen project in the Dominican Republic. "In Latin America and Asia they have a community of generation after generation. People here-they don't know the people living next door."

Microfinance relies on community peer pressure for loan repayment. The bank makes loans to people in groups of five. Borrowers don't need a bank account, credit history, or collateral, but they must live near other members of their loan group, and meetings of the group coincide with weekly loan payments. Grameen staff members invade the lives of group members, getting to know their businesses and their children-in effect, becoming part of the family.

Borrowers receive loans of anywhere from $400 to $4,000, and Grameen requires that they save at least $2 a week in addition to making their loan payments. Before the financial crisis unleashed its full force, clients were usually saving more, but Newaz said now they are saving closer to the minimum. That means they've found a way to beat the credit crisis-but have they found a way to beat a recession's low spending that has crushed many small businesses?

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