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Grameen Bank in the U.S.: Is it Sustainable?

On September 26, 2011, Grameen America opened its first branch in the Bronx. Its goal is clear: to provide economic leverage to the low-income families in New York City. Grameen’s microcredit model aims to do what it achieved effectively in Bangladesh – to provide micro loans to individuals and small businesses and to create economic solvency. In Bangladesh, it achieved something else – the empowerment of women. The Grameen Bank in the Bronx has the potential to achieve both — the program would provide a lifeline to individuals and small businesses and would empower the poor. But will it work to alleviate poverty in the U.S.?

I argue that Grameens’ microcredit program could become sustainable in the U.S. Its success in Europe, current economic conditions in the U.S. and abroad, and policy implications provide strong signals of its effectiveness in the U.S.

Microcredit Models in Developed Countries

The microcredit program has gained momentum in many developed countries.

According to a 2007 report by European Savings Bank Group (ESBG), an international banking association with assets more than 5000 billion Euros, microcredit provides a platform for economic leverage and social cohesion among the people who are “at risk of social exclusion” by supporting small businesses and offering employment.

The report examined microcredit banking models in Europe that are collaborating with traditional banks like Lloyds TSB. These models are operational in Austria, Bulgaria, Croatia, France, and Spain. ESBG actively encourages the “development of microcredit initiatives in Europe.” In Croatia, 157 programs lent more than three million Euros to small entrepreneurs in rural areas in 2006.

The microcredit program in Europe is young and rising. In 2005, European Microfinance Network (EMN) examined 110 microcredit programs and found that nearly 70% of them were created in 2000 or after. To be effective, the microcredit programs in Europe have collaborated with social service programs, NGOs, and traditional banks. No singular microcredit model holds a recipe for success. It must be integrated with other entities such as NGOs, banks, and government.

Economic and Social Conditions in the U.S.

The 2008-09 recessions in the U.S. profoundly affected the marginalized population. According to Census Bureau, 46.2 million people live in poverty. The poverty threshold in the U.S. is a yearly income of $22,314 per family. For an individual, the threshold is $11,139 per year. The rate of poverty in the U.S. is currently 14.3%, highest since the 1990s.

There are unintended consequences of the rising poverty level – the well-being of the children. According to American Psychological Association (APA), in 2008 the child poverty rate went up to 19.2% in the U.S., from 18% in 2007. There are dire consequences for this – lost productivity due to child care, higher school dropout rate among children, lack of access to healthcare, abuse, neglect, and other factors.

But amidst economic downturn, opportunities also prevail. During the recession, many people also have started their own business or bought franchise. According to USA Today, one out of every 10 job seekers gained employment through owning a business in 2009. This implies during hard times people take chances and use their innovative skills to survive. Microcredit requires people to thrive and prosper with limited resources – not a bad idea when times are hard.

Policy Implication

Grameen needs to be pragmatic about its capacity and scale of service. Reducing poverty and generating economic solvency on a national level would require government intervention and policy development. Grameen America, banks, social agencies, and regulatory bodies must build a coalition of system to enhance economic conditions of the poor.

Microcredit’s surge in Europe implies that it can also become a sustainable model in the U.S. with achievable policies. The potential for economic and social benefits of microcredit is huge. For example, an employed mother or a small business owner may no longer have to spend her income on childcare. Instead, she can afford to send her kid to school while she is working.

At a time when the U.S. unemployment and inflation are high and economic prosperity looks bleak, Grameen may not have the capacity to solve these problems alone. But it provides a framework for alleviating a global and national crisis like poverty. And that holds a telling future of Grameen in the U.S.