INFOTERRA: News: Grameen Bank As A Model for Microcredit Lending
http://www.latimes.com/news/nationworld/nation/la-adfg-banker4apr04,1,163601.story?coll=la-home-nation
Los Angeles Times:
April 4, 2004
THE WORLD
Microcredit Bank Grows Out of a $27 Investment
A Bangladesh economics professor tested his theories in one village.
His success inspired a model for small loans worldwide.
By Beth Duff-Brown
Associated Press Writer
DHAKA, Bangladesh - The father of a banking revolution that has helped
millions of poor people says his "eureka moment" came while chatting with
a shy woman weaving bamboo stools with calloused fingers.
Sufia Begum was a 21-year-old mother of three when economics professor
Muhammad Yunus met her in 1974 and asked how much she earned.
She said she borrowed 5 taka, about 9 cents, from a middleman for the
bamboo for each stool.
After repaying the debt, she was left with 2 cents for each stool.
"I thought to myself, my god, for 5 takas, she has become a slave," Yunus
said.
That epiphany ultimately led to something called microcredit and the
Grameen Bank, which has granted $4.18 billion in small loans to 3.12
million Bangladeshis. A model for microcredit financing in 65 developing
countries, the system has helped about 17 million borrowers worldwide and
pledges to eventually lift 100 million people out of poverty.
In essence, one man from one isolated and blighted country helped millions
with just $27.
Not everyone sees microcredit as an unalloyed success. Some economists at
home and abroad say that its claimed 99% loan recovery rate is an
exaggeration, and complain that Grameen's interest rates are too high.
Still, when more than 1,000 microcredit proponents recently gathered to
take stock of the movement in Dhaka, the Bangladesh capital, the star
attraction was Yunus, the man former President Bill Clinton once said
deserved a Nobel Prize.
Queen Sofia of Spain, honorary chairwoman of the Washington-based
Microcredit Summit Campaign, called Yunus the "pioneer of this great and
already universal achievement."
In 1974, Bangladesh was a newborn nation, ravaged by war and famine.
Yunus, then 33, had returned two years earlier with his American wife,
leaving behind a comfortable life in the United States.
With a PhD in economics from Vanderbilt University, he became the head of
the economics department at Chittagong University on the Bay of Bengal.
But he felt foolish pontificating in the classroom as people starved just
outside the campus, in the city where he was born to a middle-class
jeweler.
"There I was, teaching all these elegant theories in the classroom while
out in the streets, I saw these people going hungry," Yunus said.
Yunus told his students to follow him to the nearby village of Jobra to
study economics from the ground up. The first person he stumbled on was
the young woman weaving bamboo stools.
"I couldn't understand how she could be so poor when she was making such
beautiful things," he said. He was determined to teach her to help
herself, although not quite sure how.
The next day, the students did a survey and discovered that 42 villagers
in Jobra owed a total of 856 taka, about $27.
"I couldn't take it anymore. I put the $27 out there and told them they
could liberate themselves" and pay him back whenever they could, he said.
The idea was to buy their own materials and cut out the middleman.
They all paid him back, day by day, over a year.
"They were so excited and I thought, if you can make so many people so
happy with so little money - why not make more people happy with a little
more money?"
Yunus drove his white Volkswagen Beetle to the state-run Janata Bank to
apply for a loan. After months of negotiations, the bank loaned him enough
to replicate the Jobra experiment in 100 more villages.
All those loans were paid back as well. Encouraged, Yunus won government
approval in 1983 to open Grameen, Bengali for "rural."
Today 1,194 Grameen Bank branches serve 43,500 villages, or 60% of rural
Bangladesh. Loans average $200 per borrower.
This in a country that Henry Kissinger once dubbed "South Asia's basket
case."
The globe's most densely populated country - 140 million people sandwiched
into an area the size of Iowa - staggers under 36% unemployment and an
average income of a dollar a day. More than 70% of its people have no
electricity or safe drinking water.
Yunus and his wife divorced; she returned to the United States with their
daughter, Monica, now a soprano with the Metropolitan Opera. Yunus
remarried, to a Bangladeshi physics professor, and they have a teenage
daughter.
Yunus is 63 now, handsome with a head of thick gray hair and wearing a
traditional cotton tunic. He says his mother imbued him with compassion
for the poor. She had 14 children, nine of whom survived, and she would
sock away pocket change for needy neighbors.
He has enormous faith in women. They are more than 95% of Grameen's
borrowers, they make their payments on time and they put their profits
back into the family, he said.
He was speaking during a visit to Kashipur, a village of rice paddies just
north of Dhaka, where water buffalo lumber down dirt paths alongside a
woman speaking Bengali on a mobile phone.
About 45 women in well-worn saris surrounded him, treating him like a
celebrity. They sat on benches in a tin-roofed shack with hard mud floors
and reported on projects, told him stories, laughed and cheered. One
complained that her cow was sick; another said she missed her son, a
construction worker in Saudi Arabia.
The women feel at ease with Yunus, not that common in this conservative
Muslim country where rural women take a backseat to men, especially their
husbands.
"The first hostile person to our program is the husband. He hates usI. We
are challenging his authority," Yunus said.
"So we bring all the husbands together. In the family, he's a macho
tyrant. But you get them in a group and they become very docile," Yunus
said.
"He starts to see that she's not as stupid as he thought. He says, 'Now
she cannot nag me about money, because she understands now how hard it is
to make.' The tension eases and they become a team."
To become a part of Grameen, a borrower must belong to a group of at least
five. First, two are given loans and only when they have made their
payments six weeks running are the others eligible for loans. None is
liable for the other's debt, but Grameen believes that the collective
responsibility serves as collateral.
In Kashipur, the barefoot women line up to hand the local Grameen
representative small wads of cash. After 17 years with the bank, they have
100% repayment.
Some have borrowed to buy another cow or expand their rice paddies or
mustard fields. Four women bought cellular phones and walk about the
phone-less village, making and taking calls for a small fee.
"Mr. Yunus has done more for the poor people of Bangladesh than anything
our government has ever done," said Anju Monwara, a "telephone lady."
Not everyone is so taken with Yunus or his bank.
The critical economists say that small loans get vulnerable women hooked
on credit and that the system does little to eradicate poverty.
"Microcredit has many flaws," said M. M. Akash, an economics professor at
Dhaka University. It does not reach the extreme poor, who account for 20%
of the population, he said. They have no homestead or land to cultivate
and fear banking and investment.
Grameen does not require borrowers to have collateral. But the interest
rates can run from zero for beggars - what Grameen calls "struggling
members" - to 5% on a student loan and 20% for an income-generating loan
to a small business.
Yunus said that was the price one paid to run Grameen free of donor debt
from the Big Brothers of globalization, such as the World Bank. Aside from
the 7% of the bank owned by the government, the borrowers of Grameen own
all the equity.
Yunus believes that there should be a body that monitors and regulates
globalization, similar to what the United Nations does for world order and
security. "You know, keep the big trucks on the fast lane, but create a
small path for the rickshaws."
* * *
Associated Press correspondents Farid Hossain and Parveen Ahmed in Dhaka
contributed to this report.
Copyright 2004 Los Angeles Times
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