William Kay: How one man may have found the answer to the loan sharks

A modest genius strode into the City the other day: a Muslim who, I am convinced, will change the way we help the poor. His name is Dr Muhammad Yunus, head of Grameen Bank in Bangladesh. He lends to beggars.

A modest genius strode into the City the other day: a Muslim who, I am convinced, will change the way we help the poor. His name is Dr Muhammad Yunus, head of Grameen Bank in Bangladesh. He lends to beggars.

Dr Yunus virtually invented micro-credit in its modern form. Grameen has 3.7 million borrowers, mainly women, who live in 45,000 of Bangladesh's 68,000 villages. The bank is currently lending them the equivalent of £280m, an average of only £75 each. But that is enough for someone to buy beads, trinkets, toys or food to sell, instead of begging.

Many use the loan to buy a mobile phone, which they rent to other villagers on a call-by-call basis. "Families were able to contact one another during this year's floods to make sure they were all right," Dr Yunus said. "That wasn't possible in the last big flood a few years ago."

Dr Yunus, a former economics professor at Chittagong University, had the insight to see that lending to the poor - shunned by orthodox lenders in all but the most exceptional circumstances - could be made to work and the money would be repaid. Grameen encourages its customers to keep a clean credit record by offering their children scholarships and by creating a star system for its 1,300 branches as they become more successful.

Dr Yunus said: "We have struggled to convince the world that what we are doing is not only a serious business in itself, but it also opens up endless possibilities for the poor by creating self-employment opportunities. It can be done anywhere in the world, and we have demonstrated umpteen times that not only are the poor creditworthy, in many countries they are more creditworthy than the rich." He launched the embryo of Grameen nearly 30 years ago, and a number of other Third World countries have spawned micro-finance institutions (MFIs).

Ockenden International, one of the three charities supported by The Independent's Christmas appeal last year, enables Cambodian villagers to buy a cow, paying in instalments. In Venezuela the Women's Development Bank (Banmujer) lends only to women who combine to develop a viable community project.

We are going to hear a lot more about this sort of finance, as the United Nations has designated 2005 its International Year of Micro-credit. The mainstream banks are going to come under pressure to explain why they do not undertake more or - in many cases - any micro-lending.

Grameen is profitable but Dr Yunus warns that, while the idea seems simple, lenders need to know what they are doing. He is more than willing to teach the secrets.

I do not suggest that micro-credit is going to eradicate poverty or even begging. But it will have done us all a service if it removes the common assumption that the poor must be punished with high interest rates because they are "sub-prime", in the awful jargon, and have to serve painful time building up a credit record before they can be welcomed into the privileged club of those who pay the going rate.

Even better, it may stop doorstep lenders from arguing that they have to charge 100 per cent interest rates because small loans are so labour-intensive to administer. Loan sharks are on the run in Cambodia. It is time they were drummed out of business in Britain.

* The contempt with which Stuart Rose seems to regard his 350,000 private shareholders in Marks & Spencer is breathtaking. This week they received documents about the company's offer to buy back shares worth up to £2.3bn, as promised at the time of Philip Green's abortive takeover bid. But when Mr Rose was fending off Mr Green, he was also promising that M&S was worth "significantly" more than 400p a share. Now he expects loyal followers to accept 332p to 380p. The PR spinners say that over 400p was a long-term aim. Cynics should take the new offer and get out. But I think Mr Green will return, and he may let investors share in the benefits of his shake-up.

Scrambled Government thinking on pensions

Breakfast with Mr B is always a pleasure, but this week he was on sparkling form. Mr B, better known as Steve Bee, pensions guru at Royal London Group, was holding court at London's Ritz Hotel.

Over the scrambled eggs and black pudding, he deftly tore the Government's pensions policy to shreds, condemning it as retrospective legislation that will leave over half the population dependent on state handouts.

Mr B wants the Government to set the state pension at £105 a week, up from the present £79, link it to the rise in average earnings and abolish means testing. Net cost: £4.8bn a year, to be paid for by putting 1.5 per cent on National Insurance.

He predicts that, once the new pensions law takes effect in 2006, we will all be taking out Self-Invested Personal Pensions (Sipps) and using them to buy villas in Spain. "Marrying a Sipp with a buy-to-let property will be a no-brainer," he says.

While putting their main home into a Sipp will be attractive to many, it will clash head-on with the Inland Revenue principle that we should not be able to pass on pension-fund assets in our wills. But Mr B reckons that principle will be scrapped.

There is a catch. He says: "Because the Government is prepared for the first time to make retrospective changes to pensions in the current Pensions Bill, who is to say it won't do that again? You can't rely on it, so how can people make long-term plans for their retirement?"

w.kay@independent.co.uk