In wealthy countries credit is primarily utilized to purchase items of want. In many instances where credit is denied it is because the applicants have already abused a lenders trust by defaulting on payments and by frivolous over expenditure which has resulted in unmanageable debt. When Dr. Muhammad Yunus founded the Grameen Bank in October 1983 he did so with the aim of providing credit to those who would use it to make it work for them, to give the opportunity for a better life.
Yunus received a PhD in economics from Vanderbilt University, and was working as a Professor of Economics at the University of Chittagong in Bangladesh, when he conceived he idea of microcredit. He was appalled by the poverty around which hard working individuals were mired in with no opportunity to improve their situations due to lack of access to credit. Traditional banks would not tolerate the notion of lending money to the impoverished that were deemed un-creditworthy and could offer no collateral.
The amounts required which would allow individuals to earn independence from exploitive employers and work for themselves was too small for banks to concern themselves with. Yunus said “I went to the bank and proposed that they lend money to the poor people. The bankers almost fell over.” Instead Yunus personally lent 41 people a total of $27 and these tiny micro loans were all repaid and helped individuals to help themselves.
Yunus continued to advance microcredit loans and continually attempted to prove to the banks that character played more of a role in repayment than credit scores. He concluded that “poverty has been created by the economic and social system that we have designed” which denies the poorest the basic human right of credit.
As Yunus studied the benefits of microcredit there were patterns which emerged. Money which was lent to women proved to be more beneficial to the family than money lent to men, as women prioritised their children and a sanitary home. Approximately 97% of microcredit loans were issued to women who proved reliable in making repayments.
In 1984 the Grameen Bank was launched in Bangladesh by Yunus. It grew from a project which Yumus undertook with his students, “to a bank, to a state bank, to an independent bank”. It was not a charity and issued loans at market rates or above, but spared impoverished individuals borrowing from unscrupulous loan sharks. As the loans were repaid the bank could expand to service more people. The four key principles which the bank is founded on are discipline, unity, courage and hard work.
It operates a peer system where borrowers must form groups of five to receive individual loans as this gives encouragement to the group and prevents default. If one member of the group defaults the whole group is considered ineligible for loans. The banks which refused to issue small loans would be proud to boast of default rates as low as the typical 2% which Grameen Bank carries.
Dr Yumus’s concept of microcredit has been used as a model in many other countries. The Grameen Bank operates in many countries now, including America. In 2006 Dr. Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace prize. The list of awards and honorary doctorates which Yunus has received runs into pages, showing how highly he is respected. The Grameen model of microcredit has proved to be an enormous success in allowing the impoverished to become self sufficient.
Yunus reports that most of his borrowers also have savings accounts, have improved their standard of living and are able to educate their children. As women gain their own independence through work it has resulted in lower birth rates and more rights for children, such as protection against child marriages.
It is unfortunate that the idea of microcredit has come under disrepute due to the commercialization which some newcomers to microcredit have exploited, becoming little more than the loan sharks that Yunus has always been concerned to eradicate. Bangladesh should stand firm and proud behind Dr. Muhamaad Yunus and the Grameen bank, as they have always been committed to ending poverty and have served as an inspiration to so many others.
Sources: grameen.info., yunus.org., nobel prize org.