Banking on People: Grameen in Glasgow
Microfinance in Scotland is nothing particularly new. In fact, lending small amounts of money to individuals who are otherwise excluded by conventional banking systems has been around for a long time. From the pre-war household support groups of the Menodges, to the credit unions we see today, Scotland has a rich history of community supported lending. Founded in Bangladesh by Professor Muhammad Yunus, Grameen Bank has produced a hugely successful microcredit system with near 98% return rates. It has been tried and tested across the world and is operating in countries as diverse as China and the United States. With the planned commencement of the Grameen project in Glasgow, the question now is: will it work in Scotland? After spending six weeks working with Grameen Bank in Bangladesh and studying their international operations extensively, I have hope for their success in Scotland, but also some reservations.
Broadly speaking, microcredit is lending small amounts of money to entrepreneurial individuals. One of the most captivating things about this system is that a relatively minute amount of money, say $20-100, can actually change lives in the developing world. However, this inspiring effect might be lost in Scotland as the average loan amount is going to have to be much higher – in America the average Grameen loan is around $1500 – and the benefit, arguably, comparatively less. In Bangladesh, borrowers are escaping the hold of usurers and moneylenders by receiving initial capital to purchase the most basic of tools and inputs. This can allow them to move beyond day-to-day subsistence living and escape what Galbraith coined the poverty equilibrium. In Scotland people will not be moving out of destitute poverty, struggling for the very necessities of live, but more decreasing a relative poverty based on the society and consumption standards in which we live. This is still a deserving and worthwhile cause as relative poverty is a very real problem. However, as some industry experts have expressed, “taken on a global scale, the funds necessary to finance Grameen Glasgow [£1m in cash with £5m in guarantee] could be used much more effectively if allocated in poorer parts of the world”. Arguably many more people could benefit to a much greater extent.
Apart from the associated costs of setting up in Glasgow, another potential hazard is that starting a business in Scotland is not simple and carries tough legal ramifications. As well as having to be appropriately registered, businesses must comply with strict regulations and meet an array of standards. Lenders won’t just have their business on the line, but everything they own. This is in stark contrast to what I observed in Bangladesh, where people would simply find a spot, open their cart and start punting. Anything that isn’t claimed or secured is traded.
This last point raises another extremely important contrast between business in Dhaka and in Glasgow. Right now in Bangladesh, one of the most densely populated countries in the world, demand far outstrips supply. The result of this is that every good finds a buyer. This was confirmed by the borrowers I spoke to, who often selling fruit or similar products, said they never had any trouble finding buyers and never had a surplus. Would things be so rosy for our Scottish micro-entrepreneurs? Probably not, especially with competition from chain-stores and discount wholesalers. In a mature economy like ours, markets are basically saturated.
However, take the Grameen experience in America, for example, and it is instantly obvious that what is sold in New York is completely different from what is sold in Bangladesh. Instead of borrowers being street vendors selling mangoes and rickshaw rides, in the American market it is door-to-door make-up and dog-grooming services. The lesson from this is that each country finds its own products fitted to its own markets; and that localised goods, such as hair-cuts, may work well as they can not be massed produced or out-priced by imports. I imagine the case will be the same in Scotland.
Perhaps of greater concern in Scotland though is our welfare system. The near instant loss of benefits when becoming self-employed is a huge disincentive. This has to a large extent been circumvented in America as almost all the borrowers are immigrants and therefore not eligible for benefits in the first place. I put this consideration to Professor Yunus and he accepted that the loss of benefits would be a complication. However this issue, albeit within a wider remit, has gained governmental recognition within the UK with the appointment of four groups nation-wide tasked specifically to report on welfare benefits and access to work. The exact focus and outcome of these reports is uncertain. However, Pamela Gillies, Principal of Glasgow Caledonian University and instrumental to the Grameen Project in Scotland, is chairing one of these groups and has confirmed that one of the aspects they will be looking at is “the possibility of phasing the removal of welfare benefits for those who take loans in an attempt to set up a social business”. This is of pivotal relevance to the Grameen situation and could provide a much needed transition period for the borrowers.
It is also questionable whether the Grameen model is the best suited for Scotland. Pioneered in the developing world in rural villages, certain key factors seem rather misplaced or inappropriate within our communities. Consider this last word ‘communities’ and we have the essential feature of the Grameen system. Being based around the community and the social pressure exerted by close-knit ties is necessary to allow Grameen to lend with no legally binding enforcement – banking on trust, not obligation. Through group lending, a self-selecting process means borrowers effectively vet each other, and repayments are to an extent tied. This exerts a great community pressure that enforces pride in repayment and shame in default; what Grameen terms the “social contract”. Whether or not community ties are strong enough in Scotland to warrant such repayment is open to debate, and perhaps open to abuse. Some say we live in a ‘broken society’, where we know less about our neighbour than the most recent celebrity. This is perhaps true, but I think a rather crude and insidious observation. To let the malevolence of the few tarnish the benevolence of others is both illogical and unhelpful. Through speaking to the borrowers in Bangladesh it is clear that one of the greatest perceived benefits of the Grameen system is the community culture it produces. Microfinance may even see a more vibrant community presence emerging on Scottish estates.
A second cultural difference which may cause rupture to the system is Grameen’s predisposition to woman borrowers. Currently, and in all their replications worldwide, Grameen lends nearly exclusively to women, who make up 97% of borrowers. Though this may be appropriate, effective and actually very progressive for women’s rights in certain parts of the world, where ideas of Purdah have amounted to sometimes severe discrimination, in Scotland to draw distinction on the ground of gender alone could be controversial. The idea that women care more about their families than men, the reason given for this policy, seems unfair and unjust. I put this question to Professor Yunus, and he said that “given their experience so far we plan to continue lending to women as it was working extremely well”. Not doubting the logic behind this decision, it nonetheless still seems inequitable; if it was to result in a single father being refused a loan where a single mother would have been successful, it could be unacceptable and potentially illegal.
Bringing Grameen to Glasgow could be costly and legally complex, and our markets and communities may not fit the previous models of Grameen success. However, given Grameen’s proven ability to adapt to different cultures, these challenges are unlikely to prove insurmountable. Pairing the institution’s resourcefulness with the long standing tradition of Scottish economic innovation could be a winning combination – this is after all a society renowned for its thrifty entrepreneurship.