Elephantstrunk

Muhammad Yunus won the Nobel Peace prize for setting up Grameen Bank which lends small amounts of money to very poor people without asking for collateral. That seems to have been helpful and it is certainly very appealing in the way that , like Hernando de Soto and C. K. Prahalad are in explicitly treating poor people as people (when they are not treating people as bonsai trees). Where demands for it are not being used as an excuse for not doing anything, self-reliance is something I’m all for promoting.

A hundred years earlier a methodist philanthropist called Joshua Waddilove started a similar enterprise with a similar purpose. Today it is still going and has a stockmarket value of £1.6bn. Some of its practices are similar, reliance on women, home visits, understanding of lifestyle issues. It has even been discussed in parliament. One difference is that it’s press is as negative as Grameen’s is positive. I hold no brief for Provident Financial and would hate to be paying back loans at an APR of over 100% but they aren’t more profitable than ordinary banks. If they are charging too much it isn’t by much. The differences I can see between Waddilove and Yunus and between Grameen are fewer and smaller than the difference in press suggests. Others have addressed some of these issues more thoroughly and less tendentiously.
This sounds like a snide and cowardly hatchet job but it’s not meant to be. I believe what Yunus has done to be helpful and that Provident could charge its customers less. What does account for the difference in approval?

• The UK is much richer than Bangladesh so there is less excuse for weaknesses in infrastructure that allows such businesses to exist.
• Grameen is owned by a charity and funded by many donations and Provident should be bought or superseded by one too.
• Credit Unions should be formed to make Provident redundant.
• Credit isn’t in short supply.
• Capital shortage in rich countries is a different kind of problem with different kinds of solutions.

One source of answers outght to be this report on limited success of a small lending operation launched by experienced people in the UK. It recommends:

1. A new approach to poverty alleviation which recognises the importance of building savings and assets, the need for protection from predatory lending practices and the objective of designing a tax and benefits system which incentivises people out of dependency more than compensates people in it.
2. A new approach to helping low income, self-employed people out of the informal economy, based on cutting taxes, cutting red tape, increasing enforcement and increasing specialised support.
3. A recognition of the social and economic value provided by CDFIs, through the creation of a long term, stable mechanism for supporting the sector. This should be based on an understanding of the cost-effectiveness of the value CDFIs provide in relation to many different areas of current government expenditure, including enterprise creation, deprived area regeneration, employment, finance, social services, health and law and order.
4. An expansion of the current tax incentives for investors in CDFIs, in order to incentivise a whole raft of intermediary forms of wholesale finance, along a spectrum between fully philanthropic and fully commercial.
5. A much more market-driven approach by government in its support of this sector, in terms of:

• Reconfiguring its internal organisation structure to effectively address cross-cutting issues that otherwise all through the cracks between different government departments.
• Making much more use of the knowledge base and delivery capacity of local community organisations, in its provision of public services; i.e. significantly increasing the number and scope of partnerships between the public and voluntary sectors.
• Setting output targets and programme rules that are far more closely related to the measures that will actually achieve its objectives, so that community organisations can be funded to undertake the services that will have the greatest impact.

All but the first seem to want to change the problem to fit the solution and the first includes the infamous call to cut red tape. Can’t say I think they’ve got it