GIVING  CREDIT  WHERE  CREDIT  IS  DUE

MANILA, JANUARY 22, 2007
(STAR) IT’S A WONDERFUL LIFE By Rod Nepomuceno - There are certain things in life that we initially think to be true but later discover to be absolutely false. For example, man initially thought that the world was flat. But eventually, we all learned that the world was round. In the 1600s, everyone thought that the Earth was the center of the universe. But then, a guy named Copernicus – and later on, Galileo – boldly declared that the sun (not the earth) is the center of everything. And they were right.

One other "fact of life" that I always thought to be true but is actually untrue is that all moneylenders are bad people. I guess it’s a perception thing. A lot of people, including myself, have, at one time or another, entertained the notion that people who lend money for profit are abusive, merciless, tormenting manipulators who take advantage of the poor. Pretty much like lawyers, except that lawyers use more expensive-sounding jargon and charge 10 times higher.

Kidding aside, I have to admit that until recently, I didn’t really have a high regard for moneylenders. I guess it’s the whole "5-6," "loan-shark" image that some abusive people have given the business. Indeed, there are lenders out there who will take advantage of the dire straits of other people – charging them outrageously high interest rates and mercilessly taking over their property the moment the loan is past due.

But now comes Muhammad Yunus, the latest recipient of the Nobel Peace Prize. When I first heard about him winning the award, I was intrigued. Yunus is certainly not your typical Nobel Peace Prize winner. The award usually goes to civil rights activists, scientists, and political leaders. Yunus’s claim to fame is his Grameen Bank, a bank that provides the poorest of the poor access to credit. Yunus’s theory hinges on two things that most people consider hard to believe: First, that the majority of poor people are poor not because they are unskilled or lazy but because they are deprived of the fundamental right to access funds that they could use to parlay their talents; and second, poor people can be trusted to pay back their loans.

Obviously, Yunus’s theories have been proven correct. Grameen Bank has roughly 6.5 million borrowers, with US $5.7 billion in loans. Amazing numbers for a company that started out in 1983 with an initial $27 loan to 42 stool-makers in a tiny village in war-torn Bangladesh. And here’s the most amazing statistic of all: a 99-percent repayment rate. Basically, almost all people who borrow from Grameen eventually pay it back. Wow. Micro-Lending: Key To Alleviating Poverty According to Yunus’s book Banker to the Poor, micro-lending, or lending to the poor, is the answer to social development, and the key factor in lifting people out of poverty. Yunus said that just like most people, he initially thought that the best way to improve the plight of the poor was to provide businesses and enterprises with the right environment and incentives so that these businesses could, in turn, provide employment to the needy. That’s what he learned from renowned economists, and that’s what he espoused as an Economics professor. But Yunus said that this thinking actually tends to perpetuate poverty. To him, the better solution is to believe that the poor have their own marketable skills – and that if they are given access to capital and good financial training, they can lift themselves out of their terrible state.

Recently, I got a chance to talk to Jun and Patricia "Chang" Tolosa, a husband-and-wife team who are spearheading a company called Peso Central based in Bacolod. Peso Central is in the business of providing small loans, usually to small businesses or company employees who otherwise may not be qualified to secure loans from banks. During a casual get-together, we talked about Yunus and Grameen Bank, and how his winning the Nobel Peace Prize has been a big boost to their industry.

"Actually, Grameen Bank’s business model is slightly different from ours," clarified Jun. "Grameen has a unique system. With Grameen, you can only borrow if you’re part of a group of five. Whenever there’s anyone in the group who wants to borrow, the other four have to go, too, in effect, vouching for the one who is borrowing. Also, they do door-to-door marketing, and they cater mainly to women. But the common denominator we share with Grameen is that we both cater to borrowers who otherwise could never qualify for a bank loan. I believe that that’s the key in the success of Grameen – and it’s the key in our own success. There is a huge sector in society that is basically untapped in terms of credit. Most big banks refer to people that we cater to as ‘the underground economy.’ These are the small businessmen, the traders, the buy-and-sell guys. These people are not formally registered – at least not yet – so they don’t have the necessary documentation that banks require for loans. By requiring so much documentation, the banks have effectively categorized these people as ‘credit unworthy.’ But the fact is, these people are credit worthy. Our repayment rate is more than 90 percent. People who are financially challenged don’t necessarily lack dignity. Most of the people we lend to value their commitment. And when they pay, their sense of self-worth is uplifted."

"We’d like to think that we’re doing our share in contributing to national and social development," said Chang Tolosa. "Having worked in a bank before, I realized just how important credit is to a lot of people. We’ve seen our borrowers’ businesses grow because of the credit we provide them. We’ve seen people in need of emergency funds – like employees who need to pay their children’s tuition fees – get through their problems because of the ready cash they can secure from us. It’s very fulfilling to know that we can help."

Of course, that’s not saying that micro-lending is all charity and good work. At the end of the day, all lending companies – even Grameen – have to earn. They have to be profitable in order to continue providing more loans to more people in need. But what’s important to remember from this piece is that micro-lending is not an evil thing. Under the right terms, it is a noble business. And it certainly is not an easy business. We can’t simply lump together all moneylenders in the "5-6" and "loan shark" category. There are good moneylenders out there – like Dungganon (a Grameen-based project of Negros Women’s for Tomorrow Foundation) and Peso Central. These are the companies that are jump-starting the "untapped" economy.


Chief News Editor: Sol Jose Vanzi

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