Credit where microcredit is due

by This email address is being protected from spam bots, you need Javascript enabled to view it on Sunday, 11 March 2007

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For a man who has spent most of his life helping desperately poor people, Nobel Peace Prize winner Muhammad Yunus is in a strange setting: surrounded by minders, PR people and well wishers in the fabulous Al Qasr hotel in Dubai.

But despite the opulent wealth of the emirate, clearly visible from his suite, Yunus isn’t about to get carried away.

“Poverty is not caused by poor people; it is caused by the institutions we build; concepts that we have developed, policies that we pursue. That has created poverty,” he says, adding: “If you go to the States you see the same thing. The poverty’s still there. You have slums in New York City as much as you have in Bangladesh or in Cairo and other places. It’s what we do with it and how we approach it that makes the difference and it’s not needed to be there.”

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He should know: last year Yunus — adjointly with Grameen Bank, which he founded — won the Nobel Peace Prize for “their efforts to create economic and social development from below”. His innovative application of the concept of microcredit, which sees loans given to poor people without any collateral, has helped seven million people out of the poverty trap. In the process it has made Yunus a living legend, his bank a staggering success and his future — soon to be in politics — even brighter.

Yunus is in Dubai to take part in ‘Education Without Borders’, a three-day international education conference that in Abu Dhabi. Interacting with students has always been a gratifying experience for Yunus, who spent several years teaching economics at Chittagong University in Bangladesh, one of the most densely populated countries in the world.

“I was teaching in the university, then there was a famine in the country and I was upset and I was trying to see if there was something I could do in the next-door village. That’s where this entire story began,” Yunus’s calm voice firmly hangs in the air of the luxurious hotel lounge. His speech betrays the tutor in him, as his sentences spring out clean and clever, and yet sincere. Yunus, however, as we know him today, had his own battles to fight in order to get to his current status.

Raised in a lower-middle-class family with seven brothers and two sisters and parents who barely had any education, it was maybe the standard of living and the insistence of both parents that their children have proper schooling that made Yunus and his siblings challenge their boundaries.

“It is a big family. All of them wanted to be in school and college so we did that. Then I finished my masters and so did some of my brothers and I got a full scholarship to go to the States to do my PhD so I did and came back,” says Yunus, adding that it never occurred to him that one day he would become a banker or reach out to poor people with financial aid. It all started “perchance” according to Yunus, when the activities of money lenders in a neighbouring town failed to address the needs of the poor. “I realised it was so easy to solve this problem so I made a list of people who borrowed money and I saw that the total money they borrowed was only US$27. I thought if I give them the US$27 they won’t have to be punished by the money lenders so I did. It became really exciting news for them,” he says.

Aiming to take this a step further, Yunus headed to the nearest commercial bank to arrange loans for those people, only to be faced with rejection as the bank refused to grant loans to poor people, considering it a sizeable risk. “It became a debate and in the end I resolved the debate by offering myself as a guarantor. I said I’ll become the guarantor and sign all the papers and you give the money. That’s how the whole thing started,” says Yunus, adding that resolving one opposition after the other led to a chain of lending activities in the village.

Yunus simplifies the explanation of this emerging microcredit trend saying: “Conventional banks don’t lend money to the poor people because they cannot give collateral. What we have done is develop a system which doesn’t require any collateral. Once you throw that away anybody is good enough.”

On this basis Grameen Bank was founded in 1976 in Bangladesh. What many are astonished by is the absence of any legal instruments in the bank’s operating system. Instead, it utilises what it calls ‘solidarity groups’, comprising of informal groups that apply for loans together while, simultaneously, its members act as co-guarantors of repayment and support each other to further their economic advancement.

“We said we are not in the punishment mode; we are in the support mode, which is very different,” says Yunus adding, “If you don’t pay back your loan we don’t punish you, we don’t say you are a bad person.

We say well you’re back into trouble and our job is to help you overcome that trouble. So we join your force and see how to overcome that trouble rather than go and bang you on the head.”

Today, Grameen Bank has seven million borrowers, of which 97% are women, with a repayment rate of 99%.

“We don’t need any donor money. We don’t need any government money. The bank takes deposits from the borrowers or non-borrowers in their location and uses this money to lend money to the poor people and they change their world and they change their lives,” says Yunus.

The Nobel laureate further explains the lending procedure for income generating activities. He says the person is asked why she needs the money and she might reply: “I need to buy a cow.” The bank then asks, “Why do you want the cow?” to which she will reply, “Because I’ll have the milk, I’ll sell the milk, and I’ll pay you back with the proceeds from the milk. I can do this over that period and pay you back the entire loan.”

This makes sense, thinks Yunus, as the women’s friends testify to her ability to pay back. The woman is granted the loan, buys a cow, generates income, and pays back the loan after which she becomes the complete owner of the asset.

“She feels inspired to do more; she wants to expand her business. Now, the bank has more confidence in her using the money properly so the bank gives her more money,” says Yunus. The long-time scholar also makes the point that the bank encourages education, ensuring that 100% of its members send their children to school.

“Then we continue to encourage them to stay in school. As a result many of them are in colleges, in universities, and medical and engineering schools. We also give them scholarships so that they feel inspired with their performance. Then we give student loans to go into higher education so that they can become successful doctors and engineers,” says Yunus.

As the bank has developed, it has put to use other systems of alternative credit to help the poor, such as housing loans, financing for fisheries and irrigation projects, venture capital, textiles and other activities, in addition to other banking services like savings. The bank, however, is still owned by the borrowers, insists Yunus — emphasising that it is not owned by the government, him, or a big corporation.

“I established the bank but even I cannot buy a share of the bank. I am only an employee of the bank.

The borrowers are the shareholders and the owners of the bank. It’s owned by poor people, poor women particularly, and it serves them to change their lives. This is how the whole bank is built,” he says.

It took 15 years for the work of Yunus and Grameen Bank to attract the attention of the Nobel Peace Prize judges. “Every year someone said ‘this year you’ll get it’,” he says smiling, “then it doesn’t come so after a while you give up.” When it finally did happen, Yunus describes the reception of the exciting news as “an explosion of happiness in Bangladesh”, and adds that congratulations flooded in from around the region.

To Yunus, winning the prize was a very special life-changing experience. “It doesn’t happen to everybody, such a rare thing,” he says, adding the fact that only a few countries in Asia have a Nobel laureate adds to the greater significance of this award. “It also brings so much focus on your entire world. You are in the floodlights, everybody talks about you, in every newspaper in every language your picture is there, and every television network shows that,” says Yunus.

He adds that while winning the trophy is a “tremendous honour”, it also makes you realise the possibility of reaching out and achieving more.

“That’s an exciting prospect to see how you use that familiarity, name recognition and respect to move the world in the direction you feel that it should,” he says proudly.

This manifests itself in Yunus’s continuous efforts to change the established institutional framework and concepts, as he calls it. His rationale is: “We have to pick up the seeds of poverty in those institutions; in those concepts. Once you pick them up, it will not create any poverty anymore and poor people will be out of poverty.”

Being in Dubai, surrounded with so much wealth and development, further emphasises the possibilities of what could be done, sees Yunus. He believes that although there’s a lot of growth and oil money in the Middle Eastern region, at the same time there’s a large percentage of people living in poverty. Institutions and governments in the region are beginning to take an interest in microeconomics, according to Yunus.

He says Morocco has some of the best programmes, then there are similar schemes in Algeria and Jordan, and some programmes in Lebanon. Talks are also underway in Yemen to utilise the microcredit concept.

However, the level of interest in the Middle East has not yet reached the same height as in Bangladesh, India or Pakistan. Yunus hopes this will change as more underprivileged people benefit from the spreading trend.

What keeps Yunus going is the positive impact of his efforts on poor people, and particularly children. “You feel good that you have done something that has touched the life of another person, another family and you want to do more, you feel recharged with energy,” he says.

Yunus recalls an example of people’s gratitude when they are granted housing loans by the bank, which only amount to US$300. Every time a new house is built and the family moves in tears of happiness will be streaming down their faces.

“She can’t believe she can live in such a beautiful house. It’s only a US$300 house but to her, compared to where she lived, it’s like a palace of a king,” says Yunus as his eyes fill with emotion, adding, “That kind of look in their faces, tears in their eyes and the excitement of their children makes you feel very happy that you did it.”

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