There is a banker who is still feted across the world, collecting accolades and honors wherever he goes. The institution he founded more than 20 years ago is unscathed by the current financial crisis, and his opinion is more sought after than ever before as politicians and economists desperately try to fix our bankrupt system.
Muhammad Yunus is to economic development what Nelson Mandela is to world peace — a revered figure whose Grameen Bank has helped millions of Bangladeshis out of rural poverty by lending them small amounts of money, or microfinance, to set up their own businesses. It has 8 million borrowers, 97 percent of whom are women, and since 1982 has issued more than US$6 billion, lending around US$100 million a month, with the average loan just US$220, and repayments of near 100 percent. Its model has now been rolled out worldwide, from China and Zimbabwe to New York, and plans are underway to open the first British Grameen in Glasgow.
Yunus attributes its success to “trust-based banking.” Money is lent to women — who he identified as using money more effectively than men for the wellbeing of their children — in groups of five. If one defaults, they all suffer, so they support each other to pay it back. And the borrowers own the bank, receiving dividends in lieu of profits.
In 1976, when he approached conventional banks asking them to lend to villagers deep in debt to loan sharks, the young economics student was told it couldn’t be done because the poor are not creditworthy. He has proved them wrong, as has the collapse of the global banking system.
“2009 is a good year to ask again: ‘Who is creditworthy?’ Is it the large banks with large clients? They cannot obtain their money back … whereas the poor taking tiny loans, without collateral, are paying every penny of it and changing lives,” he told a packed audience last week at a British Council lecture in London. His lecture, entitled A Framework for a Better Future, outlined how the recession provides opportunities not just for banks, but for businesses and governments to create a more equitable world.
“When things work, you do not want to touch it, because it is working. When things do not work, then you think about it. If it still does not work, then you kick it! This is the time to kick,” he argued.
The biggest hurdle to setting up Grameen America last year, he explained, was finding a mainstream bank that would open a savings account for its borrowers. Under Grameen rules, borrowers are required to save a small weekly amount, but in the US, Grameen is a program, not a bank. Even with Yunus’s clout, it took time to persuade the branches of Citibank to open accounts for customers who wanted to deposit only US$2 a week.
“These are the lessons that we need to now bring together to ask ourselves what kind of financial system we should be creating when we move out of this crisis,” Yunus said.
There are now 660 Grameen borrowers in New York City, with an average loan of US$2,200. More projects are planned in cities across the US, where, Yunus has
said, he wants Grameen to become as “ubiquitous as
fast food.”
After the lecture, I ask him how the Grameen model will translate to inner-city Glasgow, where three generations of unemployment is not uncommon in some families. He readily admits it will be difficult to wean people off welfare and make them more self-reliant. “We don’t know what all the problems will be,” he replies.
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