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Microlending Pioneer Grameen Bank Opens US Branch

Microlending Pioneer Opens First Branch In The United States; Grameen Bank Says American Poor Benefit From Small Business Loans

New York -- Grameen Bank, acclaimed for improving the lives of the poor in Bangladesh by providing tiny business loans, has begun operations in the United States.

This is its first attempt to bring microlending to the poor in a developed country.

Grameen America's first branch is in the heavily immigrant neighborhood of Jackson Heights in New York’s borough of Queens, where recent arrivals from India and Africa mix with more settled communities from Latin America. The neighborhood is 10 miles from Wall Street's global financial center, where billions of dollars move daily through transactions completed in shiny skyscrapers.

Grameen makes loans of $500 to $3,000 from a cramped, shabby office in a small commercial center, next to a shop selling Indian saris and another selling South Asian videos.

Grameen's loans are intended to help borrowers start or build small businesses. They support enterprises such as home-based food preparation, clothing sales, tailoring and cleaning.

On a recent Wednesday afternoon, a middle-aged woman with short, blond-dyed hair who arrived from Peru 20 years ago came to the Grameen branch to pick up a $2,000 loan. Esther, who declined to give her last name, was borrowing the money to buy jewelry, which she plans to sell in beauty shops.

Although she works five days a week cleaning stores, Esther has trouble making ends meet. "I need to earn extra," she said. "The price of milk, food, gas -- everything -- is going up."

Grameen hopes borrowers' businesses will eventually bring in more money than their low-paying jobs do and that they will even hire employees.

Esther is just the kind of borrower the bank targets: the working poor, especially women, since the bank has found that women use their earnings to help their families more reliably than do male borrowers. Grameen estimates there are 28 million poor people in America who are "unbanked" -- with no bank account or credit history. As a result, larger retail banks will typically not lend to them.

When the unbanked need to borrow, they turn to payday loan companies, pawnshops and other predatory lenders, sources that often charge interest of 300 percent to 400 percent per year, according to Grameen.

Grameen charges 15 percent interest per year on its loans, which are typically paid off in one year. A Grameen borrower who borrows $3,000, for example, makes weekly payments of $66 ($60 of principal and $6 interest). The bank also requires borrowers to open a savings account and deposit $2 each week.

Peer Pressure

Unlike most lenders, Grameen does not ask borrowers for a credit history or collateral -- property that the lender would seize if the loan is not repaid. Instead, following the model it established in Bangladesh, Grameen requires borrowers to join a group with four other borrowers. Groups meet weekly with a Grameen representative, and each member hands over her loan repayment in front of the others. Members are not responsible for repaying each others' loans, but the groups provide support and peer pressure.

Initial results indicate the approach is working. The Queens office started making loans in January. Six months later, 300 borrowers have joined and not one is in arrears, according to branch manager H.A. Shah Newaz.

To be eligible, borrowers must be living legally in the United States and earn below the poverty line. (In 2007, that was annual income of $21,201 for a family of four.)

Grameen reports that the hardest part was recruiting the first groups of borrowers. The branch's four field representatives roamed streets, subway lines and Laundromats, talking to people about the new loan service.

"People often think it's a sham," said Christopher Dole, the son of Haitian immigrants and a graduate of Columbia University two years ago. He took a 50 percent pay cut when he left his job with an investment bank to work for Grameen. Dole said potential borrowers asked him, "Why did you go to the trouble of traveling out here to talk to me if your company charges such a low interest rate?"

However, as word of the bank has spread, especially in immigrant communities, people have become interested.

Grameen Bank was founded in 1983 by Muhammad Yunus, an economics professor at the University of Chittagong, and has grown into a huge presence in Bangladesh, with offshoots providing everything from cell phones to clean drinking water to hospitals for millions of poor.

The bank, which boasts a loan-repayment rate of 98 percent among the poor people it serves, is a model to many parts of the world. In 2006, Grameen and Yunus were awarded the Nobel Peace Prize.

Unlike many antipoverty programs, Grameen Bank and all of its affiliated enterprises are self-sustaining, for-profit businesses. What sets it apart from most companies, Yunus has explained, is that Grameen is a "social business," whose bottom line is not maximizing profits, but maximizing utility to the poor.

Today some 220 microlending programs exist in the United States, though few use Grameen's approach of grouping borrowers. Grameen intends to open several more branches in New York and in one more, as-yet-unnamed U.S. city, before expanding further across the United States.


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