Small Loans Lead to Big Prize

In 1974, there was a terrible famine in Bangladesh. It doesn't give you a good feeling when you teach students elegant theories but people are starving outside the walls of the university. "It gave me an empty feeling," declared  Mohammad Yunus as he described the process which led to his being awarded the Nobel Peace Prize in 2006.

Professor Yunus spoke to an audience of over 5000 international educators at the NAFSA conference at the Los Angeles Convention Center on Tuesday, May 27. Yunus, a modest man who earned his Ph.D. at Vanderbilt University, was teaching at Chittagong University during the famine.

"I decided to go to the village just off campus to be with the poor people and to help in any way I could," Yunus said. Since that time, he has received several high honors for his creative approaches to helping the poor, including the President's Award for his work in developing a cooperative three-share form of farming, which was embraced by the government of Bangladesh in 1975.

On his visits to the nearby village, Yunus noticed that people were having problems with loan sharks.

"I couldn't believe that so many people had to suffer for so little," he said. Eventually, Yunus gave 42 people the money to pay their debts. The total amount was $27. "This made so many people happy," he noted.

These positive results led Yunus to approach banks with the proposal that they provide small loans. However, bankers said, "poor people aren't credit-worthy." This led Yunus to develop the Grameen Bank, which now has approximately eight million borrowers, 97 percent of whom are women. "We've loaned out over $100 million, and we get between 98 and 99 percent of it back," Yunus stated with a smile on his face.

Explaining his method for dealing with the various complexities that arise in running a bank, Yunus noted, "for every new rule I needed, I looked at what conventional banks do and I did the opposite." He also commented, "since we don't need any collateral or guarantees, we don't need lawyers." The audience then gave him a hearty round of applause.

Another difference in operating procedures which Yunus described was in regards to approaches to potential clients. "We go to the people, instead of having them come to us. We say we're interested in the future of a person, not the past. So we don't need credit histories."

Yunus also described the Grameen Bank as owned by the borrowers, who are mostly illiterate women.

"We want to break the cycle of illiteracy and poverty. So, we grew as a bank with a tradition that, if you become part of Grameen, your kids  have to go to school. We now give 40,000 scholarships," Yunus stated, eliciting another round of applause.

"For kids who want to go to college, we also give them loans," he added. "Some of our scholarship students have finished their Ph.D.'s, and their parents are still illiterate." He described one such case in which the former student is now a medical doctor. "Her mother could've probably been a doctor, too."

The key to the daughter's success was that "her mother  dared to join Grameen Bank when she took out a loan of $20 or $30 dollars, then later, $50 or $100. So, one little intervention can make things happen."

Yunus also argued, "you can't conclude that poverty is created by poor people." It is the result of a system, of policies which we've created, he contended. The soft-spoken Nobel laureate also pointed out that another group of clients for the bank he founded is comprised of about 120,000 beggers.

"Over the last four years, 16,000 of them have stopped begging and become salesmen. 100,000 are part-time beggars who also do some selling," Yunus stated.

Yunus described his approach to establishing the Grameen Bank and other endeavors, like the bank's partnership with the Dannon Company, as "Social business." These enterprises are not designed to make profits, but, rather, to serve a purpose in the communitiess in which they exist. They are an alternative to the business model which is based solely on profit-maximization.

Recently, the Grameen Bank has also opened up offices in New York City, Boston, and Baltimore. Yunus indicated that he chose to start a Grameen Bank in NYC because "it is the capital of banking."