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Microcredit Is Expanding to New Products for the Poor
Modern microfinance started with economist Muhammad Yunus. In the nineteen seventies, he started what became the Grameen Bank in Bangladesh. He and the bank shared the Nobel Peace Prize in two thousand six for the idea of offering small loans to the poor to fight poverty. In twenty ten, reports of harmful micro lending methods and corruption shook the Indian state of Andhra Pradesh.
Mr. Yunus recently said in the New York Times that things got out of control. He noted that Andhra Pradesh had intensive lending activity at the time. We spoke to Ghiyath Nakshbendi about changes in the world of microfinance. He is an expert in international business and teaches microfinance as a business model at the Kogod School of Business at American University. He says the government of India in certain states has started taking steps to "guarantee that these institutions are operating under a strict system."
Some experts have raised questions about whether micro lending lifts women or poor families out of poverty. David Roodman is with the Center for Global Development, a research group in Washington. He says microloans do not do a good job fighting poverty. He says over three billion dollars went into microcredit in twenty-ten. But many lenders failed because of bad supervision or failure to repay loans.In one model, governments or nongovernmental organizations give money to microcredit operations. Interest income is often used up by costs, rather than helping other poor borrowers. But Ghiyath Nakshbendi says that model is changing.
Mr. Nakshbendi says sustainability is now a main goal. He says there has been a move in the last five or six years to find ways and means by which make these operations sustainable. In his words, sustainable means simply that "Yes, we are going to rely on donations, but in the meantime, we are going to encourage these borrowers to save some of their money." Money from savings can then be used for new loans. Mr. Nakshbendi says private equity companies are looking closely at microfinance as an investment. New models are being developed to offer more than business loans -- for example, educational loans and health insurance loans.
For VOA Special English, I'm Alex Villarreal. For more business news for people learning English, go to voaspecialenglish.com.