Professional Documents
Culture Documents
Photograph 1: From its humble branch offices in Bangladeshi towns and villages, the Grameen Bank is orchestrating a revolution in the
lives of the poor rural women, farmers and artisans who form its clientele. In direct contrast to the prevailing economic wisdom, it loans
only to borrowers who have no collateral, most of its borrowers are women, and it loans only to members of groups, thus encouraging
community development. (Source: Bornstein, 1998)
DOCUMENT INFORMATION
Student’s Name: Patricia Morrow
Student Number: 110178-848
Course: Postgraduate Diploma in Environmental Management -
Cleaner Production Technology
Subject: Theoretical Foundations of Sustainable Development
Lecturer: Professor Tor Hundloe
Date: 19 February, 1999
Figure 1: Traditional economic investments have been directed at the exploitation of natural resources rather than sustainable use .
ABSTRACT
In this paper, a number of different financial systems which aim to promote
sustainable development are discussed. These financial systems present an
alternative to the dominant economic paradigm by investing in increasing social and
environmental capital, rather than annihilation of natural resources and exploitation
of people for a quick profit. Alternative financial systems seek to promote
development in harmony with ecosystems, and they encourage personal and
community development, and co-operative relationships. Some, such as the
Grameen Bank’s microcredit schemes, seek to address the issue of
intragenerational equity by providing funds for the disadvantaged.
Are the alternative financial systems effective in achieving their goals? What have
been their successes and failures, to date? This paper describes some of the
alternative financial systems which have emerged in recent decades, and discusses
whether they are making an impact in creating a new, sustainable economy. Some
recommendations for further increasing effectiveness are made.
TABLE OF CONTENTS
Abstract
Page
1.0 Introduction 1
6.0 Bibliography 53
6.1 Internet References 54
ACKNOWLEDGEMENTS
The assistance of Shan Ali, who provided information about the Grameen Bank, and Barbara
Ford, who provided information from Permaculture Journals, is gratefully acknowledged.
1.0 INTRODUCTION
Ecological economics sees the human economy as part of a larger entity, the
economy of nature. Its goal is sustainability of the combined
ecological/economic system. Our current economic systems do not inherently
guarantee the sustainability of the natural environment which is our life
support system. Costanza, Daly and Bartholomew (1991) claim that to
achieve sustainability we must incorporate goods and services provided by
ecosystems into our national accounting. They also discuss the protection of
critical levels of natural capital, rather than conversion into manmade capital.
This approach assumes that if the environment was properly valued in
economic terms, and the use of natural capital and production of wastes were
charged or taxed accordingly, then sustainable development would be
achieved.
So what’s wrong with our current economic systems anyway? Why are they in
need of improvement?
• During 1998, the S&P 500 (a group of 500 large companies) had returned
an average of 29% per year to their investors for the fourth year in a row.
Experts say that the economy is booming, that this is a period of sustained
economic growth without inflation, and that the unemployment rate has
come down dramatically. However, in spite of this, the number of
Americans living in poverty is where it was in 1990. (Clark, 1998)
• Approximately 1 billion of the world’s people live on less than $1 per day, in
Africa, Asia and Latin America.(Korten, 1996)
• The median family income has only risen by $1260 since 1973, an average
increase of only 0.14% per year. In the 1960’s it was common for each
family to have only one wage earner, not two or three, and working hours
were generally shorter than they are today. (Clark, 1998)
Evidence of the social stress resulting from the widening gap between the rich
and the poor, and the lack of economic security for the majority of the world’s
population includes:
The corporation contributes to society only to the extent that it maximises its own
efficiency and wealth. ... Modern apologists...believe the only social responsibility of
business is to use its resources efficiently and engage in activities that increase profits
while staying within the explicit rules of the law. Their article of faith is that open and
free markets without deception or fraud will best bring this about.
The strength of our economic system and its “Parito optimal” ethics is that it
affirms the freedom of the individual. However it fails to recognise the fact that
individuals operating within the economic system are unequal in terms of their
political and economic power. An unemployed single mother does not have
the same power to control her destiny as the managing director of a large
corporation. Current economic systems fail to address this issue.
Our dependency on our current economic system is also cause for concern.
What will happen to us if the stock market crashes, like the previous Wall
street crash, only worse this time? On 1 January 2000, will all the
computerised money in the banks suddenly evaporate because of the Y2K
bug? When the Asian currency crisis suddenly broke out without warning,
overnight thousands of citizens were thrown into destitution, although
throughout the preceding months and for months afterwards their factories
produced exactly the same outputs, the landowners owned exactly the same
land, etc. The real economy of land, labour and goods did not change, it was
an aberration of the system itself that caused the poverty. The lack of
robustness of our system is cause for concern for all of us.
While in the early days of our capitalist economy central banks and
governments were able to exert some measure of control of the system,
Korten (1996) notes that speculative activity (eg. hedge funds) may now be
more responsible for foreign exchange and interest-rate movements than the
influence of central banks. The failure of a large institution heavily invested in
derivatives could reverberate throughout the entire international financial
system, causing serious problems.
Fiscal (moneybased) societies give a false impression of security, which quickly falls
apart every 40 or so years when inflation - which is itself due to greed - makes
currency valueless. The final “inflation” is caused by the misuse of money, and is now
upon us. It is seen in the collapse of the environmental system. No amount of gold or
diamonds can avert, reduce, or soften the blows that nature is raining on us, and in
the final accounting, a cabbage can be worth a king’s castle (or more) if it saves your
life. For the last 40 years or so, money has been made by destruction of real wealth
(soils and forests) and the debts are now being called in by nature herself.
In a healthy economy, most investment is productive and adds to the net well-
being of society. However, our current global economy is not healthy, and it
tends to encourage what Korten (1996) describes as extractive investors.
These investors acquire assets, such as timber, land or a corporation and
harvest the land unsustainably, bleed the soil dry, or strip the corporation of
its assets and close it down, to extract value from it. While this returns a huge
profit to the individual, society as a whole is impoverished. Korten also
highlights the fact that when an investment simply creates money or buying
power, such as through the inflation of land or stock values, without creating
anything of value, this is another form of extractive investment. The investor
has created nothing, however their share of society’s buying power is
increased.
With so many problems caused by our economic system, is there any way we
can hope to achieve a sustainable economy and a sustainable society?
Around the world a number of radical alternatives are being implemented,
with a view to reinventing our economic system to cope with the social and
environmental challenges facing us as we look towards the new millenium.
Given the problems with our current economic systems, what are the
alternatives? Do we need to do away with capitalism or are there some other
solutions?
Credit unions provide a viable alternative for many of the poorer members of
our society, whose financial needs are regarded as “uneconomic” (and
therefore unworthy of consideration) by the commercial banks. Though their
value is often unrecognised, they are a powerful force for sustainable
development, and the promotion of intragenerational equity. Related to the
credit unions are microcredit schemes, with the Grameen Bank providing a
glowing example of just how easy it would be to eradicate or at least reduce
poverty, if only we actually wanted to.
The field of ethical investment is wide as it depends on the moral views of the
individual. The Greenpeace member who invests in the production of fuel
alcohol, as a substitute for non-renewable fossil fuels, is as much an ethical
investor as the Muslim who deliberately boycotts investments in alcohol
production.
Industries and practices avoided by ethical investors include the arms trade,
uranium mining, tobacco production, animal exploitation, oppressive
dictatorships, clearfelling of tropical rainforests, ozone-depleting industries
and even pornography and the media. Ethical investors lend their support to
energy conservation projects, fair trading schemes for third world artisans,
employment creation for disabled people, recycling, education, water
conservation projects, natural products, ecotourism, the construction of
schools and hospitals, solar energy, permaculture and housing loans. While
some companies boycott certain sectors of the economy entirely (eg. mining)
others invest in the most environmentally or socially responsible company
within each sector.
The ethical investment industry relies heavily on the work of researchers such
as the UK organisation EIRIS - Ethical Investment Research Service. These
organisations carry out detailed investigations of prospective “ethical”
companies. They scrutinise every aspect of the companies from their
management and accounting practices to their political ties to their energy
and water consumption to worker health and safety, not forgetting the
products and services themselves. Researchers such as EIRIS compile and
analyse as much data as possible, in as objective a manner as possible.
In Australia, fixed interest ethical investments can be made with the Macauley
Community Local Investment Fund, or the Community Aid Abroad Ethical
this fund is directed towards Community Aid Abroad’s development work. The
funds may be invested in government, semi-government and securities
guaranteed by a government; bank securities and debentures, promissory
notes and deposits with authorised dealers in the short term money market.
Because of its possible involvement with the short term money market, this
fund may not appeal to all of Community Aid Abroad’s supporters. Investors
can elect to earn 0%, 2.5%, or 5% interest, or the current top variable rate.
Figure 2: The criteria used by companies who claim to be ethical must be carefully examined. (Source: Sparkes, 1995)
3.2 SHAREHOLDER ACTION
Related to ethical investment, but with a shift in focus, is the idea of shareholder
action. Rather than investing only in companies which are ethical, the investor seeks
to influence companies which are unethical by buying shares in them and attending
board meetings or annual general meetings at which policies are set. When a group
of investors is involved, rather than a lone activist, the potential for results is
increased.
Whereas withdrawing invested funds from a company and boycotting that company
is an action which can only be undertaken once, shareholder activists seek to have
an ongoing positive influence on a company.
symbol of their opposition to BHP’s operations at the Ok Tedi River site. Alex Maun,
a landowner and villager from Ok Tedi, was able to gain entry to the shareholders’
meeting by attending as a proxy for an absent member of Community Aid Abroad.
Figure 3: Alex Maun of Ok Tedi presents BHP chairman Mr John Prescott with a dead fish, symbolising shareholders’ concern about
the 58 million tonnes of mine tailings dumped each year in the Ok Tedi river. Maun gained entry to the meeting as a proxy for a
shareholder who was a member of Community Aid Abroad, an agency which seeks to promote sustainable development. (Source:
Hobbs, 1996)
In the foyer of the World Trade Centre, Maun handed out leaflets explaining
the plight of the villagers. He asked BHP why they were denying the Ok Tedi
villagers compensation for destroying their natural environment, which they
depend upon for their livelihoods. In Australia it would be unacceptable to
dump 58 million tonnes of tailings in a river in which people fish.
The shareholder activists were successful in gaining media publicity for their
cause, with Alex Maun and his dead fish appearing in several television news
broadcasts. This type of action is designed to embarass companies who rely
on good publicity to sell their products.
Michael Linton, a Canadian, is the founder of the original LETS system, which
commenced in 1983. (Lang, 1994) Since those days the idea of LETS has
appealed to more and more people with new systems forming in the UK at the
rate of one per week.
The way the system works is this: interested members decide on a name for
their unit of currency and offer goods and services to each other by publishing
them in a directory. To trade, the buyer contacts the seller and they negotiate
a price. The appropriate number of currency units is deducted from the
buyer’s computer account and recorded in the seller’s account. This is
equivalent to the buyer making a commitment that he or she will provide a
service to some other LETS member at some later date, or will sell some item
of value.
Whereas in the national economy money is used for all sorts of purposes, the
LETS currency is simply a record of work done: of the time taken to do a job
and the knowledge, skill and experience needed to do it successfully. In the
national and global economies money can be won or lost on the stock
markets, acquired by interest on loans or pocketed by speculators trading one
currency against another, without any work being done at all. In the LETS
system, these types of activities do not exist, and loaning LETS currency for
interest is not permitted (Lang, 1994). The value of money in the global
economy fluctuates wildly as it is affected by all of the other uses money is
put to, apart from its primary function as a medium of exchange. In the LETS
system, there is no interest to cause inflation, no speculation etc. so the value
of the LETS currency remains relatively stable from one day to the next.
countries, somehow there is not enough money in their local areas for people
to fulfil their basic needs.
The LETSystem was partly designed to address the issue of wealth tending to
accumulate in cities, the coffers of large transnational corporations or banks
supporting large investors. The system tends to encourage trading primarily in
the local area, thus avoiding this flight of capital. Currency used in the
LETSystem carries no interest. Administration costs are charged, however
these are kept to a minimum and are usually not excessive. Currency is not
issued, it exists purely in electronic form. The units of trading may be “green
dollars” or “units” or “Strouds” or “Acorns” or....whatever the locals want to call
their currency.
When goods or services are provided, units are earned, and when they are
purchased, units are spent. The traders’ accounts are adjusted accordingly, at
a central admin office. The price for a transaction is agreed upon by the
individuals involved, and this personal negotiation helps to ensure fairness in
trading. Some items traded in LETS eg. car repairs, involve a component in
national currency (dollars, pounds, francs) for parts, with the labour
component only being in LETS.
LETS is not only a means of creating employment for the unemployed, and
encouraging trade in the local area, it is also a very valuable means for
people to get to know others in their local area, thus building up social capital.
Whereas in the national economy consumers buy and sell from anonymous
individuals or companies, in LETS, the provision of necessities and luxuries
provides a means of building a sense of community and getting to know one’s
neighbours.
• it is non-profit making
LETS does not seek to replace banks as it does not share their objective of
earning a profit from lending money and charging interest. It is more like a
club or a co-operative.
There is nothing in the official rules of the LETS system which prevents a
lawyer from charging more for an hour’s work than a babysitter. However,
some interesting phenomena have been observed:
credited for every hour that he or she works. The only financial cost incurred
is a nominal fee of $5 per year per family to cover the cost of printing and
distribution of the club’s newsletter.
Apart from LETS in Canada, Australia and the UK, computerised community
barter systems include banco del tempo in Italy and SEL in France (Boyle,
1998).
In New York State, a group of concerned citizens have decided to issue their
own currency and start their own economic system (Boyle, 1998). The Ithaca
alternative trading system is similar to a LETS system, but involves the use of
paper currency rather than computerised currency.
Ithaca‘s citizens find that their earnings and spending money are increasingly
leaving the area as these citizens become more dependent on distant big
business rather than local small traders. Large corporations such as Wal-Mart
tend to transfer funds to their headquarters, rather than spending them in the
local community where their stores are located. Local campaigners
successfully prevented the opening of a Wal-Mart store in Ithaca, but this was
not enough. They decided to print their own money, to be circulated locally,
building up the local economy.
Boyle (1998) notes that a dependent local economy is not just a social
problem, it is an environmental problem also, as a local area with too little
cash is unable to support the production of food and other goods locally.
When it is no longer economically viable to produce goods locally, it becomes
necessary to transport these goods over long distances, unnecessarily
consuming fossil fuels and producing greenhouse gases.
Funds circulating in the local area create employment for local people. By
creating their own currency which is only recognised and accepted in the local
area, the system’s instigator Paul Glover and his supporters have ensured
that funds stay circulating in the local area.
Figure 4: Ithaca’s distinctive banknotes are used to promote trading in the local area, creating employment and building up social
capital. (Source: Glover, 1996)
Ithaca money’s listing of 1300 traders functions like a Yellow Pages. Hour
loans to small businesses are made without interest charges.The Ithaca credit
union accepts Hours for mortgage and loan fees. The Ithaca Hour sets a
standard for a minimum wage, raising the income level of the poorer
members of society, however it does not insist on knocking down the income
of the richer members of society. Dentists, massage therapists and lawyers
are permitted to collect several Hours hourly. However, increasingly there are
cases where more equitable wages are evidenced.
While Hours could be easily integrated into a LETS system, transactions are
easier and administration costs are low as there is no need to record every
transaction in a central computer. Whereas with a LETS system there are no
limits on the number of Units or Green Dollars in circulation, in the Ithaca
Alternative Trading System a finite number of notes is in circulation, and this
can be controlled. After the system’s initial setup, hours can be traded with
anyone for anything without needing to refer to a member’s directory. (Glover,
1996).
Ithaca has published an information kit for other community groups who want
to replicate their success, and has received requests from over 400
communities so far.
Boyle notes that the Ithaca alternative trading system is not an isolated
example. Unofficial printed money (scrip) systems are springing up all over
the world: australs in Argentina, SOCS in Scotland, and tlalocs in Mexico. In
the United States alone there are at least 30 other local currencies - from
Valley dollars in Massachusetts to Ka’u Hours in Hawaii. Mollison (1988)
notes that many small towns funded their public works in the 1930’s using
local currency. The currencies were collapsed when the communities’ needs
were being adequately met and they were no longer required.
The Permaculture International Journal (1998a) reports that the world’s first
national alternative currency has recently been set up in Scotland. The
Scottish Organisational Currency System (SOCS) is based on the LETS and
Ithaca models and individuals can take part by participating in their local
LETS group, whereas businesses, county councils, local authorities and
community groups can trade directly in the new currency. The project was
initiated by Rural Forum Scotland. By using the national currency through the
LETS system, interregional funds transfers are kept to a minimum, but are
still possible.
Figure 5: The Ithaca Alternative Trading System is one example of an alternative financial system that creates employment and
benefits the environment by encouraging local and regional self-sufficiency. (Source: Glover, 1996)
preventing capital flight from the local area. (Much like LETS and the Ithaca
Alternative Trading System). Some credit unions have a cheque account
service and friendly societies may have insurance services. A credit union
may loan members’ funds for gardens, fuel conservation, or renewable
energy generation, at reasonable rates. In this way it can be used to promote
ecologically sustainable development.
Rimmer (1997) believes that credit unions are not such a new phenomenon,
they began in Germany in 1849. Since then, they have certainly grown in
importance. Albee (1996) comments that in 1994, there were 87,604 credit
unions around the world, and that thse organisations had assets of $650
billion and nearly 114 million members. In the USA, 54 million people belong
to credit unions and in Canada, one in four people is a credit union member
(Rimmer, 1997). Credit Unions are the fastest growing financial sector in
Australia.
With most credit unions, there is no limit to the minimum amount that can be
saved. To save only 50 cents per week is not discouraged at all, regardless of
the high administration costs of processing such small deposits.
Credit Unions provide a valuable service for those who would otherwise have
no access to credit. Many of the larger banks in Australia have closed their
rural branches leaving farmers without access to any financial services. From
1993-1996, 670 bank branches were closed around Australia. This forces
many people to drive for hours to visit their nearest branch. Having made this
journey, they often conduct other business in the town where the bank is, thus
spending money which they would previously have spent in their local
community.
Credit unions have stepped in to fill the gap left by the banks’ withdrawal.
Recognising the need for rural financial services, the Australian Governement
has provided $1.7 million over two years for CreditCare, a co-operative joint
venture (Permaculture International Journal, 1996a). The balance of funding
required was to be provided by Credit Union Services Corporation, which
represents 250 credit unions throughout Australia.
In the NSW rural town of Werris Creek, when the local bank closed its doors,
one third of the bank’s population of 1600 deposited more than $1 million with
their new credit union branch, rather than having to drive 50km to the next
bank to carry out basic transactions.
The Maleny and District Community Credit Union Limited (MCU) is one of the
most famous local examples of a succesful credit union. Its Statement of
Ethics claims that it is committed to acting in ways that are socially just,
environmentally responsible, empowering to the local community and
individuals and based on a belief in people, honesty and goodwill. MCU does
not charge any transaction fees, has no minimum balance requirements and
does not invest in the short term money markets. There is no discrimination
between borrowers or between investors. Those whom other institutions
would class as posing a great financial risk may be able to borrow funds from
MCU. All investors receive the same return regardless of the amount of
money that they have invested.
Only members of the MCU are eligible for its financial services, as it is a co-
operative. To become a member, a prospective member must fulfil the MCU’s
criteria and pay $10 for 5 shares. Joint memberships and body corporate
memberships are available. MCU has over 3500 members and the capital
invested exceeds seven million dollars. It is run entirely by its local members.
Services offered by MCU include loan funds, fixed term deposits, savings
accounts, cheque accounts, a Christmas Club and insurance. The MCU also
aims to provide education in financial matters, provide budgetary advice and
help to de-mystify money and financial institutions.
All of MCU’s lending capital is spent in the Maleny bioregion only, thus
ensuring that it benefits the local community. The members’ funds create
employment and stimulate the local housing market and local small
businesses.
Many Bangladeshi villagers are trapped in a spiral of debt and are effectively
bonded labourers. Yunus (1997) describes the example of a woman who
makes only 2 pennies per day because she cannot afford to buy the raw
materials for her small business of making bamboo stools. She has to borrow
the raw materials from the trader who purchases the finished product, who
charges an exorbitantly high interest. This situation is not uncommon in
Bangladesh. Driven by a vision of the abolition of poverty, Yunus began the
experiments which led to the creation of the Grameen Bank.
Each group of five members is part of a centre made up of eight groups (40
members). When a borrower takes out a loan, her group as a whole is
responsible for repayment. The group provides support to the borrower and
helps her to resolve any problems she may be having. When the first
borrower has repaid her loan, other members of the group then become
eligible for loans. One rule of group formation is that you can’t be in a group
with “someone who eats from the same cooking pot as you”. This is to
discourage favouritism among relatives and extended families.
Grameen Bank is a people’s bank with 90% of its shares being owned by its 2
million borrowers. The bank does not give no-interest loans. It seeks to cover
its costs, and while these are kept to a minimum the cost of administering
many small loans is always greater than that of administering a few larger
loans. In 1990, the interest rate was 16%, four points above the commercial
rate. (Bornstein, 1998). However, in spite of this, the loans are repaid and the
borrowers are taking out more loans, indicating that they must be deriving
some benefit from the loans in spite of the high interest rate.
The Grameen Bank expects a lot from its clients. While banks which loan to
the wealthy have very poor repayment rates, Grameen borrowers are not
allowed to miss even one repayment. The bank never ever forgives loans, not
even after a flood or a cyclone. (However, some loans can be restructured).
The bank’s greatest strength is that all of its activities are designed to
encourage self-sufficiency among its borrowers. It does not give handouts.
Even vegetable seeds or chemicals used for water purification attract a fee if
they are distributed by the bank.
Grameen bank transactions are carried out in the village itself, so that the
villagers are not put off by the imposing appearance and bureacracy of a
conventional bank. There is no secrecy or confidentiality, every member of a
centre knows the financial status of every other member in that centre.
After a few groups have been formed the villagers must begin to accumulate
funds to construct their own meeting house. This could be viewed as an
unnecessary financial burden, after all, the Westpac bank doesn’t insist that
its members build their own branch before they will allow them to open an
account. However, Yunus views this as an opportunity for villagers to engage
in a collective activity, thus encouraging community development.
Villagers tend to be put off by commercial banks where they don’t have the
right papers and don’t understand the rules of the game. Carrying out the
transactions in a village meeting house breaks down these barriers. Having
an unpretentious building makes the women feel at home. Yunus insists that
the meeting houses must not be too flash or too comfortable. If they are, then
the richer members of the village will take them over for other purposes, or
will try to infiltrate the ranks of the Grameen bank members, and the bank will
no longer be able to work effectively in that village.
The weekly centre meetings are the focus of Grameen bank’s activities.
Disbursements of loans and collection of repayments is carried out at the
weekly centre meetings.
The Group fund ensures that if some disaster happens such as a drought or a
flood, a poor villager does not have to resort to help from the local
moneylender who may charge more than 100% interest. (Bornstein, 1998)
Aleya borrowed 2000 takas...She received 1,900 takas in hand (5 percent was
deposited into the Group Fund). She bought a cow and sold milk, earning between 10
and 20 takas each day. Each week she paid her installment of 40 takas and deposited
a few takas in her savings...Over the next fifty weeks, Aleya set aside 163 takas for
her interest payment (The bank was then charging 16 percent interest calculated on a
declining balance.) An additional 41 takas had to be paid into the Emergency Fund
(25 percent of the interest). At the end of the year, the cow belonged to her.
(Bornstein, 1998)
Interest on Grameen Bank loans is payable in a lump sum at the end of the
year. After the paperwork for a loan has been completed the loan is usually
granted within a fortnight. The money must be invested by the borrower within
seven days of recieving the cash. Before joining the bank, all members must
learn to sign their names. This enables them to complete the minimal
paperwork involved in a loan.
Whereas other banks assume that their clients are potential cheats, Grameen
bank assumes that its clients are honest. To save time at centre meetings,
Grameen staff may assume that all accounts are in order and will only carry
out further investigations later, if any discrepancies are found. However, in
their branch offices all accounts must be kept to the highest standards of
auditability. (To ensure honesty of the staff and to satisfy foreign supporters,
more than anything).
Many individuals believe that the bank’s rituals are coercive, saying that they
have been imposed on the borrowers. (Bornstein, 1998) The bank defends its
rituals claiming that they improve the women’s self-esteem. While
Bangladeshi women are traditionally told to speak softly so men can’t hear
them, and look down demurely while greeting someone, the bank workers tell
them to chant slogans boldly, and look people in the eye while saluting them
proudly. Whether the women like the rituals or find them a bit silly is irrelevant
really. The borrowers still go to the meetings and still take out loans.
Figure 6: The Grameen Bank’s manifesto, the “Sixteen Decisions” has generated a great deal of controversy. Has the mindless
chanting of the Grameen ideology been imposed on the borrowers against their wishes? If so, the borrowers are not putting up much of
a fight. (Source: Bornstein, 1998)
The bank does not concern itself only with lending money. Imagine the public
outcry if the Commonwealth Bank or the National Bank only loaned money to
people who controlled their family size by having two children or less! An
outrageous idea? It is a policy which the Grameen Bank has been trying to
introduce.
Grameen Bank has the highest growth rate of any bank in Bangladesh. Today
the bank operates in 36,000 villages in Bangladesh - almost every second
village of the country. The bank has more than 2.1 million borrowers and
1079 branches. In 1996, the bank loaned the equivalent of US $400 million in
taka, with a repayment rate of over 98%. Compare this with the repayment
rate for the Industrial Bank of Bangladesh, which is less than 10%! Yunus
describes the Industrial Bank as “a charity outfit for the rich”.
Results achieved by the Grameen Bank have impressed even the World
Bank, which broke with its tradition of only funding large-scale projects, to
initiate a fundraising drive for Grameen-style projects. The United States (not
usually one to learn from developing countries) have been so impressed with
Grameen’s results that they have sought to replicate them in the States. Four
hundred members in the US and Canada have joined the Association for
Enterprise Opportunity, a network of microenterprise organisations modelled
on the Grameen Bank. In the US these microenterprise schemes are still in
their infancy with none coming close to covering their operational costs yet.
However, Bornstein notes that one banker has franchised his operation and is
working with over 1800 small businesses in Miami, New England and
Delaware.
In spite of any obstacles along the way, the Grameen Bank is, by most
accounts, an outstanding success. A recent World Bank study found that one
third of Grameen borrowers have moved out of a situation of poverty and
another third is about to cross over the poverty line.
People in the first world who wish to support the activities of the Grameen
Bank, can establish a savings account with the Grameen Cash Management
Trust. In this way they can contribute to the lending base of the Grameen
Bank, while still earning a return on their investment. There is no minimum
balance, small deposits are accepted, and the current interest rate is 1% for
deposits up to $5000. Grameen Trust was established to allow the Grameen
Bank to be replicated in other developing countries, by funding training and
technical assistance and providing necessary seed capital for new revolving
loan funds.
The SRI trust was originally funded by an interest-free loan from its founder
Dr. Prabhakar Puthiyaveedu, and received additional funds from students at
the University of Maryland and US$50,000 from Grameen. Prior to the SRI
trust formation, families harvested only one rice crop per year and had to
borrow during the lean season from labour contractors. They had to repay this
debt by working far from home in conditions of semi-slavery.
SRI’s first loans are quite large in comparison with other Grameen projects,
as most borrowers have chosen to invest in cows. SRI has taken the unique
step of requiring the borrowers to insure their animals with a government fund
(supplementary loan funds cover the insurance costs).
The Oriental Bank of Commerce also has some unique aspects. Unlike most
Grameen projects, it started out as a commercial bank, which sought to turn
its non-performing loans to lower income earners into a more profitable
business. By adopting the Grameen Bank methodology of group formation
and small weekly payments, and targetting women rather than men, the bank
has disbursed US$50,000 in microcredit loans with 100% repayment. This is
in spite of charging 12.5% interest on loans, whereas the government’s
Integrated Rural Development Program charges a subsidised rate of only 4%.
OBGP made a small profit in 1998. Hooda, the program’s founder, partly
attributes his success to the training and support he provides to borrowers, in
a range of activities from beekeeping to knitting to pickling mangoes.
Apart from the very famous Grameen Bank, other examples of microcredit
schemes include the Banco Sol in Latin America and SEWA bank in India.
Some examples of revolving loan funds include the SHARE system and the
CELT system. The Self-Help Association for a Regional Economy (SHARE)
aims to encourage small businesses in the Berkshire area in Massachusetts,
USA. Members of the community can open a SHARE joint account with a
local bank. They receive 6% interest on this account and the funds are loaned
at 10% to small businesses. The business person receiving the loan must first
obtain references from people who know them to be responsible and
conscientious. The scheme aims to help borrowers and members to get to
know many people in their community, as well as helping to finance local
small business.
1
URL: http//www.rdc.com.au/grameen Beyond Bangladesh
The Grameen Bank and all of the other microcredit and revolving loan
schemes are helping to improve intragenerational equity, by making credit
available to the poor, and thus reducing poverty.
Most of the goods and services we take for granted contain hidden interest
charges: 12 % of garbage collection fees, 38% of drinking water charges, and
77% of social housing charges. The gains go to rich lenders and the losses
are paid by the poor or borrowers. Wealth obtained by unethical investment
strategies is transferred by global stock or money markets to where it can
most efficiently be used to exploit the poor. This concentration of wealth
tends to favour spending on large infrastructure projects, and funds become
so large that as a last resort, military spending is employed to make use of
the concentrated funds. (Kennedy, 1987).
Islamic banks seek to avoid these types of problems. In Islam money does
not in itself produce interest or profit and is not viewed as a commodity. It is
solely a medium of exchange. The relationship of the Islamic bank to its
clients is that of a partner, rather than a creditor or debtor. Riba, or interest, is
not allowed in Islam, however, Mudarabah, or profit-sharing joint ventures, is
permissible. (Mannan, 1986).
Some skeptics would argue that if no interest is paid on deposits held with
Islamic banks, then the rich may be tempted to hoard their wealth as
unproductive assets. However, the payment of Zakat conveniently avoids this
problem for the devout Muslim. Unproductive assets are taxed in the Islamic
system, thus encouraging investment. (Profits from productive assets are also
taxed in Islam, through Zakat, but at a different rate). (Metwally, 1997)
The first interest-free Islamic bank was the Dubai Islamic Bank, which was
established in the United Arab Emirates in 1973 with a start-up capital of
US$14 million. In 1975, the Islamic Development Bank opened in Jeddah,
Saudi Arabia. From these humble beginnings, there are now more than 100
interest-free banks in 45 countries.
Co-operative societies have always claimed to have social objectives. They believed
they were different to normal capitalist businesses because of the democratic control
and because they were self-help organisations set up in communities. It would not be
logical for a co-operative society to set itself up in business, make profit from its
members and then decide to invest it in Japan.
Our social objective is service to the community and having a concern for the
community. (quoted in Gonella and Evans , 1997).
Mollison (1988) cites the example of conservation trusts who are purchasing
foreign debt and asking the debtors to repay the loan and interest, not in hard
currency, but in forests and wetlands in the donor country. The forest and
wildlife reserves so purchased can be developed for tourism and research.
This is more constructive than the current approach of destroying these
natural resources by unsustainable harvesting in a vain attempt to raise
capital to repay the debt to the banks. However, it does mean that the debtor
country loses ownership of some of its natural resources.
Mollison also notes that in the corporate world, company takeovers resulting
in “asset stripping” are often used to enrich certain individuals, regardless of
the costs to society. This same approach can be used by conservationists
who buy unsustainable industries such as forestry, mining and other
extractive industries, strip them of their assets, shut them down and
rehabilitate environmentally-degraded areas. Few examples of this type of
scheme exist in practice. Before implementing such a scheme, an
environmentalist of good conscience would have to carefully consider the
social impact of this asset stripping, and whether alternative livelihoods exist
for the loggers, miners etc. involved. It may be necessary to carry out
retraining or assist these individuals to find meaningful alternative
employment.
Apart from the very formal co-operatives such as the Co-operative Society in
the UK and the famous Mondragon co-operatives, there are many examples
of informal co-operatives. Mollison (1988) cites the example of Chile, where
people working together have been able to finance their own development
without recourse to the economic system. While Chile’s amassed a foreign
debt of $12 billion during 1985, $11 billion worth of housing was built by poor
slum dwellers, without loans, by using locally-available resources and relying
on each other’s co-operation.
At any rate, the present system is in the process of collapse, and the new barter
systems are expanding; the only question we have is if the life support systems of
earth will still be intact, or whether sanity in fiscal affairs will be delayed until no human
survival is possible on a polluted earth.
The need for change is vitally urgent. Mollison, the founder of Permaculture,
believes that strategies for improvements in the economic and social
structures of society may be of more assistance to real change than the skills
of land management, because society has far more competent farmers and
engineers than it has ethical bankers or lawyers whose work relates to curing
or preventing (not just treating the symptons of ) social or environmental
problems. He states that earth restoration techniques come to naught while
we continue to invest in arms and destruction, poisoning of land and
unsustainable land use. Mollison says that
the very first strategies we need are those to put our own house in order, and at the
same time do not give credibility to distant power-centred or unethical systems. In our
present fiscal or money-run world, the primary responsibility that we need to take
charge of is our wealth, which is the product of our sweat and our region, not
represented by valueless currency.
In the UK, some of the smaller funds have suffered from the problem of not
being financially viable, due to insufficient investors, and have been subject to
mismanaged takeovers. On 9 October 1993, The Times reported:
Glynne Evans invested £500 in the Global Opportunities Fund when it was managed
by Target Unit Trust Managers...she chose the trust not only for its ethical investment
policy, but because a percentage of its management fees were to be donated to Save
the Children. But Target’s 13 trusts were sold to Edinburgh Fund Managers in January
this year.
The main criticism of ethical investment schemes is that they are not going far
enough, fast enough. Coates, quoted in Sparkes (1995) comments that
I am sceptical about how many of the ‘ethical funds’ really are looking at these ethical
issues in any kind of depth. A lot of them own the drug company Glaxo on the basis
that its products are ‘humanitarian’, but in fact it is on Greenpeace’s list of the ‘Filthy
Fifty’ biggest polluters in the UK, while it is believed to be still practising vivisection.
...As an adviser I find that many clients want ethical funds with clear guidelines, they
want to be sure that they do not hold any companies whose activities they do not
agree with. It may be all right for a church or charity fund with broad objectives to
have the ‘least bad’ company in a sector such as, say, food retailers with their
ecologically disastrous superstores, but my clients just don’t want to invest in these
areas at all.
Ethical investors believe that they are “doing their bit” but sometimes they are
blissfully unaware of just how ethical (or otherwise) the companies chosen by
funds managers actually are. This may be due to the sheer complexity of the
financial system and the companies involved and the enormous amount of
research needed to keep tabs on ethical/unethical activities. Stuart Bell of
PIRC, quoted in Sparkes (1995), comments that
the promotional images on which the ethical products are sold often give the false
view of the stringency of the detailed assessment policies pursued...compromises
occur because, although funds tend to use their ethical bias as their main marketing
point, they put relatively little effort into their ethical research. Research deficiencies
may cause funds to fail to fulfil their promises.
Some critics claim that ethical investment takes a very negative approach,
focussing heavily on boycotting rather than making a positive contribution.
However groups such as the CIS Environ Fund seek first to work with
companies to help them achieve good environmental practice, and only
boycotts them if all else fails. (Sparkes, 1995).
Smith, 1996,2 criticises Ethical Investment fairly harshly, saying that while it
makes investors feel good, it is not effecting real change. He claims that
different ethical investment funds are pulling in different directions, and that
their efforts are fragmented rather than co-ordinated. The effectiveness of
boycotting certain companies or withdrawing funds by selling shares is also
questioned. When an investor withdraws funds for ethical reasons, they
usually do not even inform the company of their actions and the reasons
behind them.
A lesson which can be learned from Smith’s criticism is that investors need to
not only withdraw funds from companies, but they also need to inform the
companies of their decision, and inform the general public as well, so that
their efforts can be multiplied for more effectiveness.
Whereas in the USA ethical investment accounts for approximately 20% of all
money invested by individuals (investments totalling $160 billion), in Australia,
in 1991, less than 1% of investment funds were in ethical investment
schemes. (Butman, 1991) Not surprisingly, the Australian Consumers
Association (1991) believe that the influence of ethical investors in Australia
at present is fairly insignificant. They claim that
2
http://www.webactive.co.uk/ethical/investment/intro.htm The Efficacy of Ethical Investment
How well are our ethical investment schemes living up to Glanzberg’s goal of
investing primarily in regenerative systems?
Ethical investment schemes is that they are helping to promote change in the
mainstream economy. Many mainstream businesses are starting to consider
social accounting as well as financial accounting and environmental reporting.
Even the World Bank is starting to consider the development of social capital.
The World Bank has just carried out some very interesting research on different
factors that determine national wealth in 192 companies. They found that on average
64% of national wealth is created by human capital and social capital rather than man-
made economic capital or natural capital. They then looked at where funding was
going and found that 64% was not going to human and social capital development.
They are now making a genuine commitment internally to change that. (Jane Nelson,
quoted in Gonella and Evans , 1997).
Sparkes comments that perhaps the greatest benefit of green investing is that
it funds the work of research units who monitor the environmental practices of
various companies, and publicise their findings. When members of the
general public and community groups become aware of the activities of
certain companies, they can apply pressure on these companies to lift their
game. Green investors force industry generally to consider environmental and
social matters. They encourage governments to tighten environmental laws
and they encourage environmental technologies.
disaster in March 1989, the New York City Pension Fund (Nypers), who
owned six million shares in Exxon met with the Exxon management and filed
a proxy resolution instructing them to adopt the CERES principles of
environmental management. CERES - the Coalition for Environmentally
Responsible Economies, encourage companies to protect the biosphere, use
resources sustainably, reduce waste, conserve energy etc. Nypers, though it
does not specialise in ethical investment, now encourages all prospective
investment companies to adopt the CERES principles. (Sparkes, 1995).
For the moment, ethical investors are few in number. This is no reason to
become disheartened, however, perhaps ethical investors have been
spreading themselves too thinly, and should focus on a few issues to start
with, co-ordinating their activities rather than trying to solve all the world’s
problem in one hit and barely making a dent. The spectacular results
achieved in ending apartheid are a graphic illustration of just what can be
achieved when concerned investors focus on a single but significant issue
and co-ordinate their activities to achieve this end.
3
http://www.webactive.co.uk/ethical/investment/intro.htm The Efficacy of Ethical Investment
No other issue in our time has involved such a broad global consensus of people and
organisations, and the effect of their combined concerted action against apartheid has
been immense...The ethical responsibility of investors and investment policies is now
an accepted principle in the commercial world, largely pioneered by anti-apartheid
action.
4
URL: http;//www.fourthfreedom.org/sanctions/sanctions.html About Sanctions
5
URL: http;//www.fourthfreedom.org/sanctions/modifyem.html Sanctions: Modify ‘em
One issue which has arisen for the organisers of many LETS schemes is the
question of how much the unit of currency should be worth. Some systems
equate one LETS unit to one dollar or one pound or one franc etc, ie. it is
equivalent in value to one unit of the national currency. Others use a time
based system, with one LETS unit representing one hour’s labour. A third
option is to set a ballpark figure or benchmark at the time of setting up the
system, and allow consumers to adjust their prices to this accordingly.
The advantage of the first system are that it is easy for members to
understand and it facilitates trading for members who charge for spare parts
in the national currency and labour in LETS. Tying the LETS unit to the
national currency can create other problems, however. When the national
currency inflates, the LETS unit will unavoidably inflate also, and thus it will
cease to be an inflation-free alternative.
Giving LETS a time-based value also creates problems, albeit different ones.
It is designed for egalitarian systems where one hour of a babysitter’s time is
worth the same as one hour of an accountant’s time. Thus it does not allow
for those who would like to recognise the difference in expertise required, or
responsibility involved for a particular job. An hourly rate-based LETS may
cause difficulties with intersystem trading in LETS, as it may be difficult to
compare Strouds from Stroud with Bobbins from Manchester. The hourly rate
system causes difficulties for those businesses who have to record
employees’ salary details for income tax calculations. These details must
often be recorded in equivalent national currency.
With the third system it can be difficult for businesses who have to calculate
part of their prices or costs in national currency and need to easily convert
from one currency to another.
Apart from the issue of value of the currency, LETS has encountered another
problem. People who previously would have volunteered their time for free for
some charitable agency now seek to charge LETS units for the same job. The
charitable agencies feel hard done by! This problem is a bit difficult to solve,
apart from providing other opportunities for people to trade (outside of the
charities), so they don’t earn an income at the charities’ expense.
After LETS has been running for a while, the system can accumulate a lot of
inactive members who have not done any trading for years, moved overseas,
etc. Lang suggests “pruning” the membership directory every few years to
improve the efficiency of the system. The members should be contacted first
to determine whether they still wish to participate in LETS.
The Ithaca Alternative Trading System, though limited in its effect due to its
small number of participants, appears to be functioning very successfully. It is
worth considering the factors which contribute to this success, and factors
which must be considered in replicating this project so that its effectiveness
can be enhanced.
Boyle (1998) draws on the experience to date of the Ithaca alternative traders
to recommend a number of factors which are important in ensuring its
continued success:
gradually, however some resources are needed to initiate the use of a new
currency like the Ithaca system. Boyle notes that other similar schemes have
failed because the scheme’s organiser couldn’t make a living out of it initially,
and had no other means of support, while working full-time to establish the
system.
In Ithaca, at present there is more demand for Hours than supply. However,
there could be problems in future if the money supply has to be reduced, as
there are few methods of withdrawing it quickly.
In the United States, IRS and FED officials have agreed that there is no
prohibition of local currency, provided it is distinct from dollars in its
appearance, and it is regarded as taxable income, with tax paid as necessary.
However, the Ithaca system may be difficult to replicated in certain countries
where laws prohibit the creation of currency. In the UK, for example, currency
creation is expressly forbidden by the Bank Charter Act of 1844, section 10,
which states that
No person other than a banker who on the sixth day of May, one thousand eight
hundred and forty-four was lawfully issuing his own bank notes shall make or issue
any bank notes in any part of the United Kingdom.
Other organisations trying to emulate the Ithaca system may have problems
inspiring confidence in the new currency. (Ithaca does not have this problem).
Mollison (1988) claims that for any local currency to work it must be backed
up by an item of real value (the reserve) eg. a cord of timber or a fixed
quantity of bottled water. The value of currency printed must not exceed the
reserve by a factor of more than three. The bank or issuer of the currency
should not decide what the currency should be used for, this is for the
community to decide. To prevent hoarding, Mollison suggests that the notes
can be dated and a new issue made every 4-5 years. To avoid problems
replicating the Ithaca Alternative Trading System, it is suggested that
Mollison’s suggestions be implemented.
Credit unions are not new. They have a long history of providing an
alternative to the commercial banks. Thus we would expect them to have a
wider sphere of influence than either the LETsystem or the Ithaca Alternative
Trading System.
Are credit unions effective in improving the status of women? Rimmer (1997)
argues that they are, and that the social benefits of credit unions far outweigh
their economic advantages. Rimmer’s experience primarily relates to Britain,
where eighteen years of conservative government have resulted in a
reduction in wages, a rise in unemployment and cuts in social welfare
payments. Up to a quarter of the UK population is affected by poverty, with
women making up 59% of the welfare recipients.
In Britain there are no laws to prevent loan sharks charging up to 400 percent
interest, and people on low incomes have traditionally had access only to loan
sharks or pawnbrokers for credit. Conventional banks charge lower interest
rates but most unemployed Britons do not have a bank account. Conventional
banks ask for references, expect borrowers to be employed and also demand
a minimum deposit. Credit unions provide a better alternative. In the UK,
women form the bulk of credit union membership.
Rimmer believes that this is just one example of how women’s financial and
organisational skills are enhanced by credit union involvement. However, she
is quick to point out that credit unions are not a panacea. Wider campaigns of
social action are necessary to supplement the work of increasing women’s
personal power. For example, some of the women involved in the credit union
project needed access to a refuge or haven from violent abusive partners who
became threatened and enraged by the women’s new found assertiveness.
Has the Grameen Bank been successful? Prior to the Grameen Bank, a few
credit co-operatives had operated in Bangladesh, however, these loans were
almost never repaid. The Grameen Bank has a repayment rate of more than
97%, comparable with the Chase Manhattan Bank. In 1996, the repayment
rate exceeded 99.5%, outperforming all other Bangladeshi banks and most
banks worldwide. (Grameen Bank Support Group, 1996)
Noting that the earlier projects had been imposed on the villagers rather than
designed by the villagers themselves, Yunus asked the villagers how the
bank’s administration should be conducted. The villagers themselves
suggested the idea of the loans being administered by a group.
While the Grameen Bank is at present functioning admirably well, like all
other new organisations it has undergone a few teething problems and has
discarded some ideas and adopted others. At first the women’s groups were
organised according to their economic activities eg. bamboo-stool-weaver’s
groups, rickshaw drivers’ groups etc. However, the borrowers in these groups
did not know each other well. So this was changed, and now the women form
groups with friends whom they know well and can trust, and the members
provide support to each other.
Evaluations of the bank’s work showed that loans to women rather than men
were the most effective in improving the economic situation of the whole
family. However attempts to increase the number of women borrowers were
at first resisted by the bank’s staff, who felt that it was too much extra hard
work to target women borrowers. Incentives such as salary bonuses and
other benefits were offered to the staff to persuade them to work with women.
(Yunus, 1998b)
In focussing on women, the bank has had to deal with a number of obstacles:
• resistance from men who don’t want their wives to get the loan rather than
themselves
• fear of threats to the Islamic traditions involving social customs and
relationships between women and men and even
• fears that Grameen bank was run by Christian missionaries who were
trying to undermine Islam (women were believed to be gullible and more
easily converted)
In its early days when the Grameen program relied on the commercial banks,
both borrowers and Grameen staff experienced endless frustration. This was
because the commercial bank employees were accustomed to having no
work, and were corrupt to boot. When the Grameen Bank opened their
workload increased ten times. They expressed their resentment by making
the borrowers wait for long periods of time for their loans, telling them to come
back another day, and creating unnecessary bureaucratic paperwork.
In those days the bank had some problems with the composition of its
groups. When villagers of unequal economic status were forming groups the
poorer members tended to be ignored. Another issue was that whole
communities of landless people who had lost their livelihood to erosion were
being left out of Grameen altogether, when these people, being the poorest,
were the ones most in need of help. Grameen now insists that groups are
made up of people who are more or less equally poor.
In spite of any obstacles along the way, the Grameen Bank is, by most
accounts, an outstanding success. A recent World Bank study found that
one third of Grameen borrowers have moved out from a situation of
poverty and another third is about to cross over the poverty line.
• the bank only loans to those who have nothing to offer as collateral or
security.
• borrowers are not advised as to how to spend the money, they know best
how to manage their finances
• the bank will support its borrowers and help them to succeed
• all of the bank’s activities will be directed towards serving the poor only, the
bank will not engage in any other activities, and
• the bank will endeavour to meet all its costs from its interest income
Although assisting one third of its borrowers to move out of poverty is a truly
outstanding result, the Grameen Bank has been harshly criticised, unjustly so,
over a number of different issues.
Some critics say that the bank does not help enough people. In spite of its
wide coverage, the Grameen Bank freely admits that it cannot cater to every
poor person in Bangladesh. To be accepted as a borrower, a woman must be
accepted into a group of five. The very poorest of the poor may miss out as
the other group members may not trust their ability to repay the loan. It is very
hard for the poorest of the poorest women to see their children go without
food so that they can meet the Grameen bank repayments, and other
potential group members know this.
Some of the bank’s members feel that it is unfair for Grameen to raise their
interest rate and to refuse to forgive loans, even after floods etc. In 1991, the
bank raised its interest rate from 16% to 20%, because the Bangladeshi
government had given its employees a pay rise. The Grameen bank workers’
salaries are tied to those of the Bangladeshi public service. Also in 1991 the
Bangladeshi government forgave all loans of under 5000 takas and waived
interest on loans of less than 10,000 takas. Those who had loans with
Grameen (rather than the government bank) still had to pay. Was this too
harsh?
6
URL: http//www.rdc.com.au/grameen The Grameen Bank Support Group Australia
Yunus justifies his position, insisting that the bank encourages self-sufficiency
not handouts and must insist on loan repayments no matter what. His
approach seems to be working, with such an impressive repayment rate.
Unless designed properly, wage employment may mean being condemned to a life in
squalid city slums or working for two meals a day for one’s life. Wage employment is
not a happy road to the reduction of poverty. The removal or reduction of poverty must
be a continuous process of creation of assets, so that the asset base of a poor person
becomes stronger at each economic cycle, enabling him or her to earn more and
more. (Bornstein, 1998)
Grameen’s influence does not stop at just improving the family’s income. It is
also achieving results in other areas. For example, the Grameen bank’s
manifesto, “The Sixteen Decisions” emphasises family planning. The
Grameen Bank’s influence in this regard appears to have achieved some
measure of success. Bornstein (1998) notes that a number of independent
studies have shown that Grameen bank borrowers are more likely to use birth
control than non-members. One study of 2000 women found almost 50%
more users of birth control among the Grameen Bank borrowers surveyed.
Considering all of the above information, it can be seen that the Grameen
Bank of Bangladesh has been successful in achieving economic
development, improved self-esteem and improved status of women, and
improved financial security.
While the Grameen Bank mostly employs men in positions of authority, many
of its workers at the grass roots level are women. In its earlier days Grameen
had these same problems with the social dynamics, and thus now tries to
employ women in a different region where they are not known and do not
have relatives who will try to take advantage of them. (ie. the worker is not
employed in her home village).
Direct lending projects, usually run by NGOs, involve small loans with
frequent repayments, group guarantees and banking operations close to the
borrower’s home. Examples include the Self Employed Women’s Association
in Ahmedabad, India and the Janasakthi Bank in Sri Lanka. These projects
are more effective than other types of credit schemes, however they are
criticised for their small scale and the costs involved in setting up the scheme.
A careful review of the pattern of administration of the Grameen Bank reveals that it is
more a Bank of the elites by the elites for the poor rather than a Bank of the poor for
the poor by the poor. It still has a long way to go ... Grameen has been fortunate to
attract large amounts of foreign funds at negligible cost, but a careful review of the
financial structure reveals that this flow of foreign funds has been a blessing, not only
to the landless persons of Bangladesh but also to other commercial banks. About 30
per cent of Grameen Bank’s funds have gone to capitalists and entrpreneur classes
through the commercial banks. These are funds that could and should have been
utilised for the socio-political and economic upliftment of its target group.
She claims that repayment rates of 98% may indicate a dysfunctional project
design, such as overlapping loans. In some projects where the borrowers are
subject to a series of graduated loans, the second repayment for the first loan
may co-incide with the disbursement of a second loan. The repayment, which
the borrower cannot afford to repay, is simply deducted from the second loan,
however the borrower is still in debt. This may be repeated for a third and
fourth loan. Eventually, final repayment is due and the woman has got so far
behind that she is forced to sell an asset and is poorer than before.
In Islam money does not in itself produce interest or profit and is not viewed
as a commodity. The relationship of the Islamic bank to its clients is that of a
partner, rather than a creditor or debtor. Riba, or interest, is not allowed in
Islam, however, Mudarabah, a type of profit-sharing joint venture is
permissible.
As the Islamic banks do not accept interest, they have the potential to
promote intragenerational equity, an important component of ecologically
sustainable development. But are they achieving this, in fact?
the practice of zero interest rate has had a disastrous consequence on economic
development in the Muslim world. It prevented the creation of Islamic banking until
very recently by which time the global supremacy of western banks and financial
institutions was a foregone conclusion. ..In addition, the zero interest injunction
contributed to capital flight, discouraged accumulation of savings and promoted
excessive depreciation...the British and the Chinese in Malaysia, and the Europeans
and ethnic minorities of Greeks, Armenians and Jews in the Ottoman Empire,
controlled and owned the financial and corporate assets. The Malays and Turks
viewed banking, saving and investment as un-Islamic.
Islamic economics, contains too many inconsistencies to justify the claim that it would
be capable of delivering greater economic justice than alternative systems.
and that
Muslim economic systems include the payment of zakat by all believers. This
is an amount of at least 2.5% of one’s annual wealth. In theory, this is a type
of almsgiving, either to improve the situation of the poorer members of Islamic
society or to further the propagation of the Islamic faith. Zakat may be paid
into a charitable trust or endowment, known as a waqf. However, Mehmet
notes with some cynicism that waqfs have historically been abused in practice
with the benefits accumulating to ruling classes or leaders of religious orders,
with little actually going to the poor and needy.
7
URL: http://dftuz.unizar.es/externo/a/files/left-gen/96002.eng.html The Challenge of Mondragon
The credit union’s assets amount to over a billion dollars. The sum total of all
Mondragon co-operatives’ net present worth is measured in billions. 8
Mondragon’s 18000 workers account for 15% of all jobs in Spain’s Guipuzkoa
Province. It’s exports are over 1% of the Spainsh export market.
8
URL: http://dftuz.unizar.es/externo/a/files/left-gen/96002.eng.html The Challenge of Mondragon
9
URL: http://www.stthomas.edu/cathstudies/cstm/antwerp/p7.htm The Contractual Theory of the Firm as a
Normative Business Ethic and its Relationship to Roman Catholic Social Teaching on Economic Life
Sharryn Kasmir questions whether an overly rosy picture has been painted of
11
the Mondragon co-operatives, obscuring any negative features of the reality.
She claims that the Mondragon model is being promoted as an ideal of labour
relations to discredit the experiences of working-class members of trade
unions. Kasmir claims that most studies of Mondragon have been undertaken
by social scientists who consider the issues from a management perspective.
When the situation is considered from a workers’ perspective it becomes
clear, says Kasmir, that there still exists conflict between workers and
management in Mondragon workplaces, and that because of their differing
circumstances they are unable to act together with other workers from non-
Mondragon workplaces, in the trade unions.
Some critics of Mondragon claim that it will too easily degenerate into
conventional capitalism. However it has not done so. Benello claims that
Mondragon shows that people can achieve complex tasks by democratic
organisation. While anarchists are horrified by Mondragons’s management
structure, the Mondragon system is significantly more egalitarian than your
average corporation.
10
URL: http://www.stthomas.edu/cathstudies/cstm/antwerp/p7.htm The Contractual Theory of the Firm as a
Normative Business Ethic and its Relationship to Roman Catholic Social Teaching on Economic Life
11
URL:http://www.sunnypress.edu/sunnyp/backads/html/kashmirmyth.html The Myth of Mondragon
Ithaca Alternative Trading System suffers from few problems, apart from the
fairly fundamental impediment that minting your own currency is illegal in
some countries. Some lobbying is therefore needed to have these antiquated
laws modified.
Credit Unions are achieving a great deal. Some credit unions may wish to
incorporate ethical investment criteria in their loans to small business (if they
haven’t already done so), to further increase their effectiveness.
The Grameen Bank is an outstanding success, and there is really little room
for improvement, except to increase the number of women employees
(especially senior staff). This is indeed a challenge given the culture of
Bangladesh.
Islamic Banks are tending to hide their light under a bushel. Has the prophet
Muhammad forbidden advertising? Why has no-one heard of an interest-free
bank? Why isn’t there one in Brisbane? In addition to undertaking a bit more
marketing, perhaps Islamic banks need to direct more attention to financing
development projects, if Islamic economics really is impeding the economic
success of these countries.
6.0 BIBLIOGRAPHY
Albee, Alana (1996) Beyond ‘banking for the poor”: Credit Mechanisms and Women’s Empowerment, Focus on
Gender, Vol 4, No.3, October 1996.
Boyle, David (1999) Funny Money: In Search of Alternative Cash, Harper Collins, London.
Boyle, David (1998) A Licence to Print Your Very Own Money Appropriate Technology, Vol 25 No.2, Intermediate
Technology Development Group, London.
Bornstein, David (1998) The Price of a Dream, Grameen Books and Educational Resources, Mount Colah.
Butman, George (1991) Ethical Investment. Put Your Money Where Your Principles Are, Australian Democrats
National Journal, June 1991.
Cashpor Inc. (1998) New Actors Trying Grameen Model in India, Credit for the Poor, No. 19, March 1998,
Philippines.
Clark, Rachel (1998) Changes that Hurt , Rachel’s Environment and Health Weekly, Environmental Research
Foundation, Annapolis, December 31, 1998.
Costanza, Robert, Daly, Herman E. and Bartholomew, Joy A. (1991) Goals, Agenda and Policy Recommendations
of Ecological Economics Ecological Economics. The Science and Management of Sustainability, Columbia
University Press, New York.
Daly, Herman E. (1991) Elements of Environmental Macroeconomics, Ecological Economics. The Science and
Management of Sustainability, Columbia University Press, New York.
Durning, Alan (1996) How Much is Enough? The Consumer Society and the Future of the Earth, Norton, New York.
Gonella, Claudia and Evans, Richard, (1997) AccountAbility Works, 6th Environment Foundation Consultation on
Corporate Social and Ethical Accounting, Auditing and Reporting: Summary of Proceedings, Institute of Social and
Ethical AccountAbility, London.
Glanzberg, Joel (1992) Enough is Enough, The Permaculture Edge, Vol 2, Issue 4.
Glover, Paul (1996) A People’s Economy: Creating Ecological Economics with Local Currency, Permaculture
International Journal, Issue 59, Jun-Aug 1996.
Grameen Bank Support Group (1996) Grameen Bank - Banking on the Poor (Information leaflet), Mount Colah,
November 1996.
Grameen Bank Support Group (1997) The Price of a Dream (Information leaflet: Book Review), Mount Colah.
Hobbs, Jeremy (1996) Give a Man a Fish, Horizons, Vol 4 No. 3, Summer 1996.
Kennedy, Margrit (1987) Towards an Ecological Economy: money, land and tax reforms, Ginsterweg 45, D3074,
Steyerberg, West Germany.
Korten, David C. (1996) When Corporations Rule the World, Kumarian Press, West Hartford.
Kupfer, David (1996) How to Stitch the World Back Together Again: An Interview with Hazel Henderson,
Permaculture International Journal, Issue 68, Sep-Nov 1996.
Lang, Peter (1994) Let’s Work: Rebuilding the Local Economy, Grover Books, Bristol.
Lynch, Damian (1998) 10 Years of Good Money, Permaculture International Journal, Issue 65, Dec-Feb 1998.
Mannan, Muhammad Abdul (1986) Islamic Economics: Theory and Practice, Hodder and Stoughton, Cambridge.
Mehmet, Ozay (1990), Islamic Identity and Development. Studies of the Islamic Periphery, Routledge, London.
Methodist Church Overseas Division and Methodist Church Division of Social Responsibility (1993), Responsible
Investment - The Fruit of Anti-apartheid Action, Joint Statement by Methodist Church Overseas Division and
Methodist Church Division of Social Responsibility, 1 October 1993.
Metwally, M.M. (1997) Economic Consequences of Applying Islamic Principles in Muslim Societies, International
Journal of Social Economics, Vol 24, No. 7/8/9, 1997.
Norgaard, Richard B. and Howarth, Richard B. (1991) Sustainability and Discounting the Future, Ecological
Economics. The Science and Management of Sustainability, Columbia University Press, New York.
Permaculture International Journal (1998a) New Currency, Permaculture International Journal, Issue 68, Sep-Nov
1998.
Permaculture International Journal (1998b) Community Groups Profit, Permaculture International Journal, Issue 66,
Mar-May 1998.
Permaculture International Journal (1997) Shared Interest , Permaculture International Journal, Issue 64, Sep-Nov
1997.
Permaculture International Journal (1996a) Credit Unions Fill Moral Void, and Ethical Investment Reaches New High
Permaculture International Journal, Issue 60, Sep-Nov 1996.
Permaculture International Journal (1996b) Green Dollars Grow, Permaculture International Journal, Issue 58, Mar-
May 1996.
Reilly, B.J. and Kyj, M.J. (1990) Economics and Ethics, Journal of Business Ethics, 9: 691-698, 1990, Kluwer
Academic Publishers, Netherlands.
Rimmer, Annette (1997) Power and dignity: women, poverty and Credit Unions, Gender and Poverty in the North,
Oxfam, Oxford.
The Australian Consumers Association (1991), Ethical Investment Update, Choice, September 1991.
Trainer, Ted (1998) Can Permaculture Save the World?, Permaculture International Journal, Issue 68, Sep-Nov
1998.
Yunus, Muhammad (1998a) Grameen’s Action Plan 1998-2005, Grameen Dialogue , No. 36, Grameen Trust,
Dhaka.
Yunus, Muhammad (1998b) Barefoot Banking...the importance of women, Permaculture International Journal, Issue
65, Dec-Feb 1998.
Yunus, Muhammad (1997) Barefoot Banking, Permaculture International Journal , Issue 64, Sep-Nov 1997.