A bank for the poor

In Spore No. 11, we looked at credit schemes for agricultural and rural development. The Grameen Bank in Bangladesh is an example of a very successful rural development credit scheme, so we asked Prof. Muhammad Yunus, its Managing Director, to tell us a little about his bank for the poor which also belongs to the poor: only 25 % of its shares are owned by the government It has been said that there is no point in lending money to the poorest of the poor: they will either 'eat' the credit, spend it on a wedding or something else will go wrong. But this is not what the Grameen Bank in Bangladesh has found. Our recoveries record of 98% or more proves that the poor are credit-worthy. We lend money to the landless poor of Bangladesh - the most disadvantaged people in our society. Our average loan size is USD 60 with the maximum being USD 200 and the minimum on record just one USD. Over the past ten years we have had 250,000 borrowers who have used such credit to translate their skills into action. We lend money for projects such as paddy husking; cattle raising; rickshaw services; small trading activities; making furniture, pots and pans, pottery, baskets and hats; and weaving. The credit enables small-scale producers to escape the double bind of being squeezed by middle men, both in the purchase of raw materials and in the marketing of their products. The group approach is an important aspect of the Grameen Bank credit system. Any individual applying for a loan must find four others, who are not relatives, to form a group. Such members must be like-minded and have similar economic and social backgrounds. The loan is not made to the group, however, but to each individual who is personally responsible for repaying it. The function of the group is to exert peer pressure on potential loan defaulters. If one member of the group does not repay the loan, the group gets a bad reputation and will receive no further loans. But the group can also be supportive. A member unable to repay the loan may have very good reasons and thus may receive support from the other members if only to protect the reputation of the group. A further advantage is that members can pool their resources to buy raw materials. This, for example, enables a group of weavers to buy their materials much more cheaply directly from the mill. Before loans are granted, borrowers undergo intensive training for one or two weeks on the philosophy and rules of the Grameen Bank. For their group to be recognized, they must satisfy the bank staff of their integrity and seriousness, of their understanding of the principles and procedures of the bank, and of their ability to write their names. Each group elects its own chairman and secretary who organize the group meetings, which are compulsory for all members. Several groups in the same village are federated into a 'centre' with a 'Centre Chief' and 'Deputy Centre Chief' being elected from among the group chairmen. They conduct the weekly meetings of the centre, make loan proposals, supervise the loan activities and assist bank workers. Almost 75 % of our loans go to women, which is surprising given our male dominated society. This can have far-reaching effects. It is made clear to the woman that the loan is made to her and not to her husband. The benefits of the loan are legally hers - if she decides to share these with the family, as she invariably does, that is her choice. At first the man may find it humiliating not to be in control of the money but the crisis is soon over as he discovers the benefits of having a more equal partner who contributes to the income of the family and whose calculations and judgements he learns to respect. A study by the Bangladesh Institute of Development Studies shows that the acceptability of family planning is twice as high in Grameen Bank borrowers compared to the rest of the country. This does not mean that the Bank actively promotes family planning. A woman who has been empowered by access to credit realizes that her working ability must be kept intact and learns that putting more of her time into earning activities and less into taking care of a growing number of children is beneficial to the family as a whole. If you consider that a loan made to one family member benefits on average five people, the Grameen Bank has reached over a million people -but this is only a small percentage of the landless poor. The 300 branches of the Bank are working in only 6,000 of our 68,000 villages. Our aim is to have 500 branches by 1988 and 1,700 branches by 1995 spread throughout the country. The Bangladesh government and the international community are helpful and supportive but the Bank must develop at its own pace. Our most important aim is to convince as many people as possible that the poor are credit-worthy. The banking system all over the world depends on the provision of collateral and as the poor have none to offer, they are not considered 'bankable'. We are challenging this concept. To argue that we cannot design a banking system which does not rely on collateral is an insult to human ingenuity. Credit should be seen not only as a facilitator of trade, commerce and industry, but as a powerful weapon which plays a greater economic, social and political role than economists would like to admit. Credit creates entitlement to resources, which should not be the privilege of a few, but open to every citizen of every country, rich or poor. In Bangladesh, many people have already adopted this way of thinking. The concept has also made an impact in several other countries: Malaysia, Nepal, Sri Lanka, Indonesia and the Philippines have expressed interest in our system and it has also been started in the United States. Rwanda and Malawi are also in the process of setting up a similar credit scheme. A very important factor in the success of the Grameen Bank is the enthusiasm of its staff. We give them a free hand to be creative and to use their judgement. Our young people are very patriotic and want to change the fate of their country. When they are confronted 'eyeball to eyeball' with poverty, they want to do something about it. They find the time and the energy and the Grameen Bank provides the format and the opportunity. Dr. Muhammad Yunus, Professor of Economics at Chittagong University, began a programme in 1976 to help bring the rural poor into a viable banking network. In 1983, it was transformed into the independent Grameen ank.

In Spore No. 11, we looked at credit schemes for agricultural and rural development. The Grameen Bank in Bangladesh is an example of a very successful rural development credit scheme, so we asked Prof. Muhammad Yunus, its Managing Director, to tell...