The Hybrid Theory - Merging MFI's with Banks
In Muhammad Yunus’s book, “Creating a World Without Poverty”, Yunus describes how finding financing for his first microfinance project in Bangladesh was extremely difficult. While he eventually found funding for his endeavor, what was most surprising was the amount of resistance that he received from bankers towards his proposal of helping the poor. It was only after being denied several times that he had to use his position as an instructor at a renowned university to obtain the loan. Muhammad Yunus’s first banking experience draws the immediate question, “Why wasn’t Mr. Yunus granted the loan?” The reason is simple.
The common conception of poverty throughout the world has reflected poorly on the largest world’s largest demographic, excluding them from any hope of achieving a comfortable lifestyle, while at the same time, shutting them off from any future opportunities to escape the grasp of poverty. Yunus eventually came to understand that with the negative connotation of poverty, also followed the understanding by the bank officer that with the title of “impoverished borrower” reinforced the universal laws that the money loaned would: 1) never be repaid back, 2) be used for insignificant purposes, and 3) allocated to an uneducated group unable to quantify their own needs and how best to utilize the finances towards satisfying lacking areas within their businesses.
Thus the Grameen Bank was created. Now loaning out more than 50 million dollars to borrowers around the world, Grameen’s main concentration focuses on lending in Bangladesh, while also looking abroad towards the America’s with their subdivision Grameen America. Ever since that fateful day, Yunus hasn’t had to worry about borrowing from banks since establishing Grameen, but with the support that Microfinancing has acquired over the course of several years now, why don’t banks open themselves up as both banks and MFI’s?
Especially under the new conditions of today’s economy, banks are facing even tougher decisions on when to loan, who to loan money too, and how much to loan. With such little trust between lenders and borrowers, it seems that the only solution for large banking corporations is to make sure-fire deals with borrowers, guaranteeing their repayment at whatever cost. But how does this benefit humanity? Through the use of this method, a large majority of borrowers are merely refused because of their income and reliability as borrowers. So what is the answer? Transform the Grameen Bank into an international power, located throughout banks across the world.
By simply examining the benefits that banks today could offer demonstrates the potential that the old-banking system still holds. Among these benefits are: 1) their locations have already been well-developed and are commonly known by most inner-city citizens, 2) these financial institutions already have enough money to make small loans out to borrowers at low interest rates within short time periods, and 3) extending the microfinance reach into urban cities will allow for the bottom 30%-50% to use these funds to help get them “up-to-speed” in terms of education, living standards or necessary supplies.
This demonstrates that the demand for inner-city life is extremely high, and that any effort made to balance out the number of labor jobs and intellectual jobs would only result in a mass negative response. Some spend their entire lives to move to more urban regions like LA in order to open up more opportunities. The greatest problem that these type of people initially face is the lack of money to finance their pursuits. So a new question is asked, “Why don’t banks open up Microfinance Sections within branches to provide opportunity to those without the ability to sustain themselves within a more competitive market?”
If Microfinance ideals were to move into the banking system, benefits from banks would include:
- Diversified Location; many banks, especially large corporations, have hundreds of locations throughout states, many times greater than anything any MFI’s have provided to date.
- Widespread Recognition: nearly all people know where and what banks are and the types of services that they provide to the public. Opening up a small division that would directly address the impoverished or lower class would draw many times more the amount of initial borrowers than that received by any other MFI.
- Publicity: as banking corporations, providing these types of loans would immediately hit the streets through advertisements on newspapers, radio, television and other social media, encompassing a larger audience at a quicker rate.
Allowing this movement from specialized institutions to everyday locations would, in turn, help the spread of stimulus currency throughout communities, ultimately helping the underprivileged and impoverished to expand their horizons.