SECTION: The Guardian Features Page; Pg. 1

LENGTH: 2294 words

HEADLINE: Credit where credit's due;
Muhammad Yunus is a banker with a plan to end world poverty with pounds 17 million and a lot of trust. And it works. Here he is to explain how

BYLINE: MUHAMMAD YUNUS

BODY:
    There are many ways for people to die, but somehow dying of starvation is the most unacceptable of all. It happens in slow motion. Second by second, the distance between life and death becomes smaller and smaller.

At one point, life and death are in such close proximity one can hardly see the difference, and one literally doesn't know if the mother and child prostrate on the ground are of this world or the next. Death happens so quietly, so inexorably, you don't even hear it.

And all this happens because a person does not have a handful of food to eat at each meal. The tiny baby, who does not yet understand the mystery of the world, cries and cries, and finally falls asleep, without the milk it needs so badly. The next day maybe it won't even have the strength to cry.

I used to get excited teaching my university students in Bangladesh how economic theories provided answers to economic problems of all types. I got carried away by the beauty and elegance of these theories. Yet all of a sudden I started having an empty feeling. What good were all these elegant theories when people died of starvation on pavements and on doorsteps? My classroom now seemed to me like a cinema where you could relax because you knew that the good guy in the film would ultimately win. In the classroom I knew, right from the beginning, that each economic problem would have an elegant ending. But when I came out of the classroom I was faced with the real world. Here, good guys were mercilessly beaten and trampled.

I wanted to understand the reality around a poor person's existence and discover the real-life economics that were played out every day in the neighbouring village, and went to Jobra.

I decided I would become a student all over again, and Jobra would be my university.

One day, as my colleague and I were making our rounds in Jobra, we stopped at a completely run-down house. We saw a woman working with bamboo, making a stool.

She was squatting on the dirt floor of her veranda under the low, rotten, thatched roof of her house, totally absorbed in her work. She was holding the half-finished stool between her knees while plaiting the strands of bamboo cane.

Children were running around naked in the yard. Neighbours appeared and watched us, wondering what we were doing there.

She was in her early twenties, thin, with dark skin, black eyes. She wore a red sari and could have been any one of a million women who labour every day from morning to night in utter destitution.

Her name was Sufia Begum and she was 21 years old.

'Do you own this bamboo?' I asked her.

'Yes.' 'How do you get it?' 'I buy it.' 'How much does the bamboo cost you?' 'Five taka.' That was 13 pence.

'Do you have five taka?' 'No, I borrow it from the paikars.' 'The middlemen? What is your arrangement with them?' 'I must sell my bamboo stools back to them at the end of the day, so as to repay my loan. That way what is left over to me is my profit.' 'How much do you sell it for?' 'Five taka and 50 paisa.' 'So you make 50 paisa profit?' She nodded. That came to a profit of just over a penny.

'And could you borrow the cash and buy your own raw material?' 'Yes, but the money-lender would demand a lot. And people who start with them only get poorer.' 'How much do the money-lenders charge?' 'It depends. Sometimes they charge 10 per cent per week. I even have a neighbour who is paying 10 per cent per day.' Sufia set to work again, because she did not want to lose any time talking with us. I watched her small, brown hands plaiting the strands of bamboo as they had every day for months and years on end. This was her livelihood. She squatted barefoot on the hard mud. Her fingers were callused, her nails black with grime.

It seemed to me that Sufia's status as virtually a bonded slave was never going to change if she could not find that five taka to start with. Credit could bring her that money. She could then sell her products in a free market and could get a much better spread between the cost of her materials and her sale price.

The next day I called in a university student who collected data for me, and I asked her to assist me in making a list of how many in Jobra, like Sufia, were borrowing from traders and missing out on what they should have been earning from the fruits of their labours.

Within a week, we had prepared a list. It named 42 people who in total had borrowed 856 taka, a total of less than A17.

'My God, my God, all this misery in all these 42 families all because of the lack of A17!' I exclaimed.

My mind wouldn't let this problem lie. I wanted to be of help to these 42 able -bodied, hard-working people. I kept going round and round the problem, like a dog worrying his bone. If I lent them A17, they could sell their products to anyone; they could then get the highest possible return for their labour, and would not be limited to the usurious practices of the traders and money -lenders.

I lent them A17 and said they could repay me whenever they could afford to. Over the next week, it struck me that what I had done was not sufficient because it was only a personal and emotional solution. I had simply lent A17, but what I had to do was to provide an institutional solution.

That was the beginning of it all. I was not trying to become a money-lender, I had no intention of lending money to anyone; all I really wanted was to solve an immediate problem. Even to this day I still view myself, my work and that of my colleagues, as devoted to solving the same immediate problem: the problem of poverty which humiliates and denigrates everything that a human being stands for.

We did not know anything about how to run a bank for the poor, so we had to learn from scratch. I wanted to cover all aspects of rural lives such as trading, small manufacturing, retailing and even selling door to door. I want this to be a rural bank, not a bank merely concerned with crops and farms. So I called it Grameen Bank which comes from the word 'gram' and means 'village'. I soon discovered the world's basic banking principle, namely that: 'The more you have, the more you get." And conversely that 'If you don't have it, you don't get it." Our clients do not need to show how large their savings are and how much wealth they have, they need to prove how poor they are, how little savings they have.

To my amazement and surprise the repayment of loans by people who borrow without collateral is much better than those whose borrowings are secured by enormous assets. Indeed, more than 98 per cent of our loans are repaid because the poor know this is the only opportunity they have to break out of their poverty. And they don't have any cushion whatsoever to fall back on. If they fall foul of this one loan, how will they survive? On the other hand, people who are well-off don't care what the law will do to them because they know how to manipulate it. People at the bottom are afraid of everything, so they want to do a good job because they have to. They have no choice.

In structuring our own loans, I made the payments so small that the borrower would not miss the money, would not even notice it. This was a way to overcome the psychological barrier of 'parting with all that money'. I decided to make it a daily payment. The monitoring would be easier, I would be able to tell right away who was paying and who was falling behind in their payments.

I also thought it would enhance self-discipline among people who had never borrowed before in their lives, and would give them the confidence that they could manage it.

Slowly we developed our own delivery/recovery mechanism, and of course we made many mistakes along the way.

Today we have arrived at a simple repayment mechanism that all our borrowers understand almost immediately: one-year loans, equal weekly instalments, repayment starts one week after the loan, interest rate of 20 per cent (far less than the usurers), repayment amounts to 2 per cent per week for 50 weeks.

Now we have more than 12,000 employees and 1,112 branches in Bangladesh. The staff meet more than 2,300,000 borrowers face to face to each week, on their doorstep. Each month we lend out more than $ 35 million in tiny loans. At the same time, almost, a similar amount comes back to us in repayments.

If Grameen was to work, we had to trust our clients. From the very first day, we decided that in our system there would be no room for the police. We never use the judiciary in seeking repayment of our loans. We assume that we know how to do our business. If we don't, we should get out of banking and go into some other venture. We do not involve lawyers, or any outsiders.

It is our business, and we try to ensure repayments as best we can. That is our job.

There is no legal instrument between the lender and the borrower. We feel our relationship is with people, not with papers. We build up the human link based on trust. Grameen succeeds or fails depending on how strong our personal relationship is with the borrowers.

Our experience with bad debt is less than 1 per cent. Even then, Grameen does not conclude that a defaulting borrower is a bad person. Rather, that their personal circumstances were so hard that they could not pay back their tiny loan. So why should we run after lawyers for them to give us the blue pieces of paper, the yellow pieces of paper, the pink pieces of paper? Bad loans of 0.5 per cent is the cost of doing business, and it also represents a constant reminder of what we need to improve in order to succeed.

Gradually we focused almost exclusively on lending to women. If the goals of economic development include improved standards of living, removal of poverty, access to dignified employment, and reduction in inequality, then it is quite natural to start with women. They constitute the majority of the poor, the under-employed and the economically and socially disadvantaged. And since they were closer to the children, women were also our key to the future of Bangladesh.

This was not easy. The first and most formidable opposition came from the husbands. Next the mullahs. Then the professional people, and even government officials.

Being poor in Bangladesh is tough for everyone, but being a poor woman is toughest of all. When she is given the smallest opportunity, she struggles extra hard to get out of poverty.

A poor woman in our society is totally insecure: she is insecure in her husband's house because he can throw her out any time he wishes. He can divorce her by merely saying three times: 'I divorce thee, I divorce thee, I divorce thee.' She cannot read and write, and generally she has never been allowed out of her house to earn money, even if she has wanted to. She is insecure in her in-laws' house, for the same reason as she was in her parents' house: they are just waiting to get her out so they will have one less mouth to feed.

If she is divorced and returns to her parents, she becomes a disgrace and is unwanted there.

So given any opportunity at all, a poor woman in our society wants to build up her security - her financial security.

From our experience, it became evident that destitute women adapted quicker and better to the self-help process than men.

Poor women had the vision to see further and were willing to work harder to get out of poverty because they suffered the most. The women paid more attention, prepared their children to have better lives, and were more consistent in their performance than men.

Money going though a woman in a household brought more benefits to the family as a whole than money entering the household through a man.

The life story of Ammajan Amina, one of our first borrowers, illustrates what micro-credit can do for a street beggar. Of her six children, four had died of hunger or disease. Only two daughters survived. Her husband, much older than her, was ill. For several years, he had spent most of the family assets on trying to find a cure.

After his death, all that Amina had left was the house. She was in her forties, which is old by Bangladesh standards, illiterate and had never earned an income before. Her in-laws tried to expel her and her children from the house where she had lived for 20 years, but she refused to leave.

She tried selling home-made cakes and biscuits door-to-door, but one day she returned to find her brother-in-law had sold her tin roof, and the buyer was busy removing it. Now the rainy season started, and she was cold, hungry and too poor to make food to sell. All she had, she used to feed her own children.

Because she was a proud woman, she begged, but only in nearby villages. As she had no roof to protect her house, the monsoon destroyed her mud walls. One day when she returned she found her house had collapsed, and she started screaming: 'Where is my daughter? Where is my baby?' She found her older child dead under the rubble of her house.

When my colleague Nurjahan met her in 1976, she held her only surviving child in her arms. She was hungry, heartbroken and desperate.

There was no question of any money-lender, much less a commercial bank, giving her credit. But with small loans she started making bamboo baskets and remained a borrower to the end of her days. Now her daughter is a member of Grameen.

Today, we have more than two million such life stories, one for each of our members.

Banker To The Poor by Muhammad Yunus and Alan Jolis is published by the Aurum Press. To order your copy at the special price of pounds 16 plus 99p UK p&p (rrp pounds 20), freephone 0500 600 102, or send a cheque payable to Guardian CultureShop, 250 Western Avenue, London W3 6EE.
 
 

LANGUAGE: ENGLISH

LOAD-DATE: November 5, 1998