Nobel for Microcredit

I first learned of the Grameen Bank while watching 60 Minutes when I was a college student in the early 1990s. Since then the ingenious model of microcredit pioneered by a visionary banker in Bangladesh has captured my imagination and made me proud of my heritage. On Oct. 13, a friend called me with the news that Muhammad Yunus and the Grameen Bank he founded in 1976 were awarded the 2006 Nobel Peace Prize.

As a second-generation Bangladeshi American growing up in Michigan, I eagerly devoured any news about Bangladesh and the South Asian region. Unfortunately much of this news was about frequent floods and the grinding poverty there. Yet I proudly claimed to anyone who would listen that I was from Bangladesh, that some day I would grow up and become prime minister and fix all its problems.

As I grew up, I continued to bring Bangladesh into almost every discussion about international development, foreign affairs, or even the most unlikely of subjects. When I was a student at the London School of Economics in 1991, my friend Lamiya Morshed, who now works for the Grameen Trust, explained to me how the microcredit program of Grameen Bank was empowering impoverished Bangladeshi women. By now I was determined to work for the bank some day.

After graduating from college, I went to Bangladesh with my parents on one of our frequent trips to the “motherland.” I took this opportunity to visit Grameen Bank and thrust myself upon Yunus in my quest to save Bangladesh. It didn’t occur to me that one might need an appointment to meet the managing director of a major bank. Luckily, this did not occur to the bank staff either, and after a brief wait, I was ushered in to see Yunus. With the fervor of youth I entered his office, with my mother and uncle in tow, and announced that I was there and ready to serve the poor.

In the years since that initial meeting, I have never asked Yunus what he thought of that crazy girl who intruded upon his work, but I remember clearly what he said to me that day. I had first introduced my “executive engineer” uncle, knowing that in Bangladesh one’s social standing was tied to the family’s prominence and accomplishments. Pointing towards my uncle, Yunus advised me that if I really wanted to help the poor, I had to get away from the influence of the entrenched powers in Bangladeshi society. After my initial shock at this most un-Bangladeshi of statements, I realized that I had met a most unusual man. Here was a person who was not afraid to speak the truth and had the integrity to do it face-to-face.

Thus began my Grameen journey. That summer I learned the history of the Grameen Bank that was started in 1976 by Yunus with tiny loans totaling $27 granted to a group of poor women.

REALITIES OF THE RURAL ECONOMY

After completing his doctorate in economics at Vanderbilt University in the United States, Yunus returned to Bangladesh to teach economics at Chittagong University. There he took his Ph.D. students into the villages to understand the reality behind the economic theory that they were learning in class.

He found that the biggest problem afflicting the poor, particularly women, was lack of capital. Even when they were able to borrow money from the village moneylenders to fund their small enterprises, the high interest rates kept them virtually indentured to the lenders, allowing only enough profit to make the next loan payment. Once Yunus was able to analyze and document the importance of access to capital for alleviating poverty, he approached the government of Bangladesh to suggest the formation of a bank that would offer loans to the “poorest of the poor.” Thus Grameen Bank was incorporated in 1983 as a partnership between the government of Bangladesh and its borrowers.

Currently the borrowers own 94 percent of Grameen Bank while the Government of Bangladesh owns 6 percent. What is unique about Grameen Bank, aside from the miniscule amounts of its typical loans, is that they require no collateral, credit history, or legal instrument. Instead, borrowers must form groups of five members, with no joint liability, but group responsibility. Borrowers agree to abide by the “Sixteen Decisions” which they themselves have formulated: “We will not pay dowry for our girl children, we will practice family planning, grow and eat vegetables, drink safe water, use clean latrines …”

FEMINIST? OR SIMPLY A SMART BUSINESSPERSON?

Grameen Bank has 6.6 million borrowers, 96 percent of them women. I once asked Yunus what made him such a feminist and he answered that he was simply a smart businessperson. He said that women repaid their loans more reliably than men and that their loans resulted in greater social benefit to their families than loans given to men.

Over the years the bank has given $5.7 billion in micro-loans. The repayment rate has remained a constant 98 percent, far higher than for other loans.

Grameen has expanded its core lending services to include housing loans and education loans. It is interesting to note that when a borrower, typically female, takes a housing loan, the title must be held in her name, thus providing her a layer of protection in a society with limited safeguards for women. Grameen has also expanded its own operations to include Grameen Fisheries, Textiles, and Energy among others. One of its most profitable divisions is Grameen Telecom, which allows borrowers to buy cellphones and provide telecommunications services as a money-making venture.

The combination of access to capital, a social network with development goals, and facilitated entrepreneurship has been instrumental in lifting millions of Bangladeshis out of poverty.

My next experience with Grameen was after graduating from law school in 1996. At this time Yunus wanted to create an entity in the United States to help promote the Grameen microcredit model, to support the various Grameen operations, and to serve as a clearinghouse of information on microcredit and Grameen. I worked with him and Alex Counts, a former Fulbright student in Bangladesh and currently executive director of Grameen Foundation, to help establish the Grameen Foundation. Then I came to Washington, D.C., in time for the first Microcredit Summit and to help with its actual establishment in 1997. I helped form the first board of directors and file its initial 501(c)3 non-profit incorporation papers.

HONORING HUMAN DIGNITY

Much has been written about the life of Muhammad Yunus, including in his autobiography, Banker to the Poor. In my mind two stories illustrate his spirit more than any biographical details.

While I was working at the bank one day I naively suggested that Grameen teach its borrowers vocational skills in addition to lending money. Yunus kindly pointed out that the borrowers themselves knew their skills better than anyone and that they simply needed access to capital. He gave me the example of a borrower who was illiterate but who kept track of her sales by tying knots on the end of her sari.

On another occasion I accompanied a group of foreigners to a branch office when during a discussion with the borrowers an elderly borrower stood up very simply and eloquently asked us to convey to Yunus her request for a pension. She had heard that in companies the employees receive a pension after their retirement. She wondered why she couldn’t receive such a pension after years of being a diligent borrower of the Grameen Bank. I conveyed this message to Yunus, and subsequently Grameen did create a retirement savings scheme.

These two stories illustrate the character behind the celebrity who is mobbed at development meetings around the world today. Yunus has the unique gift of respecting those he seeks to serve; he listens to their needs and desires and adapts his work accordingly. He has empowered the poorest of the poor to not only meet their basic needs, he has honored their human dignity. I can only imagine that the elderly borrower felt the right to ask for her due because the Grameen Bank is responsive to its stakeholders.

A DEVELOPMENT MODEL FOR THE WORLD

Yunus introduced to the world the idea that small loans can make good business sense. The Grameen model has been replicated around the globe, with more than 10,000 microfinance organizations worldwide. Even large commercial and retail banks are starting to recognize the viability of microcredit. Institutions like Women’s World Banking, Citigroup, and Project Hope in New York City have started making small loans to those previously not deemed creditworthy.

The award of the Nobel Peace Prize to Muhammad Yunus and the Grameen Bank has wide-ranging significance. It is not only a victory for Yunus as an individual and for his visionary institution, it is a vote of confidence for a nation in desperate need of such international recognition. It is also an acknowledgement that the Muslim world has something valuable to offer. Bangladesh is at a critical juncture in its socio-political development while the Muslim world is more often feared than revered. The power of this award is heightened by the combination of micro-enterprise as a tool of economic empowerment, and the fact that it was innovated in a developing Muslim nation.

Perhaps the Nobel award for peace rather than for economics makes this point best. Not only has the Grameen Bank financed small business enterprises, it has demonstrated that the poor have the ability to improve their own lives, thus addressing one of the major sources of global conflict—economic disparities.

Yunus has given people hope, some through loans to fund their enterprises, others to believe that they can make a difference. He has demonstrated that we all have a stake in the world, that all people are creditworthy. He taught an idealistic girl, who thought that she had to be prime minister of Bangladesh to fix its problems, the practical lesson that we can all make a difference. He has taught the world that capitalism works when we all have a fair chance to access capital.

Moushumi Khan, a New York-based lawyer, writes and lectures extensively on international issues.



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