Founder of the Grameen Bank, the world's largest and most successful microcredit institution, Muhammad Yunus was born in one of the poorest places on earth, the country (then part of Pakistan) of Bangladesh. As a professor of economics, he was struck by the discrepancy between the economic theory taught in universities and the abject poverty around him. Recognizing the poor remained poor because they had no access to capital, no collateral for loans, and borrowing requirements so modest that it was not cost-effective for large banks to process their needs, Yunus started experimenting with small collateral-free loans to landless rural peasants and impoverished women.
In 1983, he founded the Grameen Bank. Its rules were strict and tough. Clients find four friends to borrow with. If any of the five default, all are held accountable, building commitment and providing community support. Initial loans are as little as ten dollars, and must be repaid with 20 percent interest. Nearly twenty years later, this revolutionary bank is flourishing, with more than 1,050 branches serving 35,000 villages and two million customers, 94 percent of them women. Ninety-eight percent of Grameen's borrowers repay their loans in full, a rate of return far higher than that of the rich and powerful. More importantly, the clients are transforming their lives: from powerless and dependent to self-sufficient, independent, and politically astute.
"When I started the Grameen program to provide access to credit for the poor, I came upon two major obstacles. First, commercial banks were institutionally biased against women. Secondly, they had absolutely blocked credit to the poor by demanding something no poor person has access to: namely, collateral.
"After overcoming the second issue, I addressed the first. I wanted half of the borrowers from banks in my program to be women – a challenge. At first, women were reluctant to accept loans. They said, No, no, I have never touched money in my life. You must go to my husband. He understands money. Give the money to him.' So I would try to explain why a loan would benefit her family. But the more I tried to approach women, the more they ran away from me. My colleagues and I worked hard to come up with a way we could build trust in women so that they would accept loans from men. We slowed down our work just to include more women, since this trust-building took time.
"Six years later, proud that half our loans were to women, we began to see something very remarkable. Money that went to families through women helped the families much more than the same amount of money going to men. Unlike men, women were very cautious with money and passed benefits on to their children immediately. They had learned how to manage with scarce resources. And women had a longer vision; they could see a way out of poverty and had the discipline to carry out their plans. Perhaps because women suffer so much more from poverty than men, they are more motivated to escape it.
"In contrast, men were looser with money. They wanted to enjoy it right away, not wait for tomorrow. Women were always building up things for the future, for themselves, their children, their families. We saw a number of such differences between men and women.
We decided to make a concerted effort to attract women clients because we got much more mileage out of the same amount of money. So I created incentives for our loan officers because they had such a hard time convincing women to borrow money from the bank. Today, 94 percent of our loans go to women.
"It has worked in ways we never anticipated. For instance, women borrowers decided to commit themselves to a set of promises that they called the 'sixteen decisions.' These are commitments to improve the welfare of the borrowers and their families above and beyond the loans. They agreed to send their children to school, they decided to maintain discipline, to create unity, to act with courage, and to work hard in all their endeavors. They agreed to keep their families small, to send their children to school, to plant as many seedlings as possible, even to eat vegetables. These are some of the resolutions created by the women, not imposed by the bank. These aspirations were critical to their lives. Listening to them, you see what a difference women make.
"A typical initial loan is something like thirty-five dollars. The night before a woman is going to accept that money from the bank, she will be tossing and turning to decide whether she is really ready for it. She is scared that maybe something terrible will happen to her. And finally in the morning her friends will come over and they will try to persuade her: 'Let's go through with it. If you don't go, we can't. We can't always worry. It was not easy coming to this point. Let's go.' And finally, with their encouragement, she will come to the bank.
"When she holds that money, it is such a huge amount in her hands, it is like holding the hope and treasure that she never dreamt she would achieve. She will tremble, tears will roll down her cheeks, and she won't believe we would trust her with such a large sum. And she promises that she will pay back this money, because the money is the symbol of the trust put in her and she does not want to betray that trust.
"And then she struggles to pay that first loan, that first installment, which is due the following week, and the second installment, which is payable the following week, and this goes on for fifty weeks in sequence, and every time that she repays another installment she is braver! And when she finishes her fiftieth installment, the last one, and she has now paid in full, she can say, 'I did it!' She wants to celebrate. It's not just a monetary transaction that has been completed, it is nothing less than a transformation of that person. In the beginning of it all, she was trembling, she was tossing and turning, she felt she was nobody and she really did not exist. Now she is a woman who feels like she is somebody. Now she can almost stand up and challenge the whole world, shouting, 'I can do it, I can make it on my own.' So it's a process of transformation and finding self-worth, self-esteem. Proving that she can take care of herself."
