Ciaran’s Peculier [sic] Blog

This morning I head a programme on the BBC World Service about microfinance: the provision of small, unsecured loans for business and investment outside of the conventional commercial banking system.

Most of what I know about microfinance comes from my studies of the Grameen Bank in Bangladesh. This was established in 1972 by economics professor Muhammad Yunus – thereby proving that not all economics professors are heartless drunkards. Yunus found that in a village in Bangladesh many small craftspeople were sunk in poverty for, in spite of their hard work, lack of access to small amounts of capital mean that they were prey to loan sharks and usurious practices. Of course, the established commercial banks didn’t want to know such small fry. Indeed they would have been brushed away brusquely from their shining corporate headquarters. The actions of such institutions were dominated more by social prejudice than by commercial good sense. Muhammad Yunus found that by providing loans without demands for collateral, combined with education about budgeting, the recipients were able to reap the rewards of their labours. While they didn’t become rich, they were rescued from the abyss of poverty, and what’s more the repayment rate for these loans has continued to be in excess of 90 per cent.

The idea of microfinance isn’t new in the developed world, only here is has usually been called co-operative credit and is frequently

Yunus: a decent economist

 identified with the credit union movement. In Ireland this has done much good. People will remember the difficulties the Credit Union movement faced from former Minister for Finance. Charles McCreepy. It is sadly only to be expected that our government will always side with the big bankers. It’s the old golden rule: the man with the gold makes the rule.

The commercial banking system is only interested in making larger and larger mounts of money. It can then spend these on the absurdly high salaries of its higher executives, who seem to believe they have a God-given right to be rewarded for their incompetence and recklessness. They have to have oodles of cash to spend on their expensive prostitutes (5k a night is bargain-basement rates there), as well as enough money to bribe politicians and capture regulatory bodies. At this time the whole of the Irish government is a hostage of the bankers.

There are worrying clouds on the horizon for microfinance. For decades it was viewed with derision by commercial banking. However their eyes started to sparkle at the high repayment rates, which no one in the developed world could even dream of. And so big banks started to push funds in the direction of those poor, filthy, illiterate souls they had formerly seen fit only to spit on. Some in microfinance organisations worry that the apparent splurge of available funds may actually undo the spirit of thrift and frugal economy built up by them amongst their clients. If Ireland is an example, we have seen how the sudden availability of money to previously poor people often leads to waste and the squandering of resources on useless baubles,