Just a wee loan
anastasia de waal, 21 June 2010
“New York City is the world capital of banking. They do the banking for the whole world, but they don’t do the banking for their neighbours.”
Mohammed Yunus created the Grameen bank in Bangladesh to encourage enterprise by offering microcredit loans to those with no recourse to financial services.
It seems counter-intuitive then that in 2008 it expanded to America and Yunus, who has since won a Nobel Peace Prize for the scheme, now plans to bring it to the UK.
As New York, London is renowned for the financial services it provides: these gave Chancellor Gordon Brown around 27% of his tax revenue, allowing him to implement pro-poor measures such as the generous tax credits which are attributed with reducing poverty by 20% between 1999 and 2005. For commercial banks, small loans – the highest loan Grameen America will offer to a first time buyer is $1,500 – do not offer lucrative returns. Their reluctance to lend to individuals has led some to call for a British adoption of the German system of regional banks, these are state-owned and are designed to promote the development of regional industry and enterprise. This would seem to be to the same end as Labour’s Regional Development Agencies, only today attacked in a report by the TaxPayers’ Alliance for having neglected small businesses in favour of public sector projects. Indeed, the north-south economic divide is likely to become more stark in an era of public sector cuts: an average one in three people in the North of England are employed by the public services, compared to one in six in the South; these public sector workers are disproportionately female.
The proposed Grameen scheme in Glasgow would work on the original model of microcredit, which gave loans primarily to women. The loans are collateral free and were initially given to groups of women so that liability to repay the loan lay with the group – if one defaulted, the others made up the difference. The collaboration – between Yunus and Pamela Gilles, principal of Glasgow Caledonian University – would aim to target entrenched economic inactivity by providing individuals with start-up loans for small businesses. Gilles will meet with Iain Duncan Smith imminently about concerns that borrowers would be rendered ineligible from the income benefit payments on which around 29% of the working age population of Glasgow rely. Iain Duncan Smith is likely to be sympathetic to her aims: it was his visit to the Easterhouse suburb of Glasgow which led him to reorient his career towards finding solutions to poverty in Britain.
The welfare system as it stands, keeps individuals in their place – it contains little in-built impetus or scope for personal mobility. Professor Moffitt of John Hopkins University points out that the system of tax credits in the US – the Earned Income tax credit, while based on a similar concept to the UK tax credit, is given as an annual transfer which provides a ‘forced savings mechanism’. This long-term financial planning and capital accumulation is not encouraged by the UK system of monthly and weekly payments. It is questionable as to whether loans also mitigate against self reliance and saving. However, they may provide the financial leverage which allows the long-term unemployed to capitalise on the safety net which Labour put in place with its subsidises of low paid work and childcare, and to become economically active.