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July 29, 2005

Microcredit plus VisiCalc equals Empowerment

ShoreBank’s trademark is “Let’s change the world.”  ShoreBank HAS changed its part of the world – the south side of Chicago - and become a model for change worldwide.

In the late 1960s and early 1970s, the south side was in decline.  “White flight” became a self-fulfilling prophecy of declining property values and decaying housing stock.  What banks were left served as pumps to move money out of the neighborhood.  The only known cure for this type of decline was massive urban renewal -   and that “cure” often proved worse than the disease.

In 1972 four young bankers - Ron Grzywinski, Mary Houghton, Milton Davis, and  Jim Fletcher – decided to buy an existing commercial bank and use it as a catalyst by investing its funds in the neighborhood from which they were drawn.  They gave fix-up loans to owners of single and small multi-unit homes.  Instead of red-lining the neighborhood off their map as other banks did or giving grants to the politically well-connected as government did, they did old fashioned character-based, face-to-face banking.  They offered course to their customers in accounting, budgeting, and the other skills they needed to succeed and to pay their loans back.

Some neighborhoods took up the program avidly.  Today you can see block after block of well-kept houses with the blooming planters which johnny-come-lately Bank of America says correctly are a sign of a recovered neighborhood.  Other neighborhoods – often those with more radical leadership – were not interested in ShoreBank’s approach. You can tell where those neighborhoods were by the boarded up and broken windows or debris-strewn weed-choked vacant lots.

In 1983 the ShoreBankers were recognized as experts in using small individual loans to break the cycle of decline and poverty.  In Bangladesh Mohammed Yunus was using tiny loans to entrepreneurial women to help them break out of abject poverty.  He had applied for funding from the Ford Foundation.

The story from here is best told by Mary Houghton in her email to me:

“I have been reading your blog and am compelled to give you a VisiCalc memory!  It has a microfinance component, too.  Ron Grzywinski and I went to Bangladesh in early 1983 to spend two weeks with Muhammad Yunus who was then running Grameen Bank Project at the request of the Ford Foundation. We had no terms of reference and a conscientious Ford Foundation employee in Dhaka felt there must be a written product.

“So, Ron sat on the porch of the Ford Foundation guest house hand-writing a memo and to prevent boredom I started to construct the balance sheet for the next 5 years of the Grameen Bank.  Not easy with a handheld calculator.  When we were leaving for Chicago, Yunus offered to send detailed volume projections for the growth of the bank and, amazingly, they arrived in Chicago one week later.  So, with nothing better to do, I found my way to the one microcomputer in the whole bank which was sitting unused in an empty room and was an Apple 3. I taught myself VisiCalc, prepared 10 year financial projections for the bank and, as they say, the rest is history. (Please be clear that at that time I was a small business lender not an accountant, too! The projections documented the need for about $40 million in debt and equity to fund the bank’s asset growth.  The donors paid up (and then paid up in two subsequent rounds....).”

Mary continues: “One more point on VisiCalc, PCs, and Grameen Bank.  Muhammad Yunus is a trained economist and at the point of our visit in 1983 had previously done research projects and probably was fairly well acquainted with mini computing capacities but a PC was a unknown tool.  After Ron/I did the long term financial projections using VisiCalc, Yunus immediately learned voraciously about PCs and deployed them immediately at Grameen Bank.”

Grameen Bank is now a multi-billion dollar institution.  Microcredit is making a difference worldwide.  Mary Evslin is on an advisory board to the Grameen Technology Center and I am involved with them as well.

The ShoreBank method of community-based banking has spread to the west side of Chicago, southern Arkansas, Cleveland, Detroit, and two rural regions of the US.  Ron Grzywinski is its Chairman and Mary Houghton its President.  Mary Evslin and I are involved with a ShoreBank affiliate which provides equity to microcredit banks worldwide and a charitable affiliate which provides technical assistance to those banks.

Spreadsheets and PCs have done pretty well in the intervening years as well.

As technology continues to get smaller, cheaper, and less power hungry,  I’m convinced that a combination of community-based microcredit and appropriate technology will provide a path from poverty.

Fred Wilson, who donates the ad revenue from his blog to Grameen Foundation USA, has blogged about the Grameen phone lady program here.  I posted a story about how a Grameen microcredit program made computers available and helped bypass bureaucracy in India here.  And I posted a less interesting story about my first use of VisiCalc here. 

You can contribute to Grameen Foundation USA here.

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