Banker to the Poor – Muhammad Yunnus
Microcredit is, essentially, the loaning of very small sums of capital to very impoverished people. Yunnis began his career as an economics professor in a University in rural Bangladesh in the mid ’70s. At the time, there was a famine. People in the nearby village of Jobra were literally starving, too poor to afford the food they needed. Yunnus realized one day that all of his economic theory said nothing about how to actually help the masses of rural poor.
So he put aside is regular research and studied Jobra. He found that many of the poorest people were stuck in a trap of daily debt, each morning borrowing the money they needed to buy the raw materials for their very small-scale enterprise work (basket weaving, fish drying, etc.) Because of the interest payments on their daily loans and the money required to rent their tools of work, such people, mostly women, were stuck in a vicious cycle of just barely making enough to survive each day. The amounts of involved are truly tiny – a few dollars, at most.
Frustrated, Yunnis gave the equivalent $27 to his assistant and told him to give it to the women in Jobra so that they could buy the necessary equipment to begin their own micro-enterprises, but understood immediately that handing out money, even on a large scale, wasn’t going to solve anything. A more systematic approach was needed.
However, banking for the rural poor is not like banking for the rich. The standard banks won’t deal in such small loans, or with people who have no collateral. Further, one cannot simply sign a few papers and hand money out. For one thing, many rural people are illiterate; moreover, they have never been exposed to modern accounting, economics, or business – these are people who have been sustenance farmers for thousands of years. Yet education means nothing without empowerment – people need to believe that they can change their own lives before anything else is possible.
Therefore, microcredit, as originally developed by Yunnis and his Grameen Bank (”village” bank), is as much a social movement as a financial strategy. A bank worker enters a village and establishes a village microfinance association which is as much self-help group as financial institution. This association is in effect a branch of Grameen bank, and authorizes loans to members of the community, who must agree to abide by a number of “decisions”. These now number sixteen, derived from ground-level experience over many years:
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1. We shall follow and advance the four principles of Grameen Bank: Discipline, Unity, Courage and Hard work – in all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum.
11. We shall not take any dowry at our sons’ weddings, neither shall we give any dowry at our daughter’s wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.
12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.
13. We shall collectively undertake bigger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.
16. We shall take part in all social activities collectively.
And this has worked. Amazingly, and much to the surprise of the big banks, the default rate among these people without any collateral turns out to be very low, lower than the typical national rates. This allowed Grameen bank to grow, eventually gaining government support as a recognized banking institution. More to the point, whole communities were lifted out of poverty. The key here, according to Yunnis, is the focus on community-based solutions. People use their loan money well because the entire village is counting on them to do so.
Of course, by now, after Yunnis’ Nobel prize, microcredit is an international buzzword, and people are working with it all over the developing world. It has been adapted to many countries and many situations beyond rural Bangladesh, such as urban slums. It is, perhaps, one of the few success stories among development methodologies.
In Yunnus’ view, capitalism does not inherently result in inequalities or exclusion of the poorest classes; such people have simply never been to able to be part of the system at all. Microcredit aims to change that. “Credit,” writes Yunnus, “is a human right.” This is a very interesting idea, but I think the real genius here is the combination of sound economics with community involvement. Loans are given at carefully selected interest rates, but to people with no collateral – an interesting hybrid of ideologies. Interest allows the bank to grow, while community involvement insures that the money is actually the empowerment tool it could be.
