One of the many complex reasons why public policy has not adequately addressed deep-rooted and entrenched poverty has been the over concentration of investment in physical regeneration.
Whilst such interventions are essential to create sustainable places where people want to live, the long-term investment in people as assets has not been given the value that it requires. An alternative way of approaching this is for local authorities to adopt a model of micro finance that will support local entrepreneurs from communities currently living in poverty. Adopting a micro-financing model will enable entrepreneurship at a community level and enhance local economies, which in turn will serve to develop community resilience. We can learn much from the Grameen Bank model, which has proven to be cost-effective, has a proven track record and is transferable from rural to urban areas.
The idea was the brain-child of Professor Muhammad Yunus, who first researched the idea in 1976. The bank was formally instituted in 1983 with the sole objective of working alongside those struggling to remove themselves out of poverty by providing micro-finance through a sustainable institutional framework. This model is particularly effective because it empowers the individual to take responsibility and make informed choices, while binding groups within communities to commit to supporting each other. Most importantly, it provides access to loans without requiring collateral.
The methodology of Grameen is simple yet very powerful. It includes investment in small loans at a local level to groups of five entrepreneurs who have difficulty accessing traditional loans and have come together to share risk, expertise and support. The initial investment is targeted to two members of the group. Depending on their performance in repayment, the next two borrowers can then apply and, subsequently, the fifth member as well. This enhances mutuality between all those involved. In order to provide the necessary support, operations are characterised by intensive discipline, supervision, and servicing. This support and structure to manage credit is essential to the model, especially in light of the fact that it is the people who are furthest removed from the market economy that are the focus of the model.
This allows for managed risk, an incentivised scheme and an environment where innovative projects can flourish. The success of this approach shows that a number of objections to lending to the people living in poverty can be overcome if careful supervision and management are provided. The delivery system is geared to meet the diverse socio-economic development needs of these communities and support people to escape the vicious cycle of low income, low savings, low investment, and low income.
There are opportunities to develop this model through the City Deal framework – to launch a micro-finance strategy targeted at the most vulnerable and poorest members of our communities, using the Grameen Bank model of micro finance. It is locally-based, leads to a high rate of recovery and a rests upon tightly disciplined model. The launch of Grameen UK in Scotland is certainly something to keep an eye on. There is potential for this to be administered through the credit unions, which are well respected and have a credible and robust financial structure. It will also be essential to have local authority partnership with this initiative to provide the necessary strategic support. Through providing the means to develop the potential for entrepreneurship within our communities, we can invest in both the economic and social regeneration of some of our most deprived communities.