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Recession-proof banking?

"Recession-proof banking?" Continued...

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

Grameen leaves that to the borrower's own innovation. Zennia Shoffner, a borrower who has started a catering business in Jackson Heights, said her business is steaming along: "People are always gonna eat." Her peach cobbler, customers quickly discover, is worth paying for.

Shoffner is one of the few vendors who speak English; most are recent immigrants and offer testimonies in Spanish or Bengali. Most are women, and that's part of the original Grameen model. Women statistically are better at long-range planning and are more likely to repay loans. With women comprising 97 percent of its borrowers, Grameen Bank has helped transform Bengali society, giving women the freedom to be entrepreneurs-but it took time to get women to even accept loans.

The Bengali program also teaches certain lifestyles that the bank leaders see as core to development: Living in repaired houses, using clean and proper latrines, and drinking clean water. Growing one's own food and eating plenty of vegetables, investing, helping those in need, planning for smaller families, and educating one's children also are part of the lifestyle transformation, as is doing away with dowries and child marriage. Those principles don't necessarily translate to Queens, but staff hope the group accountability will.

"You've got to give the Grameen Bank credit," said Craig Cole of the Christian microcredit organization Five Talents. "You're able to see the whole human being being developed-not just the financial part."

But in past years a few have poked holes in Grameen's apparently successful model, saying the bank is inflating its repayment numbers by allowing borrowers to defer payments for up to two years before counting them as delinquent. Technically, small payments are due in the weekly meetings.

"We see no reason why the sky should fall on anybody's head because a borrower took longer time to pay back her loan," wrote Yunus when he introduced new rules for the bank in 2002 following a difficult business cycle. "Since she is paying additional interest for the extra time, where is the problem? We always advocated that microcredit programs should not fall into the logical trap of the conventional banking and start looking at their borrowers as some kind of 'time-bombs' who are ticking away and waiting to create big trouble on pre-fixed dates."

The average annual interest rate on Grameen loans is high too, at 30 percent, which Grameen defends as the cost of doing business when they offer small loans and weekly meetings with staff. In Bangladesh the bank's profit margin is indeed razor thin.

Grameen America faces its own credit problem: The bank needs capital to meet the demand for its services. While Newaz says the bank is on track to being unsubsidized and financially viable in four years, administrative difficulties could hamstring their business plan. (Grameen currently receives support from foundations and individual donations.) In Bangladesh, 70 percent of capital comes from borrowers' savings, but in the United States, Grameen hasn't been approved as an official bank yet, so it can't access its clients' savings. (Most U.S. micro-credit groups don't have a bank charter; they're nonprofits.)

That creates even more problems because the Federal Reserve will not approve Grameen to be a bank until it has a hefty percentage of capital. Also, the process to obtain a charter as an American bank is itself a big task for small operations like Grameen America. It must file extensive paperwork documenting every detail of the company-from the credit history of each director on the board to the number of shares available for the bank. Access to capital, said Grameen America's CEO Steven Vogel, is "the biggest obstacle." Top staff of the bank have met with Obama administration officials to talk about the issue.

In different forms, there are others in the United States already doing what Grameen America is doing. ShoreBank, a bank that provides mortgages to low-income individuals, has served Chicago since 1973 and expanded to a half dozen U.S. cities. ACCION International has loaned a total of $214 million in microfinance in the United States since 1991. Smaller microenterprise groups dot the country, too. REAP is involved in microlending in rural areas of Nebraska, providing up to $35,000 to entrepreneurs. Eighty-six percent of businesses in the state are microenterprise-sized, according to the program's director Jeff Reynolds, but the model is "at the bottom of the food chain" in the United States.

"Microenterprise will never be sustainable by itself without funding, if you're going to do hand-holding," said Reynolds, pointing out that counseling and group involvement are essential to the success of microlending-and expensive. REAP relies mainly on government grants. "It's really helpful when you have an administration that believes in what you're doing," he said.

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