The Grameen Bank is a pioneer in microcredit, providing credit to the poor in rural Bangladesh. It has 2.4 million borrowers and 1,175 branches serving more than 60 percent of the villages in Bangladesh. Professor Muhammad Yunus, founder and managing director, comments on the creation of the bank:
The Grameen story began in 1976. When we began, I had no idea what I was setting out to do. Usually people start with an idea, a blueprint, a road map, or a business plan. I had none of these. I didn’t even have a name for the concept. My efforts came out of frustration: Frustration that we experience in many third world countries, where you hope that things will be different tomorrow, but you wake up to find that it is actually worse than it was yesterday. I was teaching in Chittagong University in Bangladesh, and as a fresh Ph.D. from the United States, I was full of arrogance and was ready to tell the world that I knew everything. Then came 1974, when we were hit by a famine, and hundreds of thousands of people were dying of hunger. I felt strange teaching brilliant theories of economics when I saw that the situation outside my classroom was so different.
I saw repeatedly how much people suffered for tiny amounts of money. People in need of small amounts of capital used loan sharks. I was shocked when I spoke with a woman and found that all of her income went to pay a loan shark. So I decided to make a list of such people in need of money in the village. When my list was completed, there were 42 names on it and the total amount they needed was $27. That was the biggest shock for me. I was teaching the National Development Plan for Bangladesh, where the government planned to spend $7 billion (U.S.) for development over five years in part to help the poor. Yet a few yards from my classroom, people were not waiting for millions of dollars, they were waiting for a few pennies and they didn’t have it. So my first response was to give this money out of my own pocket, and that was the beginning.
If you can bring so much happiness to so many people with such a small amount of money, I thought, why shouldn’t you do more of it? The idea haunted me. I thought I could do it by persuading the local bank to lend money, small amounts of money, directly to the people, but it refused. The bank said it was a crazy idea to give money to poor people because they are not creditworthy, insisting that all the money would be lost because the poor had no collateral, but I did not agree. After several months, I finally I found a solution: I offered myself as a guarantor. “I’ll sign the papers,” I said. “You give me the money and the risk is on me.” After several more months of negotiation, the banks agreed.
I took the money from the bank and gave it to the people. The bankers said it would not work. I said, “But look, it worked.” They agreed that it may work in one village, but said it would not work in two. So I extended the model to a second village, and it worked. When I succeeded in over 100 villages, I wondered why I was still trying to convince the bankers. I knew that the people did pay back the loans without the need for collateral. This is when the idea of creating a bank first came to me. I gave up on conventional banks and decided to have a separate bank for the poor; unfortunately, I needed separate legislation to create this bank. It took two years to convince the government and get the legislation, but in 1983, the Grameen project finally became a bank.
International Expansion
At first, people said that Grameen could only work in Bangladesh, as it was an unusual country where all kinds of unusual things happen. And we didn’t have any evidence that Grameen methodology would work elsewhere. In 1982, an economics professor started the program in Malaysia, the first replication of the Grameen Bank model. Then came the Philippines, Vietnam, and Indonesia. And then we received a request from the United States. Bill Clinton, then governor of Arkansas, wanted to start a Grameen program there, and he did. The idea soon spread to Chicago, China, India, Latin America, and so on.
Halfway there …
By the end of 2003, microcredit institutions should have collectively crossed the halfway mark of our goal – reaching 100 million of the poorest families by 2005. But there are still 50 million more to go. The goal could be met if funding was available; we need donors. At the same time, to make microcredit programs sustainable, we need to mobilize local deposits.
The solution is for donors and philanthropic organizations to guarantee local deposits. Once microcredit organizations can take local deposits, they can raise money locally and there will be no need, or at least less need, to bring in money from the outside. If donors can communicate to the government or the Central Bank that they will guarantee the deposits in the microcredit organization, microcredit programs can raise money locally. There is plenty of money available locally to enable these programs to expand as far as they would wish.
Looking Ahead
Microcredit institutions are powerful because they are not about charity for the poor, but are based on business principles. They are able to cover costs and so need not depend for too long on subsidy. This lets them scale up and reach large numbers of poor people.
With microcredit programs showing all over the world that the poor are very much creditworthy, banking will never be the same again. Credit should be accepted as a human right, because it is a starting point for economic life and economic life provides the basis for social and political life. The poor are capable of taking care of themselves provided we create an enabling environment. We can put poverty in the museum, where it belongs.
From the 2nd Annual Global Philanthropy Forum Conference on Borderless Giving, co-sponsored by the World Affairs Council of Northern California and the Stanford Institute for International Studies. Full transcript available at www.philanthropyforum. org.
Read more stories by Muhammad Yunus & William Fuller.