The founder of the Grameen Bank explains how micro-credit can help elevate the economic status of poor people in developing countries. A review of Mohammed Yunus's book.
Banker to the Poor: Micro-lending and the Battle Against World Poverty
by Muhammad Yunus
Public Affairs, NY, 1999
reviewed by A.V. Avadhuta
{googleads left} A world without poverty is a dream which many people hope we will realize in this new century. While most efforts to eliminate poverty have failed, the approach taken by Muhammad Yunus, the founder of the Grameen Bank in Bangladesh, has been very successful and is an example which can be replicated elsewhere.
In this well written account, Yunus, who was formerly a university professor, explains how he began the micro-credit programs with a $27 loan to poor Bangladeshi villagers, so that they could manufacture bamboo stools. The loan was repaid and Yunus again made other loans to villagers. What began as an informal experiment later grew into the Grameen Bank, which now has branches throughout Bangladesh.
Yunus had to battle against the banking establishment of Bangladesh and later against the conventional wisdom of the large international donors and finance institutions. These institutions believed that it would be too risky to give money to poverty-stricken people because they had no collateral and would probably default on the loans. However, the repayment rate of the poor borrowers was higher than that of the conventional borrowers, who take large loans backed up by property or other collateral. Yunus saw that the micro-borrowers were very serious about their obligations because they knew that this was their only chance to rise out of the trap of poverty.
Another key to the success of the Grameen micro-credit programs is its method of organizing borrowers in groups of five. The group is given instructions about the procedures of the program. Two people from the group get the first loans, and if they are regular with their weekly installments, then others in the group can get loans. The chairperson of the group is the last one to get a loan.
Conventional wisdom about development also holds that poverty-stricken people do not have the skills to be useful members of the economy and must be given costly training programs. Here again Yunus found that this was not so. He and his colleagues went into villages (and later to urban locales in developed countries) and asked the people what they would do if they could get a loan. While many poor people are at first startled by this offer, they eventually open up and offer good projects in which they can utilize skills which they already possess.
The success of the Grameen program in Bangladesh and elsewhere raises some interesting philosophical questions. Should poverty be eliminated in the context of a capitalist economic system or is a socialist solution required? Yunus is aware of this dichotomy and argues that we should put emphasis on a ‘social-consciousness-driven private sector’. This is similar to David Korten’s (see accompanying review) call for a ‘mindful market economy’. Whatever shape the economic system of the 21st century takes, it appears that a vibrant sector of micro-enterprises can play an important role in raising the living standards of the world’s neediest people.