Hungary’s bank of the poor will soon hand out its first loans
Based on the idea of the Bangladeshi Grameen Bank (see fact box), three Hungarian businessmen: András Polgári, Péter Felcsuti and András Ujlaki; have set up a non-profit company called the Kiútprogram (The Way Out Program) to help the poor get off government benefits by becoming entrepreneurs. The programme aimed at Roma is in its experimental stages with Raiffeisen Bank, where Felcsuti is CEO, offering up HUF 500 million (EUR 1.76 million) for the micro-credit programme.
To start a business, applicants can get a loan of HUF 200,000-1,000,000 (EUR 705-3,525), although the interest rate is less than charitable at 20%. Before asking for a loan, would-be entrepreneurs must come up with a business plan and join a small group put together by the programme’s administrators. Mentors will give advice and decide whether the business plan is worthy of credit or not. Borrowers have to repay the loan within a year, with payments starting after one week. The cluster format of the scheme creates peer pressure; if one member is not making his payments, then another member will not receive their next instalment.
Unsuccessful attempt in 2005
There was a similar attempt at micro credit between 2005 and 2007 initiated by the Autonomy Foundation (Autonómia Alapítvány) with 25 clusters including more than 200 participants. With a repayment rate of only 50-60%; the project by the Micro Credit Co. proved to be unsustainable. According to Kiútprogram board member and researcher György Molnar one of the reasons why that scheme did not work was because the State Financial Supervisory Authority (PSZÁF) did not support it. On the other hand group members were creating chains of debt among each other, which led to further complications.
A fresh start
“One of the main differences between the program by the Autonomy Foundation and The Way Out Program is that the latter is preceded by deep social work, where mentors are working with people for weeks and months before the groups would receive the loans” András Ujlaki, director of the Kiútprogram Nonprofit Zrt., told The Budapest Times.
He also emphasised that loan takers will get credit in groups, unlike before where the loans and their timing were scattered.
To the question of what kind of businesses the management is targetting, he replied: “We don’t want to limit people in their choice; they just have to come up with a comprehensive idea which could work.”
The program targets Roma because management hopes it will lead to their better integration in society and thereby reduce prejudice against Hungary’s largest ethnic minority group. The Way Out Program also wants to show that the massive unemployment among the gypsy population comes from a lack of opportunity rather than an unwillingness to work. In proving that those signed up to the programme are beyond reproach, participants must sign joint guarantees, be paid up on their utility bills and taxes, their children must attend school and they must agree to not take credit from loan sharks.
The Nobel Prize in Peace 2006 was awarded jointly to Muhammad Yunus and Grameen Bank “for their efforts to create economic and social development from below”. Yunus is the founder and managing director of Grameen Bank which currently operates 2,475 branches providing credit to 7.4 million poor people residing in 80,511 villages in Bangladesh. He originated the concept of Grameen Bank, i.e. banking without collateral for the poorest of the poor. The successful Grameen model is followed in more than 60 countries, although the formula is localised.