With the recession continuing unabated, the need for social housing at its greatest in centuries and the poorest being hit hardest with job losses and rising living costs it is no wonder that our leaders have looked to banking as one of the ways to reverse the situation.
We've had the Government putting pressure on banks to increase lending with little effect and we've had Councils flirt with the idea of providing 100% mortgages and unsecured loans to those in the greatest need. A worthy aim but an old-fashioned solution to a very modern problem and, consequently, one that would be doomed to failure if it ever became reality.
The news therefore that Professor Muhammad Yunus plans to bring a proven microbanking system to Glasgow to alleviate poverty is welcome and timely.
The 'Third World Bank' is much closer to the people and "works by giving small loans to poor people who are refused credit by traditional banks in order to develop small businesses. The money is repaid in tiny weekly instalments and the deposits from successful businesses are used to finance other ventures."
Given its success in Bangladesh it seems logical that it should work in Scotland and I look forward to the documentary on the scheme on Tuesday evening (10:35pm)
The only two stumbling blocks that I can see are welfare and local economics.
For the welfare, as mentioned in the article, the scheme works by taking away an individual's social security benefits to ensure there is no 'safety net' and there is a greater chance of business success. Given how dependent many Glasgwegians are on these benefits, it is unlikely that this style of credit could be introduced.
Personally, I don't see why the benefit payments can't be continued in the short-term and then if the business is a relative success some repayments of those benefit payments can be made in the medium to long term future, similar to the repayment of student loans. And, of course, if the credit from the microbank doesn't result in a success then the benefit payments can continue and no repayment is required.
A slightly bigger stumbling block that I can see is this. How high is the demand for new products and services in the pockets of Glasgow where poverty is deepest? Is there really potential for a new wave of entrepreneurs in Sighthill?
I don't think this should prevent giving this style of banking a go, it will always be cheaper than the more well-known banks out there and that alone removes the barriers to entry that prevents so many from running their own businesses.
And with Sir Tom Hunter onboard already I really don't see why this venture won't succeed where many others have failed before.
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5 comments:
I read about this Jeff and like you, my main thought was is there enough motivation in people who have such an excellent 'safety' net such as the UK benefit system. Certainly I would like to think there is, but do people who have been on long-term benefits really want to work? Working for yourself isn't easy and today there is more red tape than ever.
The programme will be interesting I'm sure.
In my experience (I work in the business) many people on long term benefits would love the opportunity to work, but are terrified that, should it all fail, they will be left with absolutely nothing and not able to access benefits. The initial costs of setting up and of running the business in early days are impossible if you have absolutely no money whatsoever.
There's a very good project in Dundee which works with people who are LTU to draw up business plans and try to source money. It has many successes to its credit.
I'm with the idea that some sort of benefit could be paid whilst the business is set up and gets underway. Only for a short time, and possibly on a pay back basis.
It's a valid point Subrosa but I reckon some of the most enterprising, able individuals are those that left school with few grades and just need a break to get ahead.
There's no Scottish Higher for common sense and enthusiasm and sometimes that's all you need in business.
But hey, in practise, who knows how it would pan out.
Good stuff tris, maybe the Dundee scheme will be on that programme tomorrow? Sounds like a reasonably similar venture.
I suspect that it is not just the welfare system which deters enterprise, so much as the taxation system.
If both were integrated so that a citizen got a subsistence allowance regardless of employment status, and no personal tax allowances were given, then everything earned was taxed - on a declining rate to encourage a desire to strive for more income. Then perhaps the only calculation anyone would have to make is that if they work they are better off.
As it is now, you work, you lose benefits. You work harder you pay more tax. The logical thing would seem to be to fiddle in either case.
The microbank idea is fine in the third world, but is not going to be of any use at all in Scotland.
Isn't this a bit like the credit union?
I don't think it's going to make much difference to the benefit culture, but it could make a difference to the nearly poor who do work because they want to, but don't take home much. There's a lot of them, especially in the service sector and this might help them get a loan when they normally wouldn't get one off a bank.
Will set the video for it anyway..
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