Ithaca Blog

Wednesday, December 13, 2006

Micro-Loans and Peace, and Ithaca Efforts

The 2006 Nobel Prize for Peace was notable for going not to a negotiator of treaties, but of loans to the poor.

Thirty years ago, Muhammad Yunus of Bangladesh, moved by the hunger and poverty in his famine-struck country, began making small, unsecured loans to poor neighbors.

His immediate motivation was meeting a local woman who borrowed less than a dollar from a money-lender to help run a business. The money-lender required exclusive rights to buy all she produced at a price he chose. Yunus said, "This, to me, was a way of recruiting slave labor."

So, Yunus acted. He gathered the names of other "victims", as he called them, of this money-lender. He found 42 of them, who had borrowed a total of $27. He offered them $27 from his own pocket - in his words, "to get these victims out of the clutches of those money-lenders.

"The excitement that was generated among the people by this small action got me further involved in it."

Yunus went to a local bank to discuss starting a program. "But that did not work," he says. "The bank said that the poor were not creditworthy." So Yunus offered to guarantee the loans. "I was stunned by the result," he says. "The poor paid backs their loans, on time, every time."

Despite the success of the effort, Yunus could not persuade the bank to adopt the program. It was considered insufficiently profitable. Yunus says, "That was when I decided to create a separate bank for the poor, and in 1983, I finally succeeded in doing that. I named it Grameen Bank, or Village Bank."

Grameen Bank made loans to people without collateral. Recipients were required only to supply the names of 5 people who would vouch for them. The idea was that a public declaration by the recipient to repay the loan would suffice.

Today, Grameen Bank has made over $6 billion in loans, to 7 million borrowers, who then become co-owners of the bank. The repayment rate is 99%.

Yunus and the Grameen Bank were awarded the prize for peace, in the words of the Nobel committee, because "lasting peace cannot be achieved unless large population groups find ways to break out of poverty. Micro-credit is one such means." Yunus notes, "Half the world population lives on two dollars a day. Over one billion people live on less than a dollar a day. This is no formula for peace.

"By giving us this prize, the Norwegian Nobel Committee has given important support to the proposition that peace is inextricably linked to poverty. Poverty is a threat to peace."

Ithaca has two organizations that follow the example of the Grameen Bank - less dramatically, certainly, but diligently.

The Alternatives Federal Credit Union mission statement says it is "dedicated to economic justice." Alternatives has many programs and services for those traditionally underserved by banks.

The Individual Development Account, for example, matches savings for education, a house, or business, 2 to 1. When an individual saves $1000, the Credit Union will match the savings with $2000.

Ithaca Hours is a local currency program that addresses the problem of insufficient money in Ithaca by creating new money to be spent in Ithaca.

Ithaca Hours are notes which are used exactly like cash. Members join the organization by paying $10, or one Ithaca Hour, each year. Members receive a listing in the Hours Directory that advertises a service or goods that will be traded either wholly or partially for Hours. Members also receive, for their annual dues, two Hours, worth $20.

Hours thus stimulate local business by creating new money - an actual new stream of wealth - that stays in Ithaca.

At very low cost, the Directory provides advertising for people who moonlight skills or services, as well as for small businesses that cannot afford Yellow Pages or other advertising.

Hours give an advantage to local businesses competing with large national chain stores from out of town that do not accept the local money.

And, in a close mimicking of the Grameen Bank, Hours makes loans of the currency interest-free to members, without collateral or an extensive application process.

For more information about these organizations, see their websites. (Ithaca Hours is Beware of a site called that is not connected with Ithaca Hours.)

Stephen Burke
for Ithaca Blog

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