Grameen Bank offers Microcredit in New York

Grameen Bank functions as a link between “glamorous New York City and flood-stricken Bangladesh” aiding the large numbers of poor living in both places. Although the United States is years beyond Bangladesh in terms of development and dealing with poverty, Ritu Chattree, vice president of finance and development for Grameen American knows, “’it’s proven that a significant part of the population needs a helping hand.’” Grameen Bank believes that the US had been very open to their ways and interested in aiding the poor especially since Hurricane Katrina in 2005.  Maybe it takes such a disaster to catch the attention of the greater country and to show them the extreme poverty their own citizens are living in and encourage them to help.

            Grameen Bank in New York officially opened on April 25, 2008 (five days after this article was written) after conducting a pilot programs in Queens. In the pilot program, more than $200,000 was lent to 120 women. This puts the average loan size at almost $1670.00. When Grameen was formed in Bangladesh over 30 years ago, it developed a model to give loans that range between  $300 and $3000 to support women’s “entrepreneurial ambitions in businesses from house cleaning to hairdressing.” Grameen Bank does not plan to change this model now that they are functioning in the US. The article does not indicate whether the women receive loans under the group method used in Bangladesh and my guess would be that they do not because of the lack of strong community sense in the US that is present in Bangladesh. Although houses and surrounding in Queens are a great upgrade from Bangladesh, the stories of struggle and deprivation are still present (just in a “first-world context”). Grameen Banks hopes to help out those who would typically be forced to borrow from payday lenders (take out an advance on salary) or loan sharks who can charge outrageous interest.

            Especially in the US, as was the case in Bangladesh, mainstream financial institutions have not interest in lending to the impoverished who have poor or no credit. Many Americans, especially new immigrants, face the problem of no credit. Utica NY has a unique refugee population of new immigrants who likely have little or no credit who could benefit from the services offered by microfinance. The article explains that about 36 million people in the US live below the poverty line (defined as less than $21,000 for a family of four), but in Utica nearly 50% of children are living below the poverty line.

            Hamilton College is located in an economically depressed area that is home to many people (both refugees and not) with low or non-existent credit. Such an area would be the ideal environment to locate a branch of the Grameen bank, for example. Instead of waiting for such a dream to come true, a smaller scale microlending project could still take place. Every bit helps and the smallest businesses have a multiplied effect in the macroeconomy.

            At the time the article was written (about 11 months ago), Ben Bernanke, was warning, “’a recession is possible.’” We have since found out that not only is our economy in recession now after major sub-prime mortgage crises, but it has been in recession since late 2007. Thoughts of recession brought warnings that success is not guaranteed and fears that it would become more difficult than normal to charge a decent rate yet still cover costs. This is always a major challenge of microloans. In Bangladesh, Grameen Bank has experience a 95% repayment rate, which is as good as if not better than most commercial banks. Once Grameen Bank in NY has experienced similar high repayment, it may be possible to lower rates from the current 15% interest charge. Currently this 15% rate is on a declining balance basis, so in actuality the rate is closer to 7.3% (still higher than traditional loans, but not by much).

            Challenges for Grameen in NY: The US has strict regulation that hinders the Grameen loan process. Currently the Bank is relying on donors to get them going and keep them running at first. The Grameen bank is not allowed to take deposits and operate as a mainstream bank in the US, but they hope to “eventually be able to collect and re-lend savings to make expansion easier and create self-sufficiency.” In addition to governmental restrictions on the practices of the Grameen bank, there are also restrictions to starting one’s own business in the US. Restrictions include government approval, costly insurance and permits. Self-employment is not a simple answer to poverty as it may be in undeveloped countries where if you can produce something, you can go sell it.

            In the original Grameen model, borrowers had to get into groups of 5 to receive loans and it is intended for this model to be transferred to the US. With the group method, “if one person misses a weekly repayment of defaults, the whole groups advances more slowly” adding increased incentive for each woman to do her part. There is criticism that the group method could fail to be as effective in the US where “the cult of the individual still reigns.” Apparently, the group method has worked so far in Queens and success will likely be dependent on the nature of the community. I think that immigrant and refugee populations would be ideal for the group method. It is likely that the countries they came from had stronger community ties than the US and now that they are here together, they have become ones another’s support and live together. The idea behind the group method is to offer support and additional incentive to make payments and start their own businesses. In Bangladesh the groups were made up of five very close women who were relatives of one another or close neighbors. I believe this would be the requirement of a successful group method, they would have to be invested in the success of one another’s lives.

            ACCION USE, the largest microcredit org in America did abandon the group method after finding that “it only worked for people in a similar line of work, such as taxi drivers who wanted to buy their own cabs.” ACCION has an average loan size of $7500, more than double Grameen’s largest loan. Because of the drastic difference in loan size, the two banks may be addressing different groups of people and therefore although ACCION abandoned the group method, Grameen may not do so very quickly. I think Grameen would be hesitant (and should be) to change their model after 30 years of success. Maybe borrowers in the US need to change their outlook on the loan process?

            Before expansion, Grameen Bank wants to find success in NY and figure out what changes will be necessary for microlending in the US.

            I would next like to find information on how the Grameen Bank of NY has performed after almost one year of business.

Devi, Sharmila. “Grameen Bank offers Microcredit in New York.” The National.

19 April 2008.