A Tale of Two Banks


Irving, TX. Everybody is aware that the great and powerful banking institutions run by the new class of “masters of the universe” have failed, and now exist only by their privileged access to the public purse. And you will no doubt be happy to know that they are once again profitable and paying big bonuses. Of course, they are not profitable due to their lending activities, which largely they aren’t doing, but by the same sort of financial speculation that got them—and us—into this mess in the first place. The banks won’t lend because they can’t find borrowers who will pay them back, and the borrowers can’t pay them back precisely because of the way the banks wrecked the financial system and the economy along with it.

Yet through all this there is a bank that did not fail, that is not in trouble, that has no difficulty in finding borrowers and in getting repaid. That bank is the Grameen Bank, the institution that practically invented micro-finance. I had the distinct pleasure last night of hearing an address by its founder and guiding light, the Nobel-laureate Dr. Muhammad Yunus. The Grameen banks lends 100’s of millions of dollars to poor people in Bangladesh and around the world. The good doctor now heads a vast organization which employs 27,000 bankers in Bangladesh. Yet he was not a banker, but an economist. So how did he learn to run a bank, to set up the complex procedures and safeguards that such institutions require? It was very simple, he explains. They just went to the existing banks, the experts who have been in the business for a long time and who know how to get they job done. They examined all their practices and procedures, and then did exactly the opposite.

The author and Muhammad Yunus.

The banks lend to the rich; Grameen lends to the poor. The banks require collateral; Grameen’s borrowers have none. The banks require complex legal documents and teams of lawyers; Grameen has no such documents, nor any lawyers. The banks lend mostly to men; Grameen lends mostly to women. But there is an even more fundamental distinction between Grameen and Citibank. The too big to fail banks are mostly in the business of creating money and investing it in financial speculation; their activities have only a remote connection with the real economy, the economy of production and jobs and the creation of real wealth. Yet their speculative activities have the power to wreck the real economy. Grameen, on the other hand, is connected with the real economy. When they lend $50 to a women, she buys chickens, or goats, or a sewing machine, or some actually productive asset, something that actually adds to the real wealth of the borrower and the nation.

There is of course another distinction. Grameen is not in business to make a profit. It does in fact make a profit, but that is not the point. Making a profit only allows it to continue in being so that it can continue to fulfill its function, which is to bring people out of grinding poverty into self-sufficiency and self-reliance. It aims at building strong families, strong communities, a strong economy, one centered on the lowest rather than the highest. That is to say, it is a social business, a business that has a social point and helps to create a particular kind of social environment.

Looked at in that way, all businesses are social businesses; they all contribute to a particular kind of social order. But different kinds of businesses presume—and build up—different kinds of social order. Citibank has its own view of what a just society ought to be. Of course, they would never articulate this vision in polite company. They will fall back on the glibertarian rhetoric of “freedom,” even as they work to destroy the material basis of that freedom. Liberty in this view is a commodity like any other, one that has a price. Think of our Supreme Court, which has ruled that “money is speech,” and hence those with more money have more rights to free speech, and the corporations, with nearly limitless access to money, have nearly infinite rights to “free speech,” surely more rights than any mere citizen, any real person.

Dr. Yunus is familiar with talk. He was formerly the Chairman of the department of economics at Chittagong University. Yet it was contact with the villages surrounding his university that made him realize that all the complex formulas, all the high finance and foreign borrowing were not working. Or rather they were working, but only to increase the poverty and misery of the people. He discovered that he could solve the dependence on loan sharks in one village with a mere $27 in capital. For a man who was used to working in millions and billions, this was a real revelation. And that was the beginning of the Grameen Bank.

What Dr. Yunus came to realize is that all economic theory was built on considering only half of what men really are. It is built on the fact that men are selfish. And so they are. But that is not all that they are. Men are also unselfish, because without that, no social order—and no economy—would be possible or sustainable. So the good Dr. set out to found an economics, and a bank, built on the whole man, and not just the half-human.

In his most recent encyclical, Caritas in Veritate, Benedict insisted on the Principle of Gratuitousness as a necessary principle of economic order. This makes no sense, indeed, has no meaning, to the economist. Business and economics is merely about wealth creation, and no principles of love and gift are involved. Further, the introduction of such a principle can only compromise the “scientific” basis of economics, and only hamper the “efficiency” of the business. And yet, it is Grameen that is standing on the strength of its borrowers, while Citibank stands on the public purse. Citibank grinds us all down with their debts; Grameen lifts up its borrowers to real freedom.

I believe that Dr. Yunus, and Pope Benedict, are right and the bankers are wrong. Man is indeed selfish, but he is more than that. A banking system that is built only on selfishness will only build up a social order of selfishness. But this order will turn out to be disordered, and in constant danger of collapse. Further, this disorder privileges the possessors of capital, who must always be few, and sets them at war with those who possess only their labor, who will always be the many. But Grameen unites capital with labor to make the person and the family productive and self-reliant. Like other businesses, it makes a profit, which it distributes to its owner-depositors, but its purpose is to make a gift. The gift is funded by an exchange, but is not reducible to that exchange.

The social order needs to be funded; we all need to eat. But it cannot be reduced to mere eating, or soon we will be eating each other. Indeed, banking reducible to greed alone is a kind of eating of the other, or at least eating their substance and reducing their livelihood. But there is not the slightest reason it has to be that way, and the distinction between Citibank and Grameen Bank proves this. Indeed, it is the difference between greed and gift; between business understood as a taking of all you can get, and business as a means of giving all that you can.


  1. Grameen and the many other organizations offering “micro-loans” and real time investment in the poorest place in the world deserve to be applauded. There is no doubt that they are providing an amazing thing.

    As a side note, I do not think your “reading” of the recent Supreme Court decision is very accurate. This detracts from your article.

  2. Heylucas,

    I think the reading of the Supreme Court’s ruling is quite accurate. Corporations are granted the rights of individuals. If “money is speech” then campaigns are skewed in the interests of multinational corporations and banks whose CEO’s make countless millions in “bonuses” as rewards for being bought by the government — a move that is only socialist in the sense that it redistributes wealth, but it takes from the poor and gives to the rich.

    In the human consciousness the sense of a “gift economy” is forever being suffocated by the ubiquitous “market economy.” A pure gift economy (communism) is inhuman — no one always simply gives. But a pure market economy (capitalism) is inhumane and trains consumers in disquietude and avarice. A family, for example, is very much a gift economy — what is obligated is not a monetary return but gratitude for the gratuitousness of parental kindness.

    Micro-finance is a great movement. FPR should talk more about it.

  3. Thank you for bringing Grameen to light on FPR. I saw a documentary that highlighted Grameen’s lending practices several months ago and was very intrigued. I would like to see further exploration of Micro-Financing here, as it could be a real world solution that we on the Porch, as well as a larger audience, could potentially rally behind.

  4. Well said, Mr. Medaille.

    The point here deserves special attention due to the historically Christian background of Americans:

    I believe that Dr. Yunus, and Pope Benedict, are right and the bankers are wrong. Man is indeed selfish, but he is more than that. A banking system that is built only on selfishness will only build up a social order of selfishness.

    I think there is a kind of so-called “Christian realism” which asserts that since all men are fallen and selfish and not many are righteous, it is prudent that our institutions should be ordered or built on that selfishness and not depend on caritas. However “Christian” (because of the acknowledgment of sin/original sin) and “realist” one imagines that position to be, such “Christian realism” similarly is a half-truth that denies the reality of redemption in our world and the necessity of that redemption for life.

    But I do believe “Christian realism,” as I describe it, is alive and well in some conservative circles and should be challenged.

  5. Lundy’s right , we should hear more about this. It is an area of left-right congruence it seems. Securing or promoting the means of self determination and production is vital. In addition to micro-lending, the Peruvian Economist Hernando De Soto’s titling programs in Latin America introduced the transformative power of property ownership with real results, at least as I understand. He may be one of the neo-liberal Left-Statists but his efforts put the Marxist Guerillas Shining Path into a frenzy.

    I cannot remember where I picked it up but somewhere it was shown that simply educating woman in poverty stricken areas to a third grade level resulted in huge strides toward addressing many of the issues taken for granted as requiring permanent intervention by the Nanny State.

    I have only seen micro-lending efforts in areas of extreme poverty within the third world, are there any like efforts, perhaps mini and not micro….. in the States?

    As to “Glibertarian” . Damn ye Medaille. Muttering under my bear-baited breath whilst reading your pieces is almost entertaining.

  6. Soon enough we will need micro-financing here in the states just to keep local communities functioning. My own county’s commissioners passed a terrible zoning ordinance which is going to shut down what is left of our small farmers, and will stop people from raising their own small livestock. The county had hired some academic hack from Ball State University (professor of urban planning, we are rural for crying out loud!)to write this thing. One thing it has done is get neighbors together to drink coffee and talk! My point is that here in the U.S.A. our government, on all levels, is hurting our ability to adjust to changing circumstances by passing repressive legislation. We need a Professor Yunus here in the States!

    On the Supreme Court ruling re: polical free speech – a suggestion given by someone other than myself is that congress people should have to wear a ‘bowling shirt’ displaying the logo of their biggest campaign contributor. If they own them, the congress critter should have to wear their logo!

  7. Barry,

    The county had hired some academic hack from Ball State University (professor of urban planning, we are rural for crying out loud!)to write this thing.

    Ya’ in the Hoosier State?

  8. Mr. Médaille,

    Thank you for another informative and interesting post. I would like to echo the ideas of other people in the comment section: let’s have more discussion of these on the Porch, particularly discussion of whether this has happened (and to what success) in places other than the so-called third world.


  9. Nathan,
    Yes, the Hoosier State but just barely. Switzerland County is down in the southeastern corner. The Ohio River is our east and southern county line as well as the state line. At least we are not close to Indianapolis, though it is a much better city than it used be.

  10. “I have only seen micro-lending efforts in areas of extreme poverty within the third world, are there any like efforts, perhaps mini and not micro….. in the States?”

    DW, Kiva.org is starting to lend in the US. There is another web site (which escapes me now) that would line up individuals wanting loans with people willing to lend. Sort of a craigslist type arrangement where the loans were completely between the two individuals as far as terms and collateral.

    Of course credit unions used to loan money in a way similar to the micro lending outfits are now. Lending money to build the community. Now credit unions just want to get as big as they as quickly as they can.

  11. Nice read, but I’m left with questions. How would you build a structure (society, government) that supports such a dualistic view? After all, tales of success are nice but if there’s something useful in it we’d like to figure out how to appropriate and support it, no? Do you simply make tougher regulations against greed? Or can you build support for gift? What would that support look like?

    As an aside, the more I think about the reality of the legal entity known as a corporation, the more I am convinced there should be no such thing. It really boils down to a mechanism for real individuals to not suffer the consequences of their actions. That’s all.

  12. Jon, Your opinion about the corporation mirrors that of Adam Smith, who thought that joint-stock companies should be limited to high-capital, high-risk ventures. He included only long-range trade (very risky in those days, as Antonio discovered), canals, and insurance companies in this category.

    The Grameen bank is an institution of this “dual character” (not “dualistic”) economy. The odd thing is that the bank is considered an outlier among bankers, but it actually does real banking; that is, it lends out money it has on deposit, rather than appropriates the right to create new money at will. Real banks are very conservative, and tend to lend money only for productive purposes. Money-creation banks always have an incentive to create as much money as possible, whether for productive purposes or not. In fact, consumer credit and speculation pay higher rates of interest, and sheer size and importance guarantees that the bankers will be able to blackmail the treasury into covering their losses, if only the losses are large enough.

  13. Rex, there are successful micro-lending ventures in the United States. However, there are additional barriers to entrepreneurship in this country, due to regulation, zoning laws, licenses, tax accounting, etc.

    My favorite episode of this type comes from Dallas, where a women set up a hair-braiding parlor in her living room, and apparently did quite well. Too well, as it turns out, for the forces of the city, the state, and industry came down upon her like a ton of bricks. It seems her living room was not zoned for hair-braiding. Further, the health regulations require a sink in the same room, because who knows what evils may befall the world if you had to walk all the way to the kitchen for some water. And it turns out that hair-braiding, a skill women have from the time they are girls, requires 1300 hours of cosmetology training. Etc.

  14. Here is an article from Dec. 2008, a time when other banks that lend on real estate were struggling. It is an interview with a banker who specializes in lending to the Ammish:

    The Amish live well within their means — no splurging on iPods or HDTVs, no dinners out that they really can’t afford. The Amish think that missing a payment brings shame — not just on them, but on their whole family, their whole community.

    “We’ve never lost any money on an Amish deal,” he says. “So, I’ll stretch my neck more for with them than maybe I will somewhere else.”

    O’Brien has been doing this work for 20 years. He’s made countless thousands of loans — with no problems. This year, he says, one guy was a few days late on one month’s mortgage payment. Everyone else paid on time, every time.

    Res of the article, http://www.npr.org/templates/story/story.php?storyId=98156907

    Not exactly micro, but has some similarities.

    One version of micro-banking that was explained to me by a missionary functioned on the basis of peer-pressure from the community. “John, if you don’t pay the money back to the bank, there won’t be any for others to borrow . . .” (Note, “shame” in the above article) That is a different means of controlling greed/selfishness than the top down, man with a badge method being used in our failing banks.

  15. Another very good article John. Congratulations. Perhaps its not unfair to say that many of America’s problems revolve around the issue of allocation. As you have previously pointed out credit is rationed. The right to manufacture credit was allocated not very democratically to private banks. Unaccountable bureaucrats now decide who and what shall get funded not too far removed from Communist state planning. Funding for Wall Street gambling seems to have been very high on the list of favorites for the last thirty odd years with a 30% rise against allocation for genuinely useful goods and services. The reason for this was clearly because very good bonuses were to be had from the high profits derived from inflating asset and commodity bubbles. Of course, the last real estate bubble proved a bubble too far and collapsed the economy but this is to be expected from an economic system with no inbuilt accountability in the name of market fundamentalism! Put the issue of allocation to a vote of the general public and I’m sure an overwhelming majority would vote for the proposition that credit should be allocated in a way that is optimal for overall social welfare. This then is the big bogeyman vote that the Republicans and Democrats dare not have because their big corporation paymasters would be in trouble! Good God! The peasants might opt for a credit allocation that would allow them to buy ownership of the corporations and close down bubble gambling! That’s how dangerous the issue of allocation rights actually is!

  16. glibertarian rhetoric of “freedom”


    Mr. Medaille, this is another excellent article.

    I do have a question, however. In “Small is Beautiful”, Schumacher holds up Gandhi’s economic path as the best way. Yet, as much as I want to agree with Schumacher, by most accounts Gandhi’s system was a failure. Now a system praised even by neo-liberals is a success in India. Can you comment on this?

    Thanks again.

  17. I stole the term “glibertarian” from someone, I can’t remember who it was; that the way it is with a literary theif; you can’t remember what houses you’ve broken into. But I thought the term was accurate because of the basically reductionist character of the prevailing libertarianism.

    I am not sure what you mean by “Ghandi’s system,” or how it failed, since Ghandi was assassinated before he could implement any system. Ghandi was a distributist. Nor do I think that the present system in India is a success by any means. It has merely widened the gap between rich and poor, and has moved India as a whole closer to the brink. Ghandi attempted to abolish the caste system. Among other problems, no nation can advance economically if all of its citizens are not allowed to participate. (The American South had similar problems.)

    BTW, are you referring to my son Dan?

  18. Devil’s advocate here: let’s stick with definitions for a moment. What is a “bank”?
    If John means what I think he means, Grameen isn’t one, so his tale is a little more like a lilliputian fable, no?

    “only 3 percent of its assets are in the form of deposits from individuals and businesses, and it has never turned a profit. In fact, it is not a bank at all. It is more correct to view Grameen as a conduit for international aid dollars.

    What about Grameen’s low default rate of less than 3 percent? That sounds great until you look at precisely how the Grameen “Bank” goes about collecting the money (which its lends at 20 percent interest). Peer pressure is their phrase. Coercion is closer to the truth. Employees engage in weekly, door-to-door monitoring of the lives of all borrowers. Borrowers attend weekly physical training classes, are indoctrinated in collectivist ideology, and are told to be 100 percent obedient to the ideals of the bank, or else lose their borrowing privileges. On the whole, it is a process that has more in common with a cult than sound finance.”
    Jeffrey Tucker, 1999 at http://mises.org/daily/337 and again a decade later commenting on the Boston Globe’s perspicacity to see through the “distributist” smoke and mirrors: http://www.boston.com/bostonglobe/ideas/articles/2009/09/20/small_change_does_microlending_actually_fight_poverty/

    “Somehow, all the world came to believe that the key to lifting people out of poverty was to grant everyone loans that they then had to service out of some income stream that they didn’t have.”

    Sound familiar…? Yup that’d be our very own home-made credit crisis… the prevalent socialized losses of moral hazard we see all around us… the privatised gains? The friends of the central bankers, AIG bailout bonus bean counters… using legal tender beans our very own Treasury printed up for them out of thin air, ex nihilo. Diluting the purchasing power of every other bean in your or my pockets… Grameen “bank”? Fiduciary trust as daylight robbery masquerading behind “16 decisions” Marxist dogma… Sorry John, no fandom from me…

  19. Clare. Grameen is a bank; Citibank is not. A bank lends out its own capital or deposits at interest; Citibank does not lend these funds. It uses them as reserves to create new money ex nihilo.

    But why am I not even mildly surprised that that the Mises institute is opposed to anything that actually helps the poor, even if it helps the poor to become independent entrepreneurs? Could it me that they are in the grip of the John Gault syndrome, the belief that entrepreneurship is a rate commodity confined to a few special people and for which we must pay an exorbitant fee, lest they all go off to their own island and leave us to our own devises? To Gault (and Mises) I say. “Go! Now! The sooner the better for all of us.” Every human, by virtue of being human, has talents, and particularly the talents of an entrepreneur. The Gaults get in the way by attempting to monopolize creativity through the control of capital.

    But I love Tucker’s conclusion: “We are better off sticking with old-fashioned banks that turn a profit, don’t need subsidies, and treat their borrowers like human beings rather than minions in a vast political organizing effort. ” HA HA HA HA!

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