'The Ethics of Micro Finance\r'

'Christopher Martin ‘ little-finance programmes argon aimed at lessen lightness. What honourable ch every last(predicate)enges argon raised by the operation of micro-finance and which respectable speculation enkindle take up be applied to mensu crop how Grameen lingo addresses these challenges? ’ Introduction: The essay seeks to examine the honourable issues raised by the operation of microfinance. In the send- collide with divide, an overview ordain be offered. In the second section the ethical challenges posed by operation of micro-finance pull up stakes be examined. In the third section, an overview of Grameen Bank forget be given.Finally, in the fourth section, the ethical theories of Kant, Bentham and Aristotle provide be applied to the ethical issues raised by the operation of Grameen Bank to see which theory best applies. 1. What is micro-finance? Conventional cusss like we in the west hump ar not as widespread in the development world. Even in places where in that look upon ‘mainstream’ brims do bring in operations, macroscopic numbers of plurality result not be in a station to utilise their services. Such flock have been termed the ‘un deposeable unretentive’. The World Bank estimates that at that place be 2. zillion volume (nearly 40% of world’s population) who do not have access to formal fiscal services. Microfinance has emerged in the last few decades in receipt to the indigences of such people for savings and adds facilities. It is an election to them have to use the services of what argon conversationally termed ‘ loan sharks’, who charge richly films so high that borrowers struggle to pay off the question state borrowed. Micro-finance is the provision of savings facilities and low-d give birth abide by loans to typically to slimy people in the tertiary World.Such people have a need for financial services, particularly as at that place i s a wish of in rural argonas where thither is a neediness of sticking facilities. This makes it difficulter to makes deposits and so build up whatever categorization of savings. For slip 1 ”if you live in a straw hut in a resolution, determination a safe place to store savings is not easy. ” People need sums for 2 â€Å"life-cycle events such as births, marriages & emergency situations. ” Stuart Rutherford in ‘The Poor and Their M bingley surface forwardlines the 3 â€Å" Three common ways of raising large sums i) selling assets they already own (or expect to, e. g. dvance barter of crops) ii) mortgaging or ‘pawning those assets. iii) finding a way of move their finding a way of turning their undersized savings into large lump sums. It is important to line of reasoning that there is not any ‘one-size fits all definition of need . Muhammed Yunnus asks the rhetorical question 4 â€Å"Who on the reheel below is suffering an d who is not: -a jobless psyche, -an nescient person, -a homeless person, -a person who does not produce passable food to feed his or her family year round, -a person with a thatched house that lets in rain? -person scummy from malnutrition, -person who does not send his or her children to school? street vendor? Micro-finance whitethorn increase persons income but that may sightly be spent on customary consumption and not on addressing any of the variant facets of impoverishment on Yunnus list. For instance, victimisation an increase in income to send a child to school. Savings The precise poorest may be too risk disinclined to take show up a loan as they may have an erratic income, for instance imputable to crop failure. Hence the need for savings. In micro-finance schemes there are two types of savings schemes: I) Locked in: not available for withdrawal until a division a customer left the bank.Used as loan indirect The use of this method was based on the 5 â€Å" Powerful perception tha that the ‘poor potbellynot carry out. ” ii. Open-access savings which can, it is argued, 6 â€Å"generate much to a great extent net savings per client per year (and thus greater detonating device for the MFI) than compulsory, locked in savings schemes… and provide a efficacious and well utilise facility for clients while doing so. ” positive to the repayment of micro-finance loans is the group high-energy article of faith. Peer closet plays an important part in fecundation constituents together.Trust is construct up and the commitment to repay is increased via reciprocally reinforcing demeanor. It can be described as a case of ‘one for all one and all for one in terms of repaying the loan. -However, there are in all likelihood problems as it depends on the co-operation of members. However, 7 â€Å"if it goes badly, whence they are all in trouble. ” A benefit of item-by-item loans is that 8 â€Å"the le nding institution knows who ex affectly is trusty for the repayment of the loan, and does not get lost in a maze of group members referring to or blaming one an opposite. ’’Section 2 ethical challenges Doubts have been drop down on the overall service program of micro-finance programmes in reducing poverty. Some critics argue that 9 â€Å"that micro-finance programmes fail to debate the poorest, generally have a limited feat on income, address the symptom rather than the hearty cause of poverty”. The 10 â€Å"focus on income poverty” creationness reduced by 11 â€Å"the provision of commendation for income-generation through egotism-employment. ” Neglects to address the oceanic abyss rooted causes of poverty such as omit of education and poor transport infrastructure.Micro-finance is concentrated on the ‘bankable poor as they are seen as more able to take advantage of a loan to e. g. buy more equipment and so 12 â€Å" can take more risk than the poorest households without threatening their minimal needs for survival. ” It is ironic that a program aimed at reducing poverty excludes the very poorest from participating. However micro-finance programs ostensibly the theme of reducing poverty. There are 13 ‘’MF premised on the notion that corporate trust is a human right it can improve the lives of the poorest . ” simply as the very poorest are excluded the application of credit as a ‘human right is not universal. If something is a ‘human right is supposed to apply to all humans. In this case it doesnt so it would fail Immanuel Kants Categorical shrill….. It could be argued that Yunnus is instead focussing micro-finance on those people who are in the position to benefit nearly from it. 14 â€Å"Although Yunus frames his vision of MF in the language of human rights, his ideas are in fact pertain with entrepreneurial rather than redistribution. ” Thus he is a social stemmaman rather than a philanthropist.Micro-finance institutions are self-sustaining businesses rather than charities and so 15 â€Å"poverty reduction becomes an externality and not a mark as such”. Thus Yunnus and others could be charged as potentially using borrowers as authority rather than ends. Section 3 Grameen Bank economicals professor Muhammad Yunnus was motivated to set up Grameen aft(prenominal) being disheartened at the level of poverty he witnessed in rural villages in his inseparable Bangladesh in the early 1970s. A catalysing experience was when he met 16 â€Å" Sufiya Begum, a woman from a village called Jobra.Like many others in her village, she relied on the local loan shark for the cash she needed to buy the bamboo for the stools she crafted. ” That loan was solely granted on the condition that she sold to him (the capital lender) all of her output at a damage determined by him. 17 â€Å" Thus, though hard working, she was t rapped in poverty. ” moreover the villagers were cut off from borrowing from 18 â€Å" stodgy bankers since they had no credit histories and no collateral to offer, and could not even make out the necessary paperwork because they were illiterate”. 1.Muhammed Yunnuss was foc apply on providing the loans to the landless as he saw them as being more entrepreneurial than tradition shrink farmers. He was very much of the view that micro-finance could serve up the poor to helper themselves through congruous self reliant. Grameen message village in Bengali. Muhummad Yunnus wanted the bank to be the antithesis of a faceless bureaucratic bank headquarted in a large city (even though it is now). He aimed at recruiting banking staff who would build up an understanding of the everyday lives of villagers and the challenges they faced.This would make it easier to identify which people would benefit closely. Crucially this helped to engender the building up of levels of trust between the borrowers in village who took out the collateral free and draw free loans. vitally the development of the level of trust necessary to control repayment collateral free loans without any switch off was the move of group dynamic in binding borrowers together with mutually reinforcing behaviour. What helped make the repayment process be manageable for borrowers was that loans were paid in small weekly instalments rather than one lump sum to worry about at the end of the loan period. )Application of ethical theory: Grameen Banks focus on borrowers becoming self reliant relates to them developing virtues of self reliance and not being burdensome to others. Yunnus argued 19 ”On the recipient side, charity can have ruin effects. It robs the recipient of dignity, and it removes the incentive of having to generate income. It makes the recipient supine and satisfied with thinking ‘all I have to do is sit her with my hand out and I will earn a living” Instea d, borrowers will developing a sense of ownership by coming 20 â€Å"With their own ideas” for business generation.In this respect Yunnus is treating borrowers as ends and not means as he leaving it up to them how they behave. The programme develops members sense of self-control of saving regularly as they had to 21 â€Å" yet for several months before they were eligible for to borrow. The requirement to save first also results in an investment in the institution that will lend to them †thus the loans they cope with are financed not just by an right(prenominal) faceless agency, but also by their own savings and those of their friends and neighbours. The borrowers are much more likely to be committed and conscientious about repaying. ’. Yunnus challenges the assumptions on human nature made by conventional banking paradigms by issuing collateral free loans without any contracts. 22 â€Å"Grameen assumes that every borrower is basically honest. We may be accuse d of being naive, but it saves us having to study in all those endless documents And in 99 per cent of the cases our trust turns out to be vindicated. unwholesome loans of 0. 5 per cent is the cost of doing business, and it also represents a constant reminder of what we need to improve in order to succeed. ” Micro-finance proponents cant be completely 3 â€Å" ethical claiming to reduce poverty while pursuing other objectives. This is particularly so because other people’s money is involved”. The intentions of institutions should be transparent, e. g. through a mission statement and should not be mask in language that hides agendas of e. g. making a amplification for shareholders, by only stressing social objectives. 24 â€Å"moreover the imbalance of power between the lender and the borrower. ” for sure makes it harder for borrowers to pursue their own interests as they have to be reconciled with the banks financial interest.Within the framework of t he ethics of Immanuel Kant, prof Yunnus succeeds ethically as is acting from the altruistic motive of reducing poverty. Kant agreeed that 25 â€Å"to act from a level-headed will is to act from duty. ” Aristotle takes a stricter greet by arguing that acts are ethical if agents go beyond just doing so from a sense of duty. For instance, someone only went to visit an elderly relative out of a sense of duty, and not from any greater concern for the relatives welfare.Muhammad Yunnuss focus on helping the poor maintain their sense of dignity by becoming more self reliant is arranged with Kants approach as Kant argues 26 â€Å"â€Å"Our free will is what gives us our dignity and unconditioned worth” This of course relates to Kant maintaining that people should be considered as ends in themselves rather than means to someone elses end. Kants stress on the universality of ethical principles is relevant to the potential problem of people tenia viewing promises as binding.T he group dynamic principle of micro-finance surely make the promises of members more binding as otherwise it would seem that if one person got out-of-door with not paying, then no one would and then the bank would not lend to them.. Additionally, as the borrowers and the bank are both benefitting so 27 ”No one (is) used merely as a means in an voluntary economic alter where both parties benefit. ” Jeremy Bentham and John Stuart Mills Utilitatarianism holds that the ethical utility of runs can be measured by the consequences. This approach is onsistent with the cost-benefit digest adopted by contemporary businessses where the utility being measured is profit. In the case of Grameen Bank the utility can be measure by a) the rate of loan repayment According to Yunnus the default rate was only 28 â€Å"0. 5 per cent”. However, on the other hand many members of Grameen were unhappy with their savings being ‘lockked-in and 29 â€Å" were leaving the organisat ion in order to realise their (often substantial) compulsory savings. ” Such members went on strike in 1995 to protest at being denied accesss to their savings. 30 â€Å"The financial consequences of the strike were profound.According to an unpublished Grameen Bank internal report (1996), in Tangail District the cumulative un-repaid amount had climbed to over $2 million. ” More generally, in terms of consequences for members there have been benefits. The scheme has helped the majority to build up savings that could be used as capital. Additionally it the scheme has helped reduce income poverty 31 â€Å"Grameen bank members had incomes about 28 % higher(prenominal) than the target group of non-participants. ” Act utilitarianism seems like the most appropriate branch of Utilitarianism to apply to Grameen bank and Muhammad Yunnus.An act is right if it maximises utility. A sort of moral s is used to calculate the long term benefits and harm for apiece actor and th en compute the result. But there is the problem of time-framing how long a period eto consider. ace is reminded of Keynes quote ‘in the long term we are all dead. Act utilitarian’s consider themselves equally with others so are not egotist in just assessing whether an act maximises their own person utility or well being. Yunnus does seem dear in doing that and is aiming to benefit the members as opposed to just enriching himself.However on the other hand, Utilitarianism could be consistent with the Grameen member group dynamic process discussed earlier. Members realise that there will be bad consequences for them and their peers if they dont follow the ‘rule of repaying and so are compelled to follow the rule. Robert Solomon, writing in ‘A companion to business ethics argues that 32 â€Å" â€Å"In business ethics it is generally agreed that three elements, the principles of an action, the action itself, and the actions consequences must be taken into account. However there is other option”: virtue ethics.Grameens ethos of borrowers using using the loans to become self employed is connected to them developing the character traits consistent with the virtue of self reliance. Aristotle deemed behaviour a virtuous if is it was consistent with a 33 ”mean between the extremes” of e. g. being dependent on someone elses act of charity and being selfish. As the 34â€Å"Various virtues reinforce one another”, the principle can be applied to the Grameen member group dynamic of mutually reinforcing behaviour promote the repayment of the loan.In this case it is the non relative virtue of trustiness that is being reinforced. It could also be argued that different members are motivated by Aristotles 33 â€Å"Idea of practice- shared out cooperative activity with mutually understood goals and ways of doing things. Conclusion Muhammad Yunnus set up Grameen bank with a good motive out of concern for the poor. Yes, th is sublimate motive has been diluted by the pragmatic need for the bank to be financially self sustaining. For instance the previous use of locked in loans would be termed absolute by Kant, so in this aspect the borrowers are being hard-boiled as means.How the bank lets members come up with their own ideas for business generation is consistent with Kant’s belief on people’s free will that enables them to be rational and moral. Furthermore as both the bank and the borrowers are benefitting from this economic exchange, then the borrowers are not being treated as means and so this would pass Kant’s test of whether it is ethical. It is difficult to measure the individual benefits and downsides see by the individual members, thus making it a less effective ethical yardstick. However the high repayment rate does score well on the Utilitarian scale.But ultimately, Muhammad Yunnus is motivate by concern at the suffering of the rural poor. Crucially he wants to help t hem help themselves. One is reminded of Bob Geldof’s fishing rod analogy â€better to give a man a fishing rod, than a fish. Yunnus and Grameen bank are thus actively promoting the virtue of self reliance. Additionally they are promoting the virtues of co-operation and trust via the group dynamic and by the fact the loans are collateral and contract free. Critics of Yunnus may have attacked him because he isn’t the finished philanthropist. Rather, he is a socially responsible businessman.Bibliography Wright, Graham, ‘Micro-finance systems 2000, The University Press, omega Books, London. Roy, Ananya, ‘Poverty Capital 2010, Routledge, Oxford. Activities that are unlikely to create debt instrument” Rutherford, Stuart, ”The Poor and Their Money, 2000, Oxford University Press, New Delhi Yunnus, Muhammad (with Alan Jolis), ‘Banker to the Poor, 1999, Aurum Press, London Yunus, M, Moingen, B and Lehmann-Ortega, L, ‘Micro Finance- Build ing social business models: Lessons from the Grameen experiences, article in ‘LONG RANGE PLANNING   Volume: 43   Issue: 2-3   Special Issue: Sp.Iss. SI    scalawags: 308-325    print: APR-JUN 2010 Rutherford, S, ‘The Poor and Their Money , 2000, Oxford University Press, New Delhi. Frederick, R, ‘Companion to business ethics, 2002, Blackwell Publishing, Oxford Vanroose, A, ‘Is microfinance an ethical way to provide financial services to the poor? Microfinance: Are its promises ethically justified? CEB Working publisher N° 07/014 June 2007 References 1. Wright, G, Microfinance Systems, knave 2 2â€Å" â€Å" varletboy 1 3â€Å" â€Å" varlet 5 3. Yunnus, Banker to the poor, summon 10 4.Wright, G, scalawag 71 6. Wright, G, rapscallion 69 7. Wright, G, page 139 8 Wright, G, page 139 9. Wright, G, page 6 10. Wright, G, page 8 11. Wright, G, page 8 12. Wright, G, page 11 13. Roy, A, ‘Poverty Capital, page 13 14. Roy , A, page 23 15. Vanroose, A, CEB Working paper, page 11 16. Yunus, M, Moingen, B and Lehmann-Ortega, L, ‘Micro Finance- Building social business models: Lessons from the Grameen experiences, Page 314 17. Ditto 18. Ditto 19. Yunnus, Muhammad (with Alan Jolis), ‘Banker to the Poor, page 22 20. Yunnus, Banker to the poor, page 114 21. Wright, G, Microfinance systems, page 137 2. Yunnus, ‘Banker to the poor’, page 111 23 Vanroose, A, ‘Is microfinance an ethical way to provide financial services to the poor? , page 4 24. Ditto 25. Frederick, R, ‘Companion to fear Ethics, Chapter 1 by Solomon, R, page 3 26. â€Å" â€Å" page 4 27. Frederik, R, page 7 28. Yunnus, M, ‘Banker to the poor’ page 111 29. Wright, G, page 78 30. Wright, G page 78 31. Yunnus, & Lehman-Ortega, page 12 32. Frederick, R, page 30 33. Frederick, R, page 30 34. Frederick,R page 32\r\n'