A New Kind of Lending

There's been lots of interesting stuff in the newspaper lately. Just this week I found out that there are now specialized financial institutions and lending agencies that are lending to specific ethnic groups, and using the "rules" from the originating culture. A fascinating idea whose time may just have come, in our increasingly global world.

The article in question was dealing with specialized lending and financial institutions which are based on Muslim religious laws. The Muslim religion actually prohibits one Muslim charging another interest. As a result, the deposits which clients make in these financial organizations do not accrue interest -- but presumably, loans also do not accrue interest. (Seems like a VERY good deal to me!)

The organizations structured on sharia law actually have to make money in ways other than charging interest! Seems to me that this would breed a whole new kind of organization. It will be interesting to follow how these new players in the financial services sector do.

Another interesting article I read recently was about a new bank operating in Africa. It's mandate is solely to provide loans to the poorest of poor. It's the Grameen Bank of Bangladesh. Seems a prescription for failure, right? After all, they are lending to the poorest of the poor, in a very poor country. But if you thought this bank was failing, you'd be wrong. This bank is not only making money, it's also making a big difference in the lives of the working poor, who are getting the dignity and respect of any other business person when they deal with this bank. The clients are treated as if they will repay. And a surprising percentage (maybe even better than our banks) do repay.

The man who started this bank hold honorary doctorates from 22 universities in 11 countries. He's no dummy. His argument is that providing "microcredit" to small entrepreneurs creates a vibrant economy. He also argues that treating the poor as if they are incapable of doing things perpetuates poverty. The Gameen Bank lends money on the assumption that all people have the same capability and potential, and it simply has to be recognized and supported.

Wouldn't you like to be treated with respect by your bank? Wouldn't it be nice if they assumed you would pay (rather than making your life miserable if you didn't)? Now that's a novel concept.

Michael

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