Microlending is an inspiring success story, which Economics Professor Mohammed Yunus began in Bangladesh in 1977. He realized that poor people stay poor because they don’t have access to credit to buy necessary materials like seeds or cloth except from money lenders who charge high interest–making it impossible to get ahead. He calls this “financial apartheid.” The poor lack possessions or a formal job to use as collateral for a regular bank loan, so Yunus relied on lending to a small group of to put pressure on each other to repay. His idea spread all over the world, including developed countries, but in a controversial decision the Bangladeshi government forced him to resign in 2011, using the excuse that he was too old.
The over 100 million global borrowers from Grameen Bank are mostly poor women who borrow as a group and support each other and learn about business in weekly meetings.[i] Yunus found that women are more likely to spend money on their family, while men tend to spend it on themselves. Most of them repay the small loans after buying moneymakers like chickens, a water buffalo, a sewing machine, or a fishing boat. As a consequence of earning money, their children are more likely to go to school. This model is not without cost: the worldwide average interest rate for microloans is over 30% a year.[ii] Muhammad Yunus reports more than 98% of the loans are repaid.[iii]
The format is five women form a group. A new group receives loans to two members. The group approves the loan request of each member. They pay back the loan on a weekly basis. If these two repay for six weeks then two more members can request loans. The chairperson is usually the last borrower of the five. For a group to be certified, all five prospective members have at least seven days of training on bank policies, and are examined orally by a Grameen Bank official. They learn the Sixteen Decisions.[iv] Groups join each other in weekly meetings in a village center. Grameen Bank also offers housing and student loans, and small loans to beggars to buy items to sell. It operates health centers and businesses as well, including solar power and biofuel systems and communication systems. He believes access to cell phones and the Internet information gives poor people power and “E-commerce can help to make crowding in the cities unnecessary.”[v] An example of enabling democracy, all the Grameen phone ladies are given a list of telephone numbers of government representatives, including the prime minister.
Loans are to be paid back in a year with weekly payments of 2% of the loan amount, starting one week after the loan with an interest rate of 20%. Passbooks record transactions. If an individual doesn’t pay back her loan, her group may be ineligible for larger loans. In case of a disaster, they get a new loan and the old one is converted to a long-term loan. If someone dies, the family gets money from the Central Emergency Fund. Yunus’ emphasis on the importance of giving credit to the poor has spread to 36 nations around the world, including developed nations.[vi] Websites like Microfinance Gateway provide current resources about microlending.[vii]
Yunus told a group of young leaders in 2010, “Big things are good to have in mind, but I always think from the smallest things. If you can have impact on one person, then you can multiply the effect and succeed.”[viii] The young Nepali who reported on Yunus added, “That is what we young people have to do to bring change in our community.” Resources on microfinancing are available.[ix] A variation is a group of women forming a “merry-go-round” to meet regularly and each contribute a small amount of money to be given to one member at a time.
Yunus won a Nobel Prize and wrote a book about progressive businesses, Creating a World Without Poverty (2007). He explains, “Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. With the Social Business taking off, the world of free market capitalism will never be the same again, and it then will really be able to deliver a deathblow on global poverty.” [x] Grameen and the French yogurt company Dannon (Danone in French) formed the first social business in 2007 starting with Bangladeshi village women selling fortified yogurt, aimed at supplying nutrients to children. Yunus mentions examples of NGOs that encourage social entrepreneurship: Ashoka Foundation, the Skoll Foundation, and the Schwab Foundation for Social Entrepreneurship. Another example is the social business One Lap Per Child program developed at MIT to get inexpensive wireless computers to children in third world countries.[xi] Fast Company magazine developed a HIP (Human Impact + Profit) scorecard to rate socially responsible and profitable companies.[xii]
In some countries microlending is used to purchase cell phones, as by “phone ladies” who had a track record borrowing from Grameen Bank in Bangladesh and then the for-profit GrameenPhone. Their village phone model is being duplicated in other countries, like Nigeria and the Philippines. In areas where transport is difficult, access to a cell phone makes a huge difference for doing business or getting health care. A cell phone allows Internet access and mobile banking where virtual transactions can be made without bank buildings or even bank accounts, bridging the digital divide between rich and poor countries. It facilitates job searches, purchases and sales, and medical help and prescriptions. They also facilitate political organizing and demonstrations.
The story of the combination of foreign and local technological know how and capital to create access to cell phones is told by Nicholas Sullivan in You Can Hear Me Now: How Microloans and Cell Phones are Connecting the World’s Poor to the Global Economy.[xiii] In India, slum dwellers without toilets or clean water are likely to have cell phones, with more than 670 million cell phone connections vs. only 366 million toilets.[xiv] Sullivan suggests investing in electricity, as by using methane gas from cow dung, is the next step. This trend is similar to social investing or social entrepreneurship that Yunus proposed, such as a foot-powered water pump made by KickStart.
[ii] Hester Eisenstein. Feminism Seduced: How Global Elites Use Women’s Labor and Ideas to Exploit the World. Paradigm Publishers, 2009, p. 152.
[iii] Louis Charbonneau, “U.S. Envoy: Gaddafi Troops Raping, Issued Viagra,” Reuters.com, April 29, 2011.
[iv] Members learn to recite the Sixteen Decisions:
- We shall follow and advance the four principles of the Grameen Bank—discipline, unity, courage, and hard work—in all walks of life.
- Prosperity we shall bring to our families.
- We shall not live in a dilapidated house. We shall repair our houses and work toward constructing new houses as the earliest opportunity.
- We shall grow vegetables all the year around. We shall eat plenty of them and sell the surplus.
- During the plantation seasons, we shall plant as many seedlings as possible.
- We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
- We shall educate our children and ensure that they can earn to pay for their education.
- We shall always keep our children and the environment clean.
- We shall build and use pit latrines.
10. We shall drink water from tube wells. If they are not available, we shall boil water or use alum to purify it.
11. We shall not take any dowry at our sons’ weddings; neither shall we give any dowry at our daughter’s wedding. We shall keep the center free from the curse of dowry. We shall not practice child marriage.
12. We shall not commit any injustice, and we will oppose who tries to do so.
13. We shall collectively undertake larger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
15. If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline.
16. We shall introduce physical exercises in all our centers. We shall take part in all social activities collectively.
[v] Muhammad Yunus. Creating a World Without Poverty. Public Affairs, 2007, p. 195.
[ix] Muhammad Yunus. Banker to the Poor. Perseus Books, 2003.
Public Affairs, 2009
[xiii] Nicholas Sullivan. You Can Hear Me Now: How Microloans and Cell Phones are Connecting the World’s Poor to the Global Economy. John Wiley & Sons, 2007.
[xiv] Ravi Nessman, “India: Land of Many Cell Phones, Fewer Toilets,” Associated Press, October 30, 2010.