Muhammad Yunus envisions a world where there is no need for payday lenders or pawnshops and everyone has equal access to credit.
That might sound unrealistic, but Yunus, winner of the 2006 Nobel Peace Prize, is known for shaking up the status quo. He's been an unflagging supporter of the underbanked since he founded the microlender Grameen Bank in Bangladesh in 1976.
As more borrowers receive loans through Grameen America Inc., the U.S. arm of Grameen Bank, "there will be less people forced to use payday loans," Yunus told a group of about 400 borrowers, students and business professionals gathered Monday for the grand opening of the company's third New York City branch and fourth overall.
Grameen, which has been granting small-business loans to low-income Americans since 2008, also has a branch in Omaha.
Yunus found fault with both big, multinational banks as well as alternative financial services companies that cater to individuals who are often shut out of traditional banking.
The U.S. financial system has a history of being exclusive, he said.
But Yunus said the options that low-income individuals are left with, the payday lenders and pawnshops, are not that appealing either.
These outfits are evidence of "the sickness in the banking system," Yunus said.
H.A. Shah Newaz, senior vice president and general manager of Grameen America, said the company wants to free people from using companies that can charge interest upward of 300%.
Steven Schlein, a spokesman for the Community Financial Services Association of America, a trade group that represents storefront payday lenders, said it's difficult for many companies to make loans any cheaper and stay in business.
The amount of interest a payday lender can charge customers varies by state. Borrowers in Illinois pay annual percentage rates of up to 400% on cash advances, for example, while in California the rate is about 460%, according to the CFSA.
"We welcome anyone to try to make loans cheaper," Schlein said. "Let consumers choose whether they want a two-week loan at the rates that we charge or whether they want a longer-term loan at the rates that he charges."
Grameen's basic first-time loan is for up to $1,500 and has a term of six months or one year. No collateral is required.
Borrowers are charged an interest rate of 15% and there are no other fees.
Each week borrowers pay a portion of the principal and interest and make a minimum deposit of $2 into a personal savings account.
Since opening its first branch, in Queens, N.Y., in 2008, Grameen America has granted $6 million of loans to 3,000 borrowers. The company also has a branch in Brooklyn and plans to open additional ones in the Bronx, Washington and San Francisco in coming months.
Eventually Grameen America intends to offer other products, such as student loans and insurance, as Grameen Bank does in India.
"There are lots of programs we can gradually bring in," Yunus said.
