It started with $27.
In 1976 economics professor Muhammad Yunus, newly returned to his home of Bangladesh from the United States and alarmed by the extent of the poverty there, decided to try an experiment. He and his students made small – very small – loans to local women to allow them to buy straw. The women used the straw to make stools, which they then sold. When they’d made enough money, they repaid the loan – and could then re-borrow the money.
This “micro-credit loan” program, now administered by the Grameen Bank (of which Dr. Yunus is the managing director), is essentially about small-business loans, but in this case “small” is the operative word: The amounts lent are usually under $200. All the loans are given to individuals, who use them to start or expand their own businesses.
When the program first began it was controversial because the loan recipients were all poor, making them (normally) bad risks for repayment. Also, they were – and still are – mostly women, many of whom lived in male-dominated households and had never even handled money. But the administrators of the program discovered that women were good risks for lending because they not only spent their money carefully, but were also more reliable about paying it back.
The Grameen Bank provides a lot more than just money. The loan recipients are given financial and other business advice to improve their chances of being successful. There are also “solidarity circles” that act as support groups to help individuals in other ways – both practical and emotional. For example, if a woman becomes ill and can’t tend to her business, the others in the group help run it until she recovers.
The Grameen Bank’s program has a 98% repayment rate. It’s been so successful that it has become a model for similar programs around the world. Micro-credit financing has helped more than 90 million families in more than 100 countries escape poverty.
Dr. Yunus believes that poverty is artificial, and therefore can be eliminated by changing policies. He doesn’t believe that charity can solve the problem of poverty. He feels that if poor people had the same opportunities as everyone else, they would be able to turn their lives around. His bank’s small loans help give people those opportunities.
The success of micro-credit financing around the world has brought other recognition to Dr. Yunus and the Grameen Bank. In October 2006 they were jointly awarded the Nobel Peace Prize. The prize committee said in its press release that lasting peace would not be possible as long as large groups of people live in poverty.
The publicity brought by the Nobel Prize – the first one awarded to anyone from Bangladesh – has been good for Dr. Yunus, the bank, and micro-credit financing in general. Dr. Yunus hopes that the recognition will help bring major changes to the way the banking industry is run. He says it’s time to narrow the gap between the rich and the poor, because that will help reduce conflict among people and make world peace more possible.