I just finished
reading Banker
to the Poor by Muhammad Yunus. He tells the story of how he founded
Grameen Bank (roughly translated, "village bank"), which makes small loans to
the poor without requiring collateral. (This is known as microcredit
and loans are typically less than USD $100.) As a result of loans from
Grameen Bank and similar organizations in other countries, tens of millions
of families have escaped poverty for good.
In Yunus's native country of Bangladesh, many poor people were virtually in
a state of slavery because, just in order to acquire raw materials for their
craft or seeds for planting, they were forced to take out loans at shockingly
high interest rates. The moneylenders effectly captured all the profit,
making it impossible for the borrowers to escape poverty. Grameen Bank has
empowered its borrowers by lending them just enough to allow them to break
out of this cycle. In fact, most borrowers are women who had previously been
entrusted with little or no financial responsibility. Borrowers quickly
become financially self-sufficient; most are able to expand their
enterprises, taking out larger and larger loans each year.
Part of Grameen's signature is that it requires prospective borrowers to
form small groups. Group members help each other stay focused and provide
insurance when calamity strikes.
Grameen Bank's success has been remarkable. The repayment rate tops
98%. The poor are so desperate, Yunus says, that given this one chance to
pull themselves up, they are just not going to let it slip away.
The mindset behind this program runs completely counter to prevailing wisdom
in the United States. In the US, we assume that to make poor people
self-sufficient we need to give them training or an education, so that they
can get a wage-paying job. Meanwhile, anyone who starts a venture needs huge
amounts of capital, enough that we need to keep them on a leash by telling
them how to run their business. So it is, to me, unsurprising that Grameen
Bank's idea— providing small loans and advising, but not managing,
borrowers— started not in the US but in a country like Bangladesh,
where most people are self-employed. But the success of microcredit even in
prosperous nations such as the US shows that the entrepreneurial spirit is
common, and not just in Bangladesh.
Banker to the Poor is not just the story of Grameen Bank but also a
critique of mainstream economic thinking and institutions. Yunus objects that
even though the standard economic axioms promise certain kinds of global maxima, the
objectives that are maximized are deeply flawed. Why should we consider
increases in total production or wealth to be important if it is entirely
possible (or indeed, common) that most of the prosperity is seen by the
richest few? According to Yunus, it is this misguided focus that has
distracted us from the things that could actually help us eliminate
poverty.
Yunus believes that with self-sustaining institutions like Grameen Bank
which are chartered to help the poor, we could relegate poverty to the
history books. Coming from most people, this would be idealistic fluff. But
on the strength of Grameen Bank's success, I am ready to take Yunus's word
for it.
Yunus tells a great story, and I am well on my way into his next
book, Creating a World Without Poverty.
