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Banker to the Poor

Muhammad Yunus started small 39 years ago with a simple question: What can I do?

The textbook theories he was using in the classroom as an economics professor didn’t apply to life in Bangladesh, his home country, where starving people were lying down quietly on doorsteps, waiting to die. Yunus wanted his students to understand the economics of a single poor person.

In the process, the poor would teach him an entirely new economics.

Yunus never planned to loan money or start a bank, he writes in the best-selling 1999 book Banker to the Poor: Micro-Lending and the Battle Against World Poverty. But as Bengali poet Rabindranath Tagore once observed, he knew he couldn’t cross the sea merely by standing and staring at the water. So he waded in.

Yunus was born in 1940 in Chittagong, the largest port in Bangladesh. The third of 14 children, five of whom died in infancy, he was educated at Dhaka University and moved to the United States with a Fulbright scholarship to study economics at Vanderbilt, where he earned his doctorate. From 1969 to 1972, he was an assistant professor of economics at Middle Tennessee State University. Teaching was a passion that brought him joy, frustration and, ultimately, a place in the history books.

As he stands before an audience, dressed in traditional kurta-style clothing, his eyes smiling, his manner soft-spoken, he begins with some background on Bangladesh—its debilitating battle for independence from Pakistan in 1971, harsh living conditions due to extreme overcrowding, deforestation, storms, soil erosion and the cyclical natural disasters of flooding over the low-lying coastal plain.

‘You Know Nothing’

In 1972, Yunus returned home to help build a new nation. He headed up the economics department at Chittagong University. While there, he witnessed more devastation in the famine of 1974. “You watch people die; you can’t do a thing about it,” he says in a talk with University of Virginia that students captured on video. “You feel tortured inside, that you have no capacity, after all that you’ve learned, all the arrogance of knowledge that you’ve felt that oh, you know everything. You know nothing.”

With poverty all around him, he found the textbooks useless, so he decided, “Why don’t I just be a simple human being and be on the side of another human being? See if I can do something for him or her? It’s a human instinct to want to help.”

Yunus began visiting the poorest households in nearby Jobra, listening to the occupants’ stories.

“One of the things that kept coming up again and again was how the loan sharks catch people and take them apart by just giving tiny little loans,” he says. Villagers were into the moneylenders for small amounts of taka [the currency of Bangladesh], which forced them to sell their goods back to the moneylenders at rates amounting to slave labor. Yunus made a list of 42 names and found the total amount borrowed was $27.

“I couldn’t believe that people have to suffer so much for so little money,” he says. “Suddenly it came to my mind that the problem is difficult but the solution is so simple. I got excited about it. I can solve this problem myself. I don’t have to talk to anybody.” He loaned the money to repay the debts.

Yunus then tried to get a bank to offer small loans, $30 or $40, but met with “Mr. No’s” who rebuffed his idea. If the banks refused to loan money to the poor, then he would do it. He would be the banker to the poor.

A New Kind of Bank

Yunus continues his storytelling as he travels from one audience to another, this time as part of the Austin College Posey 2010 Leadership Award, recognizing him for global servant leadership.

“People ask me, ‘How do you figure out how to do this kind of thing?’ It’s very simple, really. Whenever I needed a rule, a procedure for doing this, I just looked at the conventional banks, what they do, how they do it, because they’ve been in business a long time. Once I learned how they do it, I just did the opposite.”

The banks had decided the poor were not creditworthy. Yunus asked, “Are the banks people-worthy?” The answer being “no,” he decided it was time to create a new kind of bank, and that’s how Grameen (a word meaning “of the village”) started. What made it revolutionary was the shift in thinking it represented.

Banks loan money to the rich. Yunus reached out to the poor. Banks give loans to men. Yunus focused on women, who were better at adapting to self-help and focused on family needs. Banks do business in the city centers; Grameen would stay in the remote villages. Banks required collateral. Grameen would offer loans without it—and without lawyers or reams of legal documents. Banks are owned by the rich; Grameen would be owned by the borrowers, with profits going back to them as dividends.

“When you’re frustrated, you do crazy things,” he tells the audience, “and that’s what I did. I did a lot of crazy things. Funny thing is, they work.”

The tiny loans provided a starting point for cottage industries and other income-making activities, using skills the borrowers already had. To his surprise, the poor with no collateral paid back their loans at a higher rate than those who borrowed against secured assets. Not only could the poor be self-employed entrepreneurs, they could create jobs for others.

Social Business

In 2006, Yunus and Grameen Bank of Bangladesh shared the Nobel Peace Prize for their efforts to create economic and social development from the ground up. Yunus founded Grameen Bank based on a concept known as microcredit, the practice of lending small amounts of money to the poor to use in starting tiny businesses.

Today Grameen Bank has 8 million borrowers, with a 97 percent repayment rate. Aside from microcredit, Grameen is also bringing new technology to the poor, from cellular phones to solar energy, Internet services and eyecare centers.

As managing director of Grameen Bank in Dhaka, Yunus travels extensively to visit with university students, corporate CEOs and political leaders from nations great and small, explaining how he started and why he can’t stop until world poverty finds its rightful place—behind glass in a museum.

And Grameen’s success has crossed that ocean poet Tagore had imagined. Grameen America is a microfinance nonprofit organization that provides loans, savings programs, credit establishment and other financial services to entrepreneurs living below the poverty line in the United States. The first branch launched in the Jackson Heights area of Queens, N.Y., in 2008, and is expanding to other city locations, like the one in Omaha. Other potential branch locations are under study, including North Carolina, Arkansas, Washington D.C., California, Massachusetts and New Jersey.

The Grameen fundamentals can work anywhere, even in the richest country in the world, because the program was built on trust, Yunus says.

“Today, microcredit programs are all over the world, and they do pretty good. The financial crisis has not touched them. People say ‘why?’ I say maybe because we trust each other, and particularly because we’re so close to the real economy. We have not built a kind of fantasy economy in the air, chasing papers. When you get back to the basics of banking, there’s not a problem. No crisis can hit you.”

The experience with microcredit and Grameen has led Yunus to another idea that represents a historic shift in economic theory. “Maximization of profit is the mission of business. Why should that be so?” Yunus asks. “Human beings are not moneymaking machines, not robots. They’re much bigger than that. Not one-dimensional, but multidimensional. We enjoy making money, but many other things, too, that are never factored in.”

He began thinking about another dimension where people could create a new kind of economic activity—a social business, he writes in Banker to the Poor. Social business is an enterprise that is non-loss and non-dividend, created to bring positive changes without short-term expectation of profit. Social businesses can address issues such as poverty, child labor, homelessness, health care, the environment, “anything we see that needs to be changed in order to have a better world, and we don’t have to put it on the shoulders of the government to solve it for us,” he says.

Entrepreneurial Ability Is Universal

A social business is cause-driven, rather than profit-driven. In his 2007 book Creating a World Without Poverty: Social Business and the Future of Capitalism, he discusses how Grameen joined forces with the French food products company Danone to create a social business to address malnutrition in Bangladesh. Social business can satisfy the human craving for helping others, he says, which is why young people find the idea so inspiring.

The beauty is anyone can create a social business. “Humans naturally are entrepreneurs. The only difference is we’ve created a society that does not allow people to discover their talent. We prepare our students for jobs and careers, but we don’t teach them to think as individuals about what kind of world they would like to create.”

There’s a blind spot in standard economic thinking “that ‘entrepreneurship’ is somehow a rare quality. According to the textbooks, only a handful of people have the talent to spot business opportunities and the courage to risk their resources in developing these opportunities,” Yunus says. His view? The books have it wrong. Entrepreneurial ability is practically universal.

“When I talk about it, immediately I see a response in young people,” Yunus says. “They have the courage to change the world. They don’t like the way it is. Now they see they can be in it. They don’t have to wait for the government to make decisions or the policies to be changed. Every individual can create a social business. You don’t have to be a rich person; you don’t have to be a privileged person. All you have to think of is a problem and design a business to solve the problem.”

In an age of great ideas, why not explore the possibilities? “We have the technology. We have the resources. All we need is the will,” Yunus says.

As he concludes this speech, he’ll head west to help launch the California Institute for Social Business at California State University, Channel Islands, and then on to Emory in Atlanta, and to wherever he can find people willing to get shoulder to shoulder, creating those poverty museums.
 

Learn more about microlending in this web exclusive, Microcredit 101.

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