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  Lending to the poor
  The birth of micro credit
  The philosophy of responsibility
  Grameen -- transforming lives
  Banking for Bangladeshís flood victims
  Yunus and the rural experiment
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Grameen: Transforming lives

NEW YORK -- CNN's Kim Kennedy interviewed David Bornstein, author of "The Price of a Dream: The Story of the Grameen Bank"

Q: Could you briefly sum up your view of the Grameen Bank?

A: I think the Grameen Bank is incredibly innovative in the way it approaches development assistance. It thinks like a business, it innovates like a business, but its goal is not profit, its goal is social change and poverty alleviation.

Q: Has it been effective?

A: Yes, it has been hugely effective. It has helped millions of people move from one level of poverty to a far less oppressive level of poverty, which means eating one or two meals a day to eating three meals a day. It means having a tin roof over their heads, over the kids' heads so the house is not wet all the time. It means being able to go to school and have access to medicine. It has transformed the lives of many people.

Q: One criticism of the bank is its high interest rate of 20%. What does this mean to people in Bangladesh?

A: Interest of 20 percent in micro credit terms is actually quite low. There are micro credit organisations in Bolivia and in other parts of the world that charge 50 percent interest rates.

David Bornstein
David Bornstein, author of "The price of a dream: The story of the Grameen Bank"  

Grameen Bank's interest rate is slightly above the commercial rate in Bangladesh. The most important point is to provide ongoing credit to the poorest people in the world. I interviewed a lot of villagers for my book and none of them complained about the interest rate.

The most important thing is to have access to credit. If villagers in Bangladesh do not have access to Grameen Bank's credit, they have to revert to money lenders who sometimes charge 20 percent interest a month, which puts them in debt very quickly and they have to mortgage their land.

Q: Given the context of other places where money is available, do you think it is fair?

A: If the Grameen Bank could reduce its interest rate, it would. I have spoken to (Dr. Muhammad) Yunus about this. He would love to be able to reduce the interest rate. He doesn't think poor people in Bangladesh should pay a penny more for credit than rich people.

The bottom line is, the Grameen Bank is an organisation that has to remain operational which means hand-delivering loans to 2.4 million villagers in 40,000 villages. There are huge administrative costs and charging 4 percent above the commercial rate is the cost of providing ongoing credit to villagers in Bangladesh.

Q: Were there any other criticisms you came across while putting the book together?

A: The Grameen Bank is an institution that has challenged international development for 20 years.

People criticise the fact that Yunus says we must focus so much on self-employment and some say we really need large infrastructure projects in Bangladesh -- roads and electricity.

There are economists who basically take issue with his development model. They say you can have huge infrastructure projects and rebuild an economy very quickly. Yunus has said that model does not work for Bangladesh. He says you have to focus on the people that are already doing it, in a country where 90% of the people are already self-employed, working in agriculture, you have to address what they do right away because the need is so urgent.

Q: Do you have any criticism of the bank?

I think that the main criticism that has come up over the years is that its approach is essentially palliative. People have said that it throws crumbs to the poor, keeping people satisfied at a measly level, but not creating systemic changes.

That's the main criticism and it mostly comes from economists, but it also come from people on the left in Bangladesh who are waiting for the revolution to happen. It does not fit in the time frame of people who want to see major social change within five years. It doesn't fit into political cycles, it fits into the long-term horizon of the entrepreneur who is building an institution that will last and they want to see last 20, 30, 40 years.

Q: The default rate is pretty low?

A: Yes, the default rate varies. In some places it is zero. In some places its 4, 5, 6, 7 percent. It depends on conditions in Bangladesh, which has had terrible flooding in the last couple of years. Floods have wiped out a lot of people's land, livestock and houses. Grameen Bank is working in a very, very difficult context: natural disasters, health crises, a government that is not always as helpful as it should be.

Given all that, keeping a repayment level as high as it does, I think is a tremendous achievement.

Q: So their administration costs are high?

A: They meet their borrowers every week. They have people who go to 40,000 villages, basically walking in monsoons, on muddy paths, over bamboo bridges. That is how they do their business. Most banks in North America don't want to lend less than $50,000 because their administrative costs are so high for each loan. The Grameen Bank is lending $100, $50.

To be able to do that, they have to be able to pay all these people walking around the country. It is not only an expensive thing to do, it is an enormous accomplishment to be able to keep that system working day in and day out.


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