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In 1972, the year after Bangladesh became independent, I began to teach economics at one of the country's universities. Two years later the country was hit by a devastating famine. On the campus I was teaching complicated theories of development while outside people were dying in hundreds. Conventional economics suddenly seemed hollow. The classroom was a world apart from the reality of poverty and struggle outside. I left it and stepped out into the villages of Bangladesh.
I started talking to people for whom life was an endless struggle for survival and learned things that I had never encountered in textbooks. I met a woman who worked hard making bamboo stools. At the end of each day she had made only two pennies, hardly enough to buy two decent meals. I could not understand how anyone could work so hard for so long and receive so little. I found out that to buy her raw material she had to borrow from a trader, who took most of the money and left the woman with very little. I realized that if the money she needed were available at normal interest rates the woman would earn enough to reinvest and make higher profits. She could earn a decent living and escape from poverty.
I spoke to forty-two other people in the village who were trapped in poverty because they were dependent on loans from traders and money-lenders. Their total credit requirement was only thirty dollars. I lent them the money out of my own pocket. I thought that if normal banking institutions would do likewise, these people could leave poverty behind. However, conventional banking institutions do not make loans to the poor, especially to rural women.
The bankers I met laughed at me. They did not think it was their business to hand out small amounts of money to the poor. They did not think it was possible to hand out money without collateral. Since poor people by definition had no collateral, the banks refused to deal with them. I went from one bank to another. They all said the same. I offered to act as guarantor for the loans. This was acceptable to them for a few more loans, amounting to a few hundred dollars.
All the poor people who contracted these loans repaid the money. I went back to the banks, showing this as proof that poor people repay their debts and that there was no need to insist on collateral. The bankers said, it may work in this one village but it wouldn't work in many. I tried the same scheme in many villages. All the poor people who borrowed paid back. I went back to the banks. They said it may work in a few villages but it won't work in an entire district. So I extended the scheme to an entire district. It worked. The banks remained unpersuaded.
I said to myself, why am I running after the bankers? Why don't I solve the problem by setting up my own bank? And so I asked the Central Bank and the Government for permission to set up a special bank for poor people. It took a long time but the Government finally gave permission in 1983. Grameen Bank was born as an independent bank, a bank for the poor.(n1)
Banks that lend only to the rich
The conventional banking system has been deliberately designed to be anti-poor, gender biased, and anti-illiterate.
The idea of "collateral", which bankers regard as sacred, is to push the poor away from banks. But any good banker who looked at our banking system in Bangladesh would be horrified. Millions of dollars are lent to very rich people who never bother to pay back. The repayment rate of our industrial banks, which lend money to rich people in the name of industrialization, has been less than 10 per cent over the past fifteen years. "Why call yourself a bank?" I ask them. "Why not take your signboard down and put up a new one saying something like `Charity Organization for the Rich'?"
Banks do not like women. They do not want to lend money to women. There are "Ladies' Branches" all over Dhaka city designed to serve women only--i.e., designed to get their money. Lending to them is a very different story. In a Bangladeshi bank, if a woman wants to borrow money, she is asked whether she has discussed it with her husband. If she says "Yes" she is asked, "Is he supportive of your proposal?" If the answer is still "Yes", she is asked to bring him along to talk the matter over. No male borrower is asked whether he has discussed the idea with his wife, or whether she is supportive of it, or whether he would like to bring her along to discuss the proposal. I would think that less than 1 per cent of borrowers in Bangladesh are women. There must be something wrong with the system.
Banks demand that clients write everything down. In Bangladesh, where 75 per cent of the people cannot read and write, this is a ridiculous situation. Even when people bring money to deposit in the bank, they have to write down every detail on paper. I asked why banks cannot simply take money and issue a receipt saying "received such and such an amount of money from such and such a person?" Why must the depositor have to do all this writing? When I first challenged this notion, bankers asked me how records could be kept without reading and writing. My reply was that banks could issue receipts for amounts received or disbursed, and that all the necessary accounting could be done by the bank. Why punish the illiterate person?
The Grameen system
Grameen Bank now operates in over half the villages of Bangladesh. It has over two million members, 94 per cent of whom are women. Over $1.7 billion have been disbursed so far, and more than 300,000 houses have been built with Grameen housing loans. Depositors, saving only one or two take per week, have managed to save over $120 million. This has been achieved because Grameen Bank is pro-poor, pro-women and supportive of the illiterate.
Grameen Bank rejected collateral-based banking as a structural impediment to the participation of the poor, and introduced instead group-based lending and peer monitoring to ensure both the selection of needy clients and the maintenance of high repayments. Groups of five are formed with members from homogeneous backgrounds who know and trust each other. Six to eight groups are integrated in one centre. Each village will generally have one or two centres. Instead of making people come to the bank, Grameen goes to the people. All financial transactions take place at weekly centre meetings. This lowers transaction costs as well as making the banking institution subordinate to people's needs.
Ninety four per cent of Grameen members are women. This emphasis on women is based on the fact that women are the most oppressed within the ranks of the poor and, more importantly, because giving credit to poor women translates into greater welfare within the household. Unlike men, women in rural Bangladesh spend almost all their earnings on the family and plan for the family's future. There is also a social dimension to the emphasis on women group members. Women who had earlier rarely ventured out of their houses now come to group meetings; women who had previously never handled cash now keep accounts and engage in financial transactions; women who had never been visible in public now become assertive and confident.
Most Grameen members have no formal schooling. At Grameen they are taught to sign their names, to count and keep accounts. Banking procedures are simple and transparent. Members discuss among themselves and learn to keep track of their money without having to use difficult forms. Simple receipts are issued so that record keeping is simplified.
Grameen has led to a virtual transformation of rural society. Numerous studies on the Bank have shown that it has increased the economic well-being of its members. Grameen loans have contributed to the building of sturdy houses, to better health and sanitation, and to higher school attendance. Studies have also pointed to the increasing power of women, to their challenging of conventional norms discriminating against them, and to their greater political participation. While much remains to be done to alleviate poverty and end inequality and gender discrimination, microcredit in Bangladesh, as practiced by the Grameen Bank, has provided one simple strategy that works.
Poverty alleviation initiatives
We at Grameen, however, are not content to stop here. We dare to dream of microcredit paving the way for poverty alleviation once and for all. The Grameen family is thus working on expanding agricultural productivity through environment-friendly integrated agricultural methods. We are promoting the development of fisheries. We are expanding local markets by linking weavers from the heartland of Bangladesh to retail outlets in the United States and Europe through the export of "Grameen check" clothing.
We strongly believe that the most advanced technology should be appropriated by the poor. We are thus working on harnessing solar and wind energy, and on providing telecommunication facilities to every village in Bangladesh. This will not be organized by wealthy corporations. Access to credit will ensure that poor rural men and women are both the owners and users of such products and services.
UNESCO AND THE GRAMEEN BANK
In September 1995, UNESCO signed a memorandum of understanding with the Grameen Bankin which the two organizations pledged to combat poverty by joining forces in their specific areas of competence. UNESCO'S participation in the co-operation scheme has so far involved:
designing a basic education programme for Grameen borrowers and their families directly related to their economic activities;
providing the Bank with technical assistance in setting up a company which now brings cellular telephones to needy rural women in Bangladesh;
supplying expert advice on the exploitation of solar power and other renewable energy sources;
organizing training programmes and workshops for Member States interested in adopting the Grameen Bank model. A workshop for Central Asian countries was held at Bishkek (Kyrgyzstan) in March 1996 and has been followed up by a study visit of the Grameen banking mechanism in Bangladesh.
producing an information kit explaining the Grameen Bank's philosophy, mechanism and success (published in English, French and Spanish).
(n1) Muhammad Yunus talked about the Grameen Bank in an interview published in the September 1995 issue of the UNESCO Courier. Editor
PHOTO (COLOR): Heads held high, a group of Grameen Bank members in a village near Dhaka, the capital of Bangladesh, give a purposeful salute that symbolizes their refusal to accept poverty and submission.
A weekly meeting of Grameen Bank members in a Bangladesh village.
With her fourth loan from the Grameen Bank this Bangladeshi woman bought a dairy cow.
Thanks to a loan from the Grameen Bank, Anguri (above) is no longer dependent on middlemen for the bamboo she uses to weave baskets.
BY MUHAMMAD YUNUS