Friday, October 3, 2008

Grameen Bank vs. Wall Street : Case studies in contrast

Both the Grameen Bank (of Bangladesh) and the investment banks on Wall Street give cheap loans to poor and subprime borrowers, charging high interests and pretty much a few more similarities. But what makes one successful and the other result in a banking crisis??

Salil Tripathi does a little research :
Grameen’s apparent success and the Wall Street’s cataclysmic failure are intertwined in two simple concepts: viability and transparency.....

Some may argue that there is no change of return of loan, and that increases the mortgage defaults in the US, but this doesn't apply to lendings from Grameen Bank due to :

Moral peer pressure compels the borrower to continue repaying his debt; the possibility of rolling over debt, or swapping credit cards, simply does not exist. That makes the loans viable, but they are relatively risk-free.



And contrasted with the American model:

Subprime lending for housing is different. People whose income levels are so low that it might take them decades, if ever, to buy even a modest home, are shown tantalizing images of neat, cookie-cutter houses in a new development in the farther reaches of suburbs. Sometimes, the borrower doesn't even need not provide proof of income.



And moreover, the founder of Grameen Bank, Mohammad Yunus gets a Nobel Peace Prize but the CEOs of the investment banks and other institutions get sacked from their jobs! Truly a contrast... What are your comments for the same? Do post your smart opinions too!!

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5 comments:

  1. [...] Grameen Bank vs. Wall Street : Case studies in contrast [...]

    ReplyDelete
  2. There is no guarantee or provision in the bailout to force the firms to use the funds they receive to extend credit to the US economy! We have to defeat this disastrous legislation. Check my site SandySays1.wordpress.com
    for some tools to fight it.

    ReplyDelete
  3. There's a nice explanation of the situation here too. - http://greatbong.net/2008/10/01/the-great-wall-street-meltdown-part-1/

    ReplyDelete
  4. Since I don't know.

    Do Grameen Bank charge less interest?

    BTW, Thanks for the article. Good Information.

    ReplyDelete
  5. @chirax
    Thanks for commenting chirax. No, Grameen Banks charge a high interest rate, probably similar to the subprime interest rates in the US.

    ReplyDelete