Turning Credit into Cash Instead of Debt
December 6, 2006
What if we used credit only for growth and not consumption?
Professor Muhammad Yunus, the winner of the 2006 Nobel Peace Prize, shows us a whole new meaning behind the concept of credit. When Yunus saw a way to make a difference by giving out tiny “microcredit” loans to the poor in Bangladesh the Grameen Bank was born.
As described on the bank’s website, Grameen Bank “provides credit to the poorest of the poor in rural Bangladesh, without any collateral“. Having helped around 5 million borrowers Grameen Bank is an example of responsible credit use that stands in sharp contrast to the current levels of debt in the US.
Grameen Bank discusses how it uses microcredit to help those with no credit history and no collateral. The loan “is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption.”
A successful example of people utilizing the loan to create income are the 260,000 “phone ladies” throughout Bangladesh. Women living in villages without phone service borrow money to purchase a cell phone and usage minutes. They then “rent” out their phone to other villagers. Once they’ve made enough to pay back the loan, any additional earnings are theirs to keep.
So, what if we used credit only for growth and not consumption? What if, instead of borrowing to buy, we borrowed to create income? Imagine, that for every dollar we spent on our credit card last year, we had turned it into $1.10 or a $1.25 instead of spending it down to $0.00. We won’t win the Nobel Peace Prize with this approach but we’ll certainly be much farther along on our journey for a money smart life.
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Yes, Grameen Bank is an ingenious idea! Many would not have thought that the poorest of the poor would be that responsible to the credit use.