by Mary Avant

DHAKA, Bangladesh - In 1974, Professor Muhammad Yunus, head of the Rural Economics Program at the University of Chittagong, led his students on a field trip to a poor village. They talked to a woman who made bamboo stools, and learned that she borrowed around 25 cents to buy the raw bamboo for every stool she made. After repaying the middleman interest rates as high as 10% a week, she was left with less than a penny profit margin per stool. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.

That day Yunus and his students found 42 people in that one village who were in the same situation. "When I added up the total amount they needed," Yunus said, "I got the biggest shock of my life. It added up to 27 dollars! I felt ashamed of myself for being part of a society which could not provide even 27 dollars to 42 hard-working, skilled human beings."

Astonished at how little it would take to help these people not only survive, but give them the hope of pulling out of poverty status, Yunus funded each one out of his own pocket. Against the advice of banks and government, he carried on giving out 'micro-loans' over the next two years as he developed and then launched a research project to design a credit delivery system to provide banking services targeted at the rural poor. The Grameen Bank Project (Grameen means "rural" or "village" in the Bangla language) came into operation in 1976 with the objectives of extending banking facilities to poor men and women; eliminating exploitation of the poor by money lenders; creating opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh; bringing women from the poorest households within the fold of an economic organizational format which they could understand and manage by themselves; and, as Yunus puts it, “reverse the age-old vicious circle of low income, low saving & low investment, into a cycle of low income, injection of credit, investment, more income, more savings, more investment, more income."

In 1983 Grameen Bank was established, providing small, collateral-free credit to poor rural people, mainly women, for income-generating activities. As of April 2007, Grameen Bank now serves over 59,806 villages with 1740 branches, and has disbursed $6.19 billion in loans to 7.1 million borrowers. Ninety-seven percent of borrowers are women, and the average repayment rate on loans is 98.54 %. In April it lent out about $3.15 million-a-day in tiny loans averaging around $130. Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining 10% is owned by the government.

Grameen credit methodologies and its divisions, which include Grameen Trust, the Grameen Fund, Grameen Communications and Grameen Shikkha Education, can now be found in 58 countries, including the US, Canada, France, The Netherlands and Norway. One division, the Grameen Foundation, was founded in 1997 by a group of friends who were inspired by Yunus’ work. The Foundation now supports a global network of microfinance partners that reaches over 3 million families in 22 countries, as well as a worldwide network of microfinance programs that enable mostly poor women to lift themselves out of poverty and make better lives for their families. To do this, they partner with a worldwide network of microfinance institutions. 

Considering that lasting peace cannot be achieved unless large population groups find ways to break out of poverty, it is not too surprising that the Norwegian Nobel Committee awarded the 2006 Nobel Peace Prize to Muhammad Yunusand Grameen Bank for their efforts to create economic and social stability by developing micro-credit for the poor.

The last hope

For those in absolute poverty, credit is the last hope. And yet credit is the last thing poor people can qualify for. How many American banks lend to individuals whose income is less than the U.S. weighted average poverty threshold of $5019? Equally unlikely is finding foreign banks that will loan start-up capital to individuals whose income hovers near the international poverty line of $US 1 per day. And where does that leave the more than 1 billion people around the world who earn far less than that?

Without Grameen and other organizations like it, what chance would Feliza Aticona and Margarita Cortez have as street peddlers in the Bolivian city of El Alto? Members of Pro Mujer, a Grameen microfinance partner in Bolivia, since 2000, they have currently pooled their individual loans of $200 and $400 respectively to buy meat and corn to sell in the local market. Past loans have gone to buy a small kitchen to prepare the food they sell. Previously, they had to rent cooking space which depleted their slim profit margins

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Or what about Marie Francois Neptune from Haiti who’s mother died when she was 18, leaving her to raise five young siblings on her own? Forced to drop out of school, she supported her brothers and sisters as a ti machann, or female street vendor, hawking goods on foot from village to village. In order to purchase used clothing from the United States, rice, beans and other items to sell, Marie Francois borrowed money from the local isirye, or moneylender. However, due to high interest rates, Marie Francois kept very little of the profit she earned and had to struggle to support her family.

At age 47, she joined Fonkoze’s Okay branch, a Grameen affiliated alternative Haitian bank for the organized poor, and took her first loan. She used the capital to purchase a greater variety of merchandise, such as auto and bicycle parts, as well as larger quantities of merchandise. Because she no longer loses most of her profit to moneylenders, she has been able to grow her business and even employs other ti machann to sell her wares. “The biggest change that Fonkoze has brought to my life is that now … I can use the money I make to buy more merchandise for my business, which helps me make a bigger profit. And with this profit, I can afford to send my children to school. It also enables me to give them food without any problem, and to take care of them if they get sick.”

Social justice

Grameen Bank and ACCION International, a non-profit organization founded in 1961 to provide small loans and technical assistance to people under-serviced by local banks, are the best known innovators of microcredit. As such, they lead the vanguard in some of the most vital areas of social justice: providing honorable employment, and supporting the individual initiatives that make basic goods and services attainable. Apart from loans, microcredit now includes savings, microinsurance and other financial innovations that the vast majority of humanity have not had available to them. Granted, hundreds of millions still go completely unserved. But microcredit is at least a step in the right direction. And its popularity is swiftly growing.

For the first time in millennia, a large portion of humanity is able to reach out a hand to uplift those less fortunate. And, unlike charity, microcredit allows poor people to advance and strengthen themselves. The gap between developed and undeveloped countries, between rich and poor is still staggering. But there may now be the beginnings of a real shift. “There is the tendency of societies to polarize into rich and poor over time,” says business educational leader and consultant, Gifford Pinchot. “And there's always an end to that. When it goes too far, the system collapses and then it starts over on a more egalitarian basis, and then it generally works up to extremes of wealth and poverty again.

“If you ask yourself, ‘Why does a society turn to terrorism?’ ultimately it's out of despair. Because there's no other way of expressing themselves or getting anyone's attention, and they think the system is just too unfair. What we have to learn is it's not sustainable in the long run to let things go too far. It's better as a society to find ways to take care of everyone so that everyone is still bought into the society. People don't have to be equal, but there has to be a decent life for all.”

Some may rightfully argue that buying into the current social system via the microcredit movement will ultimately serve only the “powers that be” who inevitably will earn the profits from total globalization. And, it is no doubt true that if we give people “just enough” to keep them almost comfortable, striving endlessly within the current financial system for more goods and services, that we may end up creating the ultimate global financial treadmill for all. But in a world where the annual U.S. military budget averages $439.3 billion, viable alternatives for the poor are few. It is hard to worry about future pictures of economic enslavement when $27 can keep 42 families from starvation, and keep tiny children from dead-end lives as beggars and prostitutes.

Clearly Yunus and Grameen and organizations like ACCION International and Global Partnerships of Seattle are in the microlending business from the social justice side of things. And in this climate of expanding microeconomics, it is wise for small individual lenders – the average Joes and Janes who want to help others and contribute what they can to such organizations - to draw a distinction between microlenders such as these and other burgeoning groups of microlenders who provide a business service in an infant industry and whose focus is solely on economic viability and profit.

As Rick Beckett, President and CEO of Global Partnerships, which has extended microcredit to 480,000 poor people in six Latin American countries, says, “The heart of our work can only be understood in the context of real lives.” And the heart of organizations like GP and Grameen can be seen in their work, their by-laws, and their philosophies. Grameen, for example clearly states that the Bank’s mission is to promote credit as a human right, and to help poor families help themselves by creating self-employment, as opposed to fostering consumption. It provides services at the door-step of the poor. And finally, Grameencredit requires no collateral and keeps interest rates as close to the market rate as possible without sacrificing its own sustainability.

It also promotes social development and social empowerment of the poor. Loans come with both obligatory and voluntary savings programs. In order to obtain loans a borrower must join a group of borrowers where economic training is provided, and wise counsel in the rudiments of daily living, such as “The 16 Decisions” (see accompanying column) are taught. The formation of groups and centers develops social unity and leadership. And the groups are encouraged to help protect the environment and assist students and families in getting loans for higher education.

Instead of the bottom line being about money, with Grameen and other socially-minded microlenders, the bottom line is about people. “Grameen,” says Yunus, “is a message of hope, a programme for putting homelessness and destitution in a museum so that one day our children will visit it and ask how we could have allowed such a terrible thing to go on for so long.”

For more information www.grameen-info.org; www.globalpartnerships.org; www.accion.org