thos piece reminds me of an extreme dereliction of duty to be the peopels champion of bbc from yesteryear
- it was nowhere to be found in giving full share of voice to questioning the proposal in the 1990s to turn most uk building
societies into banks- if we hadnt done that we would not have found te 2000s ending : the UK economy has contracted
by up to 60% when measured in terms of both the losses of banks and the re-rating of the pound as biggest currency loser
By Paul Gosling
November 19 2010
The relationship between cause and effect
is usually a fascinating one — and often also a cruel one. Severe distress and economic hardship being felt in the villages
of Andhra Pradesh in Southern India is a case in point.
Many small businesses are on the point of ruin because their
credit lines are drying up. This might seem surprising, given the fast rate of industrial growth in India over recent years
— much of it in Andhra Pradesh. And one of the reasons for that growth has been the availability of microcredit, the
provision of which has increased at a rate of about 70 per cent a year in recent times.
Now many of the microcredit
lenders are using rough tactics to call in their loans. There are two primary reasons for this. One is that those institutions
are finding it harder to borrow money on the international markets to re-lend to small borrowers. But the other factor is
one that this column has warned about in the past — the takeover by profit-orientated businesses (with investors demanding
high returns) of a market sector that was pioneered by mutuals.
The Grameen Bank founded by Muhammad Yunus was, and
still is, a true mutual. It transformed much of rural life in Bangladesh, improving vastly the quality of life for many thousands
of women, in particular. But its success in starting small and becoming vast led to many traditional banks and even a few
Del Boy entrepreneurs to see a new market opportunity.
Around the world, some of the largest banks have loaned to microcredit
institutions. Some of those institutions are legitimate, others are little more than loan sharks masquerading as friends of
the small trader. What we are now seeing in Andhra Pradesh is the long-standing relationship between lenders and poor borrowers
falling apart — it’s a case of pay up or else. Extortionate penalty interest rates are being accompanied by physical
extortion.
The situation in Andhra Pradesh has reached a crisis, with thousands of small rural businesses on the point
of collapse. Lenders themselves are faced by a worsening problem as rumours among borrowers are leading to increasing rates
of defaults as borrowers begin to expect the state government to take over the microfinance institutions to prevent their
closure.
Large banks operating in India fear they could lose billions of dollars if the sector goes in to meltdown.
In Andhra Pradesh alone — and the problem has spread much more widely than one state — there are $2.7 billion
(£1.6bn) in outstanding microloans, affecting 6.7 million borrowers.
This crisis was predicted and warned against
by Muhammad Yunus, who suggested that too many big organisations were moving into the sector, motivated only by the potential
high returns and that it had become very vulnerable to credit loss arising from the global financial crisis. His warnings
have now come true. The related fear must now be that the many mutual microcredit institutions will be unfairly blamed for
a crisis not of their making.
Meanwhile, it has become clearer what is intended for another sector of mutuality that
is suffering from changes in the financial environment that are largely not of its own making. The proposal from Kent Reliance
Building Society and the private equity house JC Flowers is for the KRBS business to be transferred into a PLC, which is jointly
owned by KRBC and JC Flowers. That PLC vehicle could be used to buy-up other financial institutions — possibly starting
with Northern Rock and going on to takeover various building societies — and subsequently to float, with JC Flowers
selling its stake at that time.
This arrangement would be intended to produce a significant return for JC Flowers.
Possibly KRBS would also be quids in. One advantage of the structure is that it allows substantial additional equity investment
into the operations of KRBS, thus enabling it to meet the requirements of UK and global financial regulators.
It
is the obligation of those regulators — not least under the Basel III requirements now agreed — to increase capital
liquidity that has driven this review of financial structures. The capital liquidity requirements are very damaging to mutuals,
which can meet them by either building-up retained profits (which typically takes a long time), or else by demutualising.
KRBS
has gone for a different approach, using a hybrid structure that involves partial demutualisation. It is a model similar to
that adopted in France by Credit Agricole and Credit Mutuel, which are generally regarded as co-operative/mutual banks, despite
being partially owned by outside shareholders.
Whether KRBC’s moves amount to progress or defeat for the mutual
and co-operative sector is a matter of interpretation and personal viewpoint. It also depends on what the alternative is.
It is, by some way, better than KRBS being closed down for want of liquidity. If I were a member of KRBS, I’d want to
understand very clearly the financial position of KRBS before I voted on the proposal and I would consider whether other options
were available.
I’ve never been a fan of hybrid forms of mutuality. It feels like a means of managed decline.
Worse still, this particular hybrid vehicle could be a Trojan horse to swallow many other parts of the traditional mutual
sector. Please excuse me if I don’t join the celebrations.
Category: Worldwide Co-operation
a good question I dont know the answer to is what 5 webs to click to in order to see the most social business cases
grameen's own view is www.yunuscentre.org;
in an extremely messy log of yunus partherships I have http://futurecapitalism.ning.com/forum/topics/help-us-catalogue-first-50
the other 2 great banks of social business cases are brac and jamii bora - you wont quickly get a complete listing
of their 30 or so social businesses from www.brac.net www.jamiibora.org (to which lesley is an experienced guide )
within microcredits there are about 5 other social business inspired
aps - fonkoze in haiti ...
before 2005 most social business were designed locally (only after 2005 yunus
paris lunch did international partners join in replication)
france's offer of 4 global partners at one lunch
- HEC Danone, Credit Agricole, employment ministry of french gov - changed yunus focus on this and remains world leader
at global social business partnering and funds that invewst in locakl social busienss - the cases will be somewhere in www.danonecommunities.com
education, health, clean energy, infotech for the poor -these are 4 foci where there always have been lots of
organic social businesses even if neither yunus or the originators call temselves that - you will get a good energy sample
at http://www.ashdenawards.org ( I dont feel able to suggest first home page of the other 3 apps)
open clearing house collections of social
business sort of stopped when yunus appointed www.grameencl.com as his only authorised educator of sb cases; however 2011 will
re-open this issue as the value of yunus to the world
of exciting 2010s is a lot more than a few in wiesbaden can diffuse; my dads and my logic since 1984 as first journalists
of teh net strongly support the model where every city with youth future in mind has their own gateway
I believe
the portal approach of paris is number 1 way
glasgow has a unique shot at codifying the new economics being only
ckity let alone country with 2 yunus university partners, as well as adam smith's seat
new york with monica yunus
www.singforhope.org and nearby sam's 3 summit networks www.results.org www.microcreditsummit.org (these are the greatest peoples summit processes ever sustained and are arguably sb in their own right) is
absolutely ctritical the more so any freedom of yunus to be a nationkl strategist of Bangladesh out of dhaka gets political
royal leadership of sb partners is mediated out of madrid, and when norway has its head on: nobel leadership there
including one hopes the end of the economics nobel prize as that separation from peace has done endless harm
italy
has a shot of helping eu to sb update its 21st C if it has any future that is
other youth capitals need to decide:
do they hub a hybrid of the above or is there a missing colaboration way into sb knowledge as connecting exciting
net generation that they can innovate; london's job is to take back enough of the bbc not go be scared to celebrate sb as
its own model and value to world service is an SB! http://www.futureofbbc.com/
chris
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Dr Yunus Worldwide Favourite Leader
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