Credit as a Human Right

Micro-credit is a very effective instrument to empower the poor, particularly poor women, in all cultures and economies of the world. It is cost-effective, sustainable and works in a business-like way. It gives a poor person a chance to take destiny in his/her own hands and get out of poverty with his/her own efforts. The world, which has committed itself to reduce the number of poor people by half by 2015, will find micro-credit a powerful tool in its tool box.

I am sorry that the Journal missed an opportunity to deliver some good news to the world at a time when we are so hungry for it. An appropriate page-one story and headline on Nov. 27 would have been: "Grameen Bank Overcoming Repayment Snag: Proves Credit for the Poor Sustainable Under Difficult Conditions." That's what it really is. Grameen's problem loans declined over the past 16 months by 50%. Trends show that the repayment rate will reach
95% within the next six months. We expect that by December 2002, the repayment rate will reach 98%. Instead, the Journal presented a snapshot to the world, ignoring the positive trend, to show that the repayment rate at the time of writing the report was 90% instead of 95%, and built the major thrust of the story around it.

Had you looked a little deeper, you would have come back with a better understanding of our work. You would have seen that when we think about repayment problems, we remember that our 2.4 million borrowers -- the owners of the bank -- have already paid back cumulatively $3.2 billion of $3.5 billion over the past 25 years. Where others see overdue loans, we see hard-working, struggling women who have demonstrated their capability to repay loans many times over, and who have saved $114 million -- and we know we have good reasons to feel confident. We remember that 85% of our
borrowers are paying with clockwork precision. Only 15% are having difficulties -- and we know that external factors caused those difficulties, and we will solve the problems, just as we have many times before.

We have always carefully avoided the practices of the conventional banks to make sure we do not fall into the same logical loop that kept the poor out from financial institutions. Grameen had to create new systems to balance financial and human considerations. We consider credit as a human right. We built our system on the faith that the poor always pay back. Some times they take longer than the originally scheduled time period, sometimes natural disasters like flood, drought or political unrest, rules and procedures of the bank make it difficult or impossible to pay back, but given the opportunity, they pay back. Non-repayment is not a problem created by the borrowers, it is created by the factors external to them.

We can raise our repayment rate to 100% instantaneously by a simple decision to write off all our overdue loans. We have more money in our loan-loss reserve ($67 million) than the present overdue loans. But we chose not to go that way. We want to do it the harder way -- by improving the repayment situation and recovering the overdue amount. We do not want to abandon our borrowers/owners by disqualifying them to remain within the Grameen fold. We want them to change their life with Grameen, by solving their problems with Grameen. We don't want to push them away with their problems. We never think of walking away from them.

The industry standard in Bangladesh is set by the central bank of Bangladesh. We make more generous loan-loss provisioning than the central bank wants us to do. The Central bank of Bangladesh has the responsibility of audit and inspection over us. They check our books carefully. We never heard any complaint from them about our provisioning criteria.

Today, the Grameen Bank accepts no donor money for its operation. Grameen generates enough savings, mostly from its borrowers, to repay its loans and finance its future growth. Because of the steady flow of deposits, Grameen does not see any need to borrow in future. We have never failed to repay a domestic or international loan on time. We will continue to do so in the future.

I urge the Journal to revisit Grameen to give it a fair hearing and review whether its harsh conclusions were justified.

Muhammad
Managing Director Grameen Bank
Dhaka, Bangladesh