UCLA Pacific Basin Law Journal

Nobel Prize winner Muhammed Yunus founded the Grameen Bank as an uncollateralized microcredit lender to impoverished borrowers because he thought you could trust all poor people to pay loans back. His"Grameencredit" tactics, combined with the Bank's goal of elevating the status of the poor through providing business opportunities, epitomizes the "social entrepreneurialism" intention of community economic development ("CED"). But can the borrowing practices of Grameencredit employed in Asian village communities can be successfully transferred to different environments such as the U.S.?

This paper provides a brief description of the economic, legal, and cultural factors in Bangladesh and other developing Asian countries that shaped the concept of Grameencredit, summarizes the history of microcredit within the U.S., compares the environment in developing Asian countries against the U.S., and examines why differences between the two environments present obstacles to direct transfer and successful application of the Grameencredit model.

This paper argues that many of the obstacles to transferring the Grameencredit model specifically and microcredit generally to the U.S. marketplace are not easily corrected through changes to the models alone. Barriers of competition, licensing, and threats of liability are factors that Grameencredit does not face in developing Asia, its formative environment. Simple attempts to address these barriers such as adjustments in loan size are made alter the intended use for the loan and change the nature of the financing service. Coupled with the significantly different credit needs of impoverished Americans, as compared to the borrowers in developing countries, the usefulness of microcredit as a CED program in the U.S. becomes questionable.