The Bangladeshi banker has entrusted the poor to pay back unguaranteed loans and the vast majority have honoured their promises. His Grameen bank has helped millions escape from a life of begging. Zach James profiles him
Having earned a PhD in Economics from Vanderbilt University, Muhammad Yunus returned to his home country, the newly formed independent state of Bangladesh, to teach the subject at Chittagong College.
Soon after his arrival, his country suffered a catastrophe that had a profound influence on his thinking about economics. Bangladesh endured the worst famine in recent history. The start of 1974 saw a sharp rise in the cost of rice and the situation was made worse when flooding along the Brahmaputra river devastated crops and caused inflation to rise. Around 1.5 million people died in the famine. Observing the tragedy unfold, Yunus came to understand the nature of poverty, and has defined it since as “the deprivation of all human value”.
Addressing the Philanthropy Forum in Brussels this January, Yunus reflected on the calamity. “I felt terrible that I taught such elegant, beautiful theories of economics in the classroom, and yet would come out onto the streets and see dying people….. skeleton-like people, because they didn’t have enough to eat. I thought, what kind of subjects do you teach to your young students? These are like some kind of make believe stories. Real life is so different.”
Feeling powerless and yet eager to have a positive impact, Yunus joined the stricken communities and got to know the people who lived around the university campus. He soon discovered some problems he could address. “There was loan sharking in the village. People with money would lend it to other people with extremely harsh conditions. With that kind of lending you literally take away everything the other person possesses,” he said.
To combat the loan sharks and protect the vulnerable people he had met, Yunus began loaning the villagers his own money until his funds nearly ran out. At that point he tried to get the manager of the campus bank to step in, and was laughed out of the branch. “I started shouting against the whole banking system,” he said. “They didn’t pay attention to what I said.”
It was only when he offered himself as a guarantor that things began to change. He was so convinced the borrowers would repay their loans on the basis of trust that he was prepared to assume legal responsibility. He was right, although the impact was temporary. The larger the loans became, the more concerned the campus bank grew about Yunus’ ability to cover losses. He decided to take matters into his own hands.
Muhammad Yunus founded Grameen Bank in 1983, drawing inspiration for its name from the Sanskrit word “gram”, meaning “rural” or “village”. Today, the Bangladeshi Government control only 5%. Ownership of the bank lies mostly with its 8.35 million borrowers, 96% of whom are women. Figures published last month suggest the cumulative amount dispersed now stands at US$15 million with the rate of recovery at 97.53%.
The central concept of microcredit is founded on the belief that even the poorest individuals can manage their own financial affairs. Therefore, a system which loans small amounts to people who cannot provide any traditional form of security, deposit, or collateral, is not bound to fail.
There are no legally enforceable contracts or procedures – only trust. To Yunus, credit is a human right, and his own faith in this premise and in the honesty of his compatriots has had an incredible influence. One of the greatest achievements of his bank, and just one of the numerous statistics that demonstrate its remarkable success, is having provided the means for about 75% of his borrowers to cross the poverty line.
‘I started shouting against the whole banking system. They didn’t pay attention to what I said,’ Muhammad Yunus
Individual departments of Grameen are revolutionary. The Struggling Members Programme was formed in 2002 to lend money exclusively to those begging on the streets of Bangladesh. In the following 10 years, almost 112,000 individuals joined the programme. Some 162.6 million taka (over US$2 million) was distributed and 80% of that amount paid back. Grameen claims that 10,185 beggars have managed to become regular, “mainstream” borrowers since their first loan, and that almost 20,000 have become self-employed, thanks to their borrowing.
The rules of Grameen Bank are somewhat flexible. Members who are beggars are allowed to propose their own terms. Loans from the Struggling Members Programme are interest-free, come with both life insurance and loan insurance at no extra cost, and include an identity badge showing the member is supported by a national institution.
Providing financial legitimacy for the most vulnerable members of society is a radical idea. But it is already being copied internationally in various places. Grameen says that the programme’s objective is “to provide financial services to the beggars to help them find a dignified livelihood, send their children to school, and graduate into becoming regular Grameen Bank members. We wish to make sure no one in the Grameen Bank villages has to beg for survival”.
Bangladesh has a population of about 141 million, which grows by three million each year. One third live in poverty, and 40% are unemployed. Economic growth, however, has been steadily increasing in recent years – up to 6.5% in 2014. Exactly what impact Muhammad Yunus and his organization are having on this progression is difficult to quantify, though their contribution is undoubtedly vast.
Yunus is the recipient of 29 honorary degrees and multiple international awards, including the Nobel Peace Prize in 2006 for his “efforts to create economic and social development from below”. Perhaps his greatest achievement is the creation of similar projects across the world. The lives of the poor in Mexico, Mongolia, Morocco, Bosnia, Mali, and the Philippines are being transformed, thanks to his simple, yet pioneering, generosity.