Banking on People

Boy crouching near the ground with a small amount of foodNobel Prize winner Muhammad Yunus created a whole new way to loan money in rural Bangladesh. Instead of focusing on loans to the owners of businesses, he created a system where small loans are given to individual entrepreneurs to help them rise out of poverty.

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FRED DE SAM LAZARO: Nurul Islam has an unusual routine for a bank loan officer. Once a week, he comes to this shack to meet with his small business clients and to collect their loan installments. Unusual doesn’t start to describe the borrowers.

Most are female, illiterate, and before they joined this group, very poor — not exactly a lucrative group to most bankers, especially since their typical loan is about $100. But these are preferred customers of the Grameen Bank. 2.4 million of them have made Grameen one of the most prosperous financial institutions in the developing world.

Elegant theory versus harsh reality

MUHAMMED YUNUS, Grameen Bank: I didn’t have a blueprint of any kind. I was not looking for a destination. All I was trying to do was to be helpful for today.

FRED DE SAM LAZARO: Muhammad Yunus was a young economics professor in 1974, when the idea of offering banking services to poor people– an idea that came to be called micro-lending– occurred to him. It was in the midst of one of this country’s legendary natural disasters.

MUHAMMED YUNUS: We had a famine in 1974, people were dying of hunger; and I found myself in a very strange situation: Teaching elegant theories of economics, telling all my students that every economic problem has beautiful solutions. And I walk out of the classroom, those elegant theories have no use for people who were dying.

FRED DE SAM LAZARO: Yunus wanted to apply some of his economic theories to the real world he saw. So he surveyed 42 small business owners– fruit vendors, artisans, rickshaw pullers– and found that just $27 would free the whole group from debts to local money lenders, debt that kept them in almost lifelong bonded labor. Yunus decided to bankroll the group himself, after failing to sell local bankers on the idea.

MUHAMMED YUNUS: I soon found out that people are paying back, and they paid back every penny without any hitch. So I got very excited. So I thought I should have my own bank. So I went to the government with a proposal that I should be allowed to set up a bank.

FRED DE SAM LAZARO: Yunus began perhaps the first-ever bank in which collateral was a bad word- the poorer a borrower, the more creditworthy. And there was no shortage of customers in this nation where 130 million people inhabit a land area the size of Wisconsin, an area on the Asian subcontinent that’s constantly battered by storms and floods. Despite the continuing poverty, Grameen has had enormous economic and social impact. Its loans have allowed some 2.4 million rural Bangladeshis to start small businesses. And it’s given women new power in a traditional male-dominated society.

Empowering women

MUHAMMED YUNUS: Women are very cautious with the use of the money, but the men were impatient; they wanted to enjoy right away. They will entertain friends, they will go to the movies, they will do whatever they could to enjoy for themselves personally. But women didn’t look at it personally. Women looked at it for the children, for the family and the so on, and for future.

FRED DE SAM LAZARO: Dilwara Begum became a Grameen borrower 11 years ago. She began with just one milk cow. Then, about four years ago, another loan helped build a poultry barn, a productive enterprise that takes the whole family to manage. The weekly yield of about 7,000 eggs is picked up every other day and taken to the capital, Dhaka, about three hours away. Over the years, Dilwara Begum says, life has changed in basic yet dramatic ways.

DILWARA BEGUM (translated): In the past, we used to eat nothing more than rice and some vegetables. Today in each meal there is egg, meat, or fish– at least one of them. Also, in the past we used to grow enough rice for about six months of the year; the rest we had to buy. Sometimes we had to borrow money to buy the rice. Today we grow enough rice for the whole year.

FRED DE SAM LAZARO: Dilwara and husband Nazim Uddin also raise their own fish and poultry to meet much of their food needs. After all the expenses, they save about $100 each month– an impressive sum in Bangladesh. Even though 98% pay back their loans, only about a half of Grameen borrowers succeed in staying out of poverty. Still, Grameen and other micro-lending programs have brought significant overall improvement, notably in food production, according to Hussain Zillur Rahman, a scholar who has tracked poverty here.

HUSSAIN ZILLUR RAHMAN: I can bet my little savings that a famine in Bangladesh is not likely to occur, will not occur, actually. The threat of famine has been defeated. That’s a fantastic achievement actually.

FRED DE SAM LAZARO: For his part, Mumammad Yunus is now looking well beyond agriculture based enterprises. Already, Grameen is the largest cell phone company in Bangladesh, vaulting a country barely wired for telephones into the age of the wireless.
(Phone ringing.)

Education a top priority

MAN: hello?

FRED DE SAM LAZARO: The phone rings often at the home of Dharani and Shamoli Sarkar. Theirs is the only phone in their village, financed by Grameen and rented out as a pay phone to a poultry farmer trying to reach a veterinarian in the city, for example, or expatriates, like this one, calling from the Persian Gulf oil fields to relatives back home. “Call back in ten minutes,” Sarkar instructed the caller as he set off to alert the family. He said the job of walking phone booth is mostly his, even though his wife, Shamoli, actually holds title to the Grameen loan and to the phone. Indeed, the traditional domestic routine for most Grameen borrowers hasn’t changed much. Still, Grameen officials say, as the family’s meal ticket, the women increase their leverage in family decisionmaking, and this improves their sense of confidence.

SHAMOLI SARKAR (Translated ): I am given respect. We are offering a very good service to the village and people are very thankful for our phone business.

FRED DE SAM LAZARO: The bank also wants to change the future face of Bangladesh. It asks borrowers to have fewer children and to educate them. Poultry entrepreneurs Dilwara Begum and Nazim Uddin between them had just four years of formal education. But their son, Nasir, who is 20, will finish college in two years and plans to start his own poultry business. At 16, his sister, Nasrin, would traditionally be married. Instead she will go to college and hopes to become a journalist. Education has become a top priority in the Grameen group.

MUHAMMED YUNUS: I would say it’s about 100% enrollment from Grameen families today and many of them are in colleges, universities coming all the way. So that is different. So having those children going to school, the second generation that is coming from out of these 2.4 million families of Grameen, at least they are not becoming the kind that you would expect to grow up in an illiterate family where illiteracy ran for generations.

FRED DE SAM LAZARO: Impressive as these successes are, illiteracy and poverty remain in daunting proportion in this nation, where per capita income is about $300 a year. Yunus blames the slow progress on the sluggish Bangladesh economy, whose major financial institutions, ironically, hold billions of dollars in bad debts to large businesses.