Muhammad Yunus - Banker to the Poor
Kaan Ya Makaan, Fee Hadir Al-Zamaan…
There was a Place, in Current Times…
Named Jobra. This Bangladeshi village was small and many of its members suffered from unnecessary poverty. Some of the women in Jobra tried to support themselves and their families by making bamboo furniture. Unfortunately, in order to buy the bamboo they needed, these women had to take out loans from local moneylenders who charged them unreasonably high interest rates. As a result, these industrious women lived lives of poverty and never seemed to get within reach of prosperity.
One day, Muhammad Yunus, Head of the Economics Department at Chittagong University in Bangladesh, visited this village. When he saw the problem facing the furniture makers of Jobra, he decided to try something. He loaned US$27 to 42 of these industrious women. Each of these women made a profit of US$0.02 on this loan. Not much, it's true, but a lot of a little eventually becomes a lot. Muhammad Yunus understood this. He also understood that the banks would not give such tiny loans with reasonable rates to the poor who could offer no guarantee of repayment. In contrast, Muhammad Yunus believed that such microcredit could work and that the poor would pay back these microloans given a reasonable incentive.
In December 1976, Muhammad Yunus got a lone from a government bank, Janata Bank, in order to lend to the poor of Jobra. According to the Grameen Bank official website, this project had the following objectives:
- Extend banking facilities to poor men and women.
- Eliminate the exploitation of the poor by money lenders. create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh.
- Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves.
- Reverse the age-old vicious circle of "Low Income, Low Saving and Low Investment" into virtuous circle of "Low Income, Injection of Credit, Investment, More Income, More Savings, More Investment, More Income".
Eventually, this small project garnered so much success that it evolved, by government legislation, into an official bank which was named the Grameen Bank (Village or Rural Bank). Over time this bank faced down many problems using perseverance and, upon occasion, simple practicality. For instance, as a solution to the borrowers' lack of collateral the bank used a system of "solidarity groups" when lending. The groups, usually five or so borrowers, would apply together and then act as co-guarantors of repayment. If anyone in the group had not paid his or her loan back, all of the members of the group would be denied further loans until that one person had paid off his or her loan. Thus they used peer pressure as an effective motivator. To date, the Grameen Bank repayment rate is over 98 per cent.
This successful micro-financing model took the world by storm and is now in use all over the world. Even in the United States many organizations offer microcredit loans to those who need it. All such organizations are attempting to achieve the same thing: to help those in need defeat poverty and gain independence i.e. make a good living.
How did he come up with this great idea? Muhammad Yunus was quoted as saying, "If the banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate friendly. If you had to go to the bank, my bank went to the village."
In 2006, the Nobel Peace Prize Committee chose to recognize Muhammad Yunus' contribution to humanity by awarding him, jointly with the Grameen Bank, the Nobel Peace Prize. According to them, "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty."
Muhammad Yunus is the first Bangladeshi (citizen of the country of Bangladesh) and third Bengali (of Bengal ethnicity) to ever get a Nobel Prize. When he was informed that he had won the Nobel Peace prize, he said that part of his share of the $1.4 million award money would be used to found a company that would create low-cost, high-nutrition food for the poor. The rest, he said, would go toward setting up an eye hospital for the poor in Bangladesh.
If you would like to learn more about microloans and Mr. Muhammad Yunus, you can do so by reading one of his books: Three farmers of Jobra, Jorimon and Others: Faces of Poverty, Banker To The Poor: Micro-Lending and the Battle Against World Poverty, Creating a World Without Poverty: Social Business and the Future of Capitalism, Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs all by Muhammad Yunus and finally a book for children and young adults written by David Bornstein called The Price of a Dream: The Story of the Grameen Bank.
*Written by Aisha Bilal © 2011. Care to read or leave Comments?
- Names, Translations and Aliases:
- Muhammad Yunus: محمد يونس
- Yes, interest IS forbidden in Islam. It is considered ill-gotten gains. The more correct thing, Islamically, to do would have been to offer interest-free loans. Unfortunately, such loans would no doubt have dismayed non-Islamic banks and discouraged them from offering micro-loans due to lack of profit. In the short-term, there is still very little profit to be had from micro-financing what with the low interest rates. In the long term, more prosperous customers translates to more money in the community and eventually in the bank. Which all banks, Islamic or not, can agree is good for business.
- Want to learn more? Try reading one of the following books:
- Muhammad Yunus: محمد يونس