Journalists write their opinions down. Not necessarily facts… Nor do they understand the difference between money backed by the real economy and money created out of thin ear, or through ‘quantitative easing‘, at the cost of Nation states…

“Strongest takes all” can be replaced by rules that ensure the poorest have a slice of the action is another Yunus quote from the same article.

Enjoy reading the whole story!

I don’t understand why it’s a surprise to the press and to financial observers that microcredit is still lending lots of money despite the global financial credit crisis.

Microcredit is not phony, it’s not a dishonest way to drum up money for a big financial corporation. Microcredit doesn’t give people money then adjust the rate on the interest. Microcredit doesn’t sell the risky loans to someone else to try to further profit on them.

Microcredit also makes loans to people who pay them back. They generally don’t make loans to greedy people. Microcredit makes loans to people who are just trying to better themselves.

In fact, the only way microcredit has been hurt is by less money coming in from these big financial institutions that were making these other phony loans. They were only were trying to get into loaning to poor people because they saw the profit margin there. This may well help microcredit in the long run.

Anyway, Time magazine interviewed the head of Women’s World Banking, Mary Ellen Iskenderian, to ask her about this microcredit “phenomenon”
TIME: To what extent and in what specific ways is the worldwide credit crunch impacting microfinance in developing countries?

Iskenderian: There is evidence that microfinance is resilient to global market movements, compared to traditional lending, as it falls outside of the mainstream economy. And there does still seem to be equity available for microfinance; recently, for example, a couple of large private equity deals were completed in India. Repayment rates remain very high, 97% or 98% in many places. That results from good, old-fashioned credit methodology — you know a household’s capacity to repay. That’s the kind of old-fashioned banking that some people feel was absent in this latest round of banking disasters. At the same time, we are seeing many microfinance institutions (MFIs) scaling back expansion plans and, in some cases, raising interest rates as a result of the credit-spread increase and the rising cost of borrowing. Certainly, no one is taking their existing funding relationships for granted. My concern is that we have only begun to see the effect of the triple threat of finance, fuel and food issues on microfinance.

TIME: To what extent have the global economic challenges trickled down to impact the poorest of the poor?

Iskenderian:The impact on the poor, including the clients of our network, has probably been most evident in rising food and energy prices, which have meant that families may face trade-offs like the choice between paying back their loans or putting dinner on the table for their families. Microfinance doesn’t target the poorest of the poor, as they need other types of intervention. It targets the economically active poor at the bottom of the pyramid. There are signs that micro-entrepreneurs will see higher interest rates, since the global credit crunch will likely require MFIs to raise interest rates as funding becomes more scarce. I am particularly concerned about the ramifications for women since, for many poor women around the world who are otherwise excluded from formal financial systems, access to microfinance is their only economic lifeline.

TIME: What prompted the development of a financial instrument like micro-insurance, and what’s the broader impact of new financial instruments aimed at the world’s unbanked?

Iskenderian: Product diversification came out of a recognition that lending alone is not the solution if our end goal is long-term poverty alleviation, which is why we in the industry no longer talk about microcredit, but microfinance. Many entrepreneurs in the developing world are only one seemingly minor catastrophe — like a hospital stay — away from financial disaster, so housing loans and insurance and savings products help create and preserve assets, leading to broader benefits for the economy as a whole. I can’t tell you how many times I’ve heard women clients in our network ask, “Why can’t I save for my child’s education, instead of taking out another loan to pay for it?” The poverty alleviation benefits are magnified when microloans are supplemented with savings and insurance products.

World turmoil may spur Islamic finance
Afp, Doha  – The  Daily  Star  Dhaka
Wednesday,  October 29, 2008

The fast growing Sharia financial system may receive a further boost as an alternative to capitalism amid the credit crunch and banking crisis, Islamic academics and clerics believe.

Already said to be worth 300 billion dollars and expanding at 15 percent a year, the Islamic system forbids the levying or payment of interest, preferring shared ownership and splitting of profits.

The global economic meltdown shows “the need for a radical and structural reform of the global financial system. The system based on the principles of Islam offers an alternative which could reduce risks,” Hatem al-Naqrashawi, head of theological studies at Doha University, told AFP.

“Islamic banks don’t buy credit but manage concrete assets… which shelters them from the difficulties that American and European banks are experiencing,” explained Abdel Bassat al-Shibi, managing director of Qatar International Islamic Bank.

Islamic finance is different from capitalism in two main ways. It bans interest-bearing loans, seen as usury, a practice forbidden by Islam, and also forbids speculation. Instead, it favours sharing risks and profits between a bank and a client.

Sharia compliant products include Ijara, a way of buying a house through a lease and subsequent ownership, rather than through a mortgage. Others are Musharaka, the sharing of profits and losses, and Murabaha, under which the seller declares the profit margin being made on the sale of a commodity.

Murabaha is seen as a way of enabling a buyer to avoid taking an interest-bearing loan, though some Islamic scholars say it is too similar to the charging of ‘riba’, or interest.

In the past three decades, the number of Islamic financial institutions has risen above 300, spread among 75 countries. Their total assets are more than 300 billion dollars and are growing an at average rate of 15 percent a year, according to studies.

“The collapse of capitalism based on usury and paper and not on the trading of goods on the market is proof that it is in crisis and shows the Islamic economic philosophy is holding up,” prominent Egyptian-born Qatar-based cleric Sheikh Yussef al-Qaradawi told a recent conference in Doha .

“We have all the wealth… the Islamic nation has all or nearly all the oil and we have an economic philosophy which no one else has,” he said, referring to the fact that Islamic countries, headed by Saudi Arabia, hold a large part of the world’s proven crude oil reserves.

Suleiman al-Audah, an influential Saudi cleric, called for an “international Islamic summit to define the framework and the stages of an Islamic economic alternative.”

Some Islamists admit, however, that this alternative is not yet operational.

“Theoretically, the Islamic economic system offers a complete and solid mechanism… but in practice, the Islamic banking experience is not yet mature, because it offers limited products like ‘Murabaha’,” Audah, a moderate Islamist, told AFP.

His caution is shared by Egyptian Islamist intellectual Fahmi Howaidi, for whom the Islamic system “could bring solutions to certain banking problems but cannot be a magic wand” to end the financial upheaval which is shaking the world.

But poverty begins at home: in the UK I have not only met many victims of banks and other institutions but also of lawyers! When people, especially farmers, commit suicide because of overindebtedness, bankruptcies or other financial pressures we ought to look at what can be done here, at our doorstep.

The Oxford Research Group has published Beyond Terror to illustrate how climate change is a much more real danger than potential acts from terrorists.

The Forum for Stable Currencies has published a Public Credit Petition to raise awareness among the general public, journalists and politicians about the questionable scarcity of money when ‘green money’ is badly needed.

Will you click and sign?