Banker to the Poor: Muhammad Yunus
When you come right down to it, the concept of micro-lending seems just about the most obvious and yet counter-intuitive thing in the world. Lending someone the tiny amount of capital they need to launch a homegrown business that can help them feed themselves and their children, and also pay for other necessities like medicine, clothing and, after some careful saving, a proper roof to protect them against the elements, seems like a no-brainer. Of course we should do that. On the other hand, the idea of LENDING the money seems counter-intuitive, and it seems counter-intuitive for two paradoxical reasons. One reason is that most people balk at the idea of lending a poor person money because we've been conditioned to think we should give it as charity, especially if the amount is relatively small. The second reason is that under our usual banking system, loan officers don't give loans to people who don't have collateral. The assumption is that only people with collateral can be trusted to pay back what they have borrowed.
Muhammad Yunus, a Bangladeshi Economics professor, "invented" the concept of lending to the poor in 1976 when he returned to his home country after doing graduate work in the United States under a Fulbright Scholarship. Not content with teaching elegant economic principles in his University, where he was the head of the Economics department, he decided to walk around the neighboring village of Jobra and find out how poor people were actually living, and to see if he could think of more direct ways to help. The breakthrough came when he realized that people in Jobra remained poor because they were in effect indentured to local traders, from whom they were forced to borrow the tiny sums of money they needed daily to survive. For example, a local woman who made her living by weaving bamboo stools to sell to a trader had to borrow twenty-two cents from the trader in order to buy the bamboo. Then she sold the finished stool back to him for twenty cents, keeping only 2 cents profit. Yunus realized that this woman could only break free from her cycle of poverty if she could find twenty-two cents to buy the bamboo without having to borrow it from the trader. Then she could sell her stools in a free market and charge the full retail price to the consumer, not the middleman price to the trader. She just needed twenty-two cents.Â
Yunus had his research assistants round up how many people in the village were in similar situations as this woman. It turned out that there were 42 people, who borrowed a total of 27 dollars. Here's an excerpt from the book that describes his reaction when Yunus first realized the root of the problem.
"All this misery in all these families all for the lack of twenty-seven dollars!" I exclaimed.Â
My mind would not let this problem lie. I wanted to help these forty-two able-bodied, hard-working people. I kept going around and around the problem, like a dog worrying a bone. People like Sufiya [the bamboo weaver] were poor not because they were stupid or lazy. They worked all day long, doing complex physical tasks. They were poor because the financial institutions in the country did not help them widen their economic base. No formal financial structure was available to cater to the credit needs of the poor. This credit market, by default of the formal institutions, had been taken over by the local moneylenders. It was an efficient vehicle; it created a heavy rush of one-way traffic on the road to poverty. But if I could just lend the Jobra villagers the 27 dollars, they could sell their products to anyone. They would then get the highest possible return for their labor and would not be limited by the usurious practices of the traders and moneylenders."
Yunus lent these 42 people the 27 dollars out of his own pocket. Then he went to the banks to request that they institutionalize micro-lending. After many struggles, this eventually became the Grameen Bank, which has given loans to 8.3 million people (as of 2011), 97% of whom are women. As of 2007, loans have totaled $11.35 BILLION, of which $10.11 billion has been repaid. Â
I think the revolutionary turn happened in Yunus' mind when he realized and declared that credit is a human right, that all people deserve credit, regardless of their ability to produce collateral. In fact, he has proven over the course of 35+years of micro-lending that his repayment rate is higher than 98%, much higher than the regular loan repayment rate.Â
Micro-lending is not simply a matter of handing over money to a poor person and wishing them the best. Grameen Bank has evolved over the years, but the principal methods are as follows:
installments are paid weekly
repayment starts one week after the loan
repayment amounts to 2% of the loan amount per week for 50 weeks
In addition, borrowers are required to work in groups of five so that women are able to help each other solve problems, keep each other accountable to their repayments schedules and also provide financial stability to each other if emergencies arise. Repayment is on a weekly schedule so that the amount is small enough to be negligible, not burdensome.
Yunus believes that the poor do not lack in skills, but rather that they must be highly resilient and self-sufficient, if they have been able to survive with so little. ("The fact that the poor are alive is clear proof of their ability. They do not need us to teach them how to survive; they already know how to do this.") Instead of spending time, money and effort on training programs, he believes the best way to help the very poor is to give them the capital they need to more effectively do what they have been doing all along. His philosophy puts him in opposition to international aid agencies, like the World Bank, which he often criticizes for "wasting" money on just the sort of thing he thinks are irrelevant and off-putting to local people (such as holding literacy programs, training programs, etc.) On the other hand, critics of Yunus, Grameen Bank and micro-lending have suggested that Yunus' ideas keep the poor poor (though less poor, relative to their pre-loan days), increase/enforce income inequality, and make them vulnerable to abuse. It is true that in recent years, there have been reports of "micro loan sharks" in India, although I can't think how other people's unethical, predatory behavior should be considered Yunus' fault. Â
In the mid-1980s, after being rejected from the Central Bank to give out micro housing loans on the basis that such small loans ($125) would result in home improvements that would not raise the "housing stock" of the country, Yunus started a low-income housing loan program, which gave out loans of $125 on the basis that these homes also doubled as factories where the residents did their work. During the 80s and 90s to present, the Bank now has 2 dozen enterprises including the Village Phone program, by which women can earn money by providing wireless cell phone services to other villagers who pay to use their phone. Prior to the Village Phone service, many villagers had NO access to telephones and had to relay important messages via mail or in person.Â
Yunus and Grameen Bank (Grameen means "rural" or "village" in Bangladeshi. The bank is now 94% owned by borrowers.) won the 2006 Nobel Peace Prize.
I intend to write a few more posts about Grameen Bank and the ways that it has influenced thinking about poverty in other countries, including the United States. In the meantime, I'll conclude this post with a few notes about the book itself. I've given just the barest bones introduction to the micro-lending and Grameen Bank. If you're at all interested in learning more, I would recommend reading this book, which is such a quick read. You will be able to read it in 2-3 days. It's written very conversationally, in the first person point of view (Yunus') as a kind of autobiography/memoir. As an added bonus, you'll get some very interesting insight into the history of Bangladesh. I, for one, had no idea that Bangladesh became its own country in 1971 after a Liberation War from Pakistan. Yunus gives a fascinating account of the early years of Bangladesh as a nation, including how he flew back to his hometown following the proclamation of independence in order to declare a new government. It's hard to believe that one day, you could be a grad student at Vanderbilt, and the next, you could be on a plane in order to declare an interim government of your burgeoning country--yet Yunus writes about it as if that were the most natural thing to do in that situation, and maybe it was. Just goes to show, maybe, that sometimes the people who make change in the world are those who don't think it's someone else's job to do so.
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