Mega banks fuelling financial crisis

The world's credit crisis that has seen companies lose hundreds of billions of dollars in the last three months is the "fault of large institutions and the systems that run them rather than the entire market", Nobel Peace Prize winner Muhammad Yunus has told delegates in the opening day two keynote address of Leaders in Dubai.

Asked what advice he would have for incoming Citigroup chairman Robert Rubin, Professor Yunus, said: "My advice to Rubin would be pay attention to his systems first and to ensure this will never be repeated." "The word sub-prime indicates that it is a risk by name. This is not the fault of the market, it is the fault of the institutions and systems that we have built," he added.

Rubin recently replaced Charles Prince, who headed up the US financial giant for four years but left due to Citigroup admitting that it was being forced to write off between $8 billion and $11 billion in sub-prime related losses.

Yunus's microfinance model has been a revelation in the banking world ever since the Bangladeshi Nobel Prize winner began lending to the poor in 1976 offering $27 of his own money to 42 villagers in his native country.

ln 1983 Yunus founded Grameen Bank and now lends over $5.1 billion to some of the world's poorest people, 97% of which are women, and with a 98% repayment rate.

Yunus told delegates at this year's Leaders' forum that "poverty was not created by the poor but by the systems and institutions" that served them. "Conventional banking systems deny opportunities to almost two-thirds of the world's population and once we found out what they were doing we simply reversed the idea," he said.

"They say the more money you have the more we'll give you, we said the less you have the more attractive you are. They went to men, we went to women. They are the bank and not the borrowers, to us our borrowers are the bank. They look at credit history, we don't care about their past, we only want to look to the future," he added.

One argument raised against Yunus's microfinance model is that it only works for the 'entrepreneurial poor'. "This burns me up", said Grameen founder. "We are all entrepreneurs. It is part of all of us and we are all born with it. The difference is that some are given the opportunity and some never realise the opportunity of be coming entrepreneurs."

"Irrespective of where they are born every human being is born with an inherent gift, but too often that gift fails to be unwrapped and so these people die without having shown the world the gift they had, and that is called poverty."

Yunus admitted that the recent cyclone in his native Bangladesh, that has claimed over 2,000 lives so far, had killed many of his employees and lenders.

"The good news in Bangladesh always seems to come with bad news. Many of those who died are our borrowers, not just that they are people we know and work with and I hope we can overcome this tragedy."

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sub-prime
Posted by aredha abunawwas, Washington, U.S.A on 23 November 2007 at 08:00 UAE time


I completely agree with Muhammad Yunus many of the financial Executives should learn and understand financial risk beside the sales aspects of their job. Also they should analyze the risk and the impact of their long term plan, to have more of safe sound risk in the lending side of their business. Sub- prime become huge mess to so many banks and investors in the US and across the globe and so many borrowers can not repay the debt.  
 
Aredha Abunawwas 
Investment Banker USA

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