How a Bangladeshi banker went where no other banker would go: Poor people.

From the archives: This article originally appeared in the October 08 edition of the Cape Town Globalist

It was 1974 when Dr Muhammad Yunus, a university lecturer in Bangladesh, grew frustrated with teaching what he calls “elegant theories of economics”. In a country mired in poverty and shamelessly exploited by money-lenders, these policies seemed empty. His frustration lay at the heart of what would become Yunus’s big idea: making very small loans to very poor people, especially women, to help them start or strengthen a profitable business.

Yunus’s first move to help the poor was bailing out 42 people who were in debt to money-lenders for US$ 27. He paid back the debts from his own pocket, and soon started working toward establishing an official lending scheme for the poor. Banks in Bangladesh were reluctant to lend money to

poor people on the grounds that they are not creditworthy, so he often acted as a guarantor for loans.

Despite the banks’ scepticism, the borrowers paid back on time. Slowly, his programme attracted more members and in 1983 Yunus created the Grameen Bank with the aim of granting microcredit to the poor. Grameen Bank used a system of group-lending, which means a borrower must join a group of borrowers in order to obtain loans.

Microcredit banks like Grameen target people who can’t access formal financial services and encourage the poor to create their own micro-businesses, and then pay back the loan as their businesses start generating income.

Today, Grameen Bank also provides financial services such as pension funds, savings initiatives, insurance products, and housing and student loans to millions of families. After almost three decades of service to the poor, Yunus and Grameen Bank were awarded the Nobel Peace Prize in 2006. Statistics from the Grameen website indicate that borrowers own 95 percent of the total equity of the bank and government owns the rest. Of its 7.54 million borrowers, almost all are women. Its loan recovery rate is an astonishing 98 percent, and more than half of the borrowers are believed to have crossed the poverty line.

Saif Islam is a third-year student at the University of Cape Town, majoring in print production and politics.

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