Tuesday, May 11, 2010

Muhammad Yunus - Banker to the Poor

Muhammad Yunus is known as the “Banker to the Poor” and founder of the Grameen Bank. Yunus was born in Bangladesh during the beginning of the Second World War. He was born on June 28, 1940. He grew up on Boxirhat Road in Chittagong, the largest port in Bangladesh and a commercial city with a population of 3 million. Bangladesh is a densely populated region with a population of about 150 million people. His family was relatively prosperous; they lived in a two story house with his father’s jewelry shop on the ground floor.
His family was Muslim by religion. His mother exerted a powerful influence on the young Yunus; he was particularly influenced by her strong sense of compassion and concern for the poor. According to Yunus, his mother dominated his early years. She gave birth to fourteen children; five of them died.

Early in Yunus’ life, the subcontinent was freeing itself from British domination. In 1947 the Pakistan movement for partition reached its peak. Bangladesh was expected to be subsumed by Pakistan. His parents were deeply committed to partition. On August 14, 1947, the Indian subcontinent was granted independence. This was a period of great turmoil and uncertainty. In addition, when Yunus was nine, his mother was stricken with mental illness, a disease that ran in her family. She suffered for some thirty-three years before her death. His father’s reaction to his wife’s chronic and debilitating illness was a model of love, graciousness and perseverance for all that time, and in 1982, his mother passed away.

In 1961 Yunus set up a successful business; until, 1965 when he received a Fulbright scholarship and went to the University of Colorado at Boulder. There he became a student of economics, and was deeply influenced by Professor Georgescu-Roegen, a Rumanian. Yunus described his mentor in the following way, “He also taught me that things are never as complicated as they seem. It is only our arrogance that prompts us to find unnecessarily complicated answers to simple problems.’”

During his stay in the United States, he was married. In addition, in 1971, the Pakistani army attempted to brutally suppress the Begali Declaration of Independence. Yunus was committed to independence of his homeland from continued Pakistani rule. He became Secretary of the Bangladesh Citizen’s Committee and its chief spokesperson. Finally, on December 16, 1971, Bangladesh won its war of independence – a conflict that resulted in the catastrophic loss of three million Bengali lives. Ten million citizens fled the country during this time of upheaval. Yunus felt duty-bound to return home and participate in the immense task of rebuilding his war-ravaged country.

He became head of the Economics Department at Chittagong University. There he soon became disenchanted with traditional economics, for he felt that economic theory did not coincide with the majority of Bengalis living in dire poverty – a country where the illiteracy rate was seventy-five percent. In categorizing his feelings about the role of education, he stated that, “A university must not be an island where academics reach out to higher and higher levels of knowledge without sharing any of these findings. These economists spend all their talents detailing the processes of development and prosperity, but rarely reflect on the origin and development of poverty and hunger. As a result, poverty continues.” Furthermore he felt that, “Nothing in the economic theories I taught reflected the life around me. How could I go on telling my students make-believe stories in the name of economics? I wanted to become a fugitive from academic life. I need to run away from these theories and from my textbooks and discover the real-life economics of a poor person’s existence.”

One of the historic factors that greatly influenced Yunus’ decision to facilitate economic change in his country was the famine that had become pervasive throughout Bangladesh. He therefore took it upon himself to visit poor villages and discover firsthand the nature of their living conditions and real causes for their poverty.
From this study, he came to realize that many Bengali households attempted to increase their economic standing by creating their own small businesses and provide products that are in local demand. He was to discover that one of the main obstacles that faced these individuals was the common practice of usury where unscrupulous lenders would lend money with such exorbitant interest rates that their clients could never free themselves from seemingly endless cycles of indebtedness. The traditional banks offered no relief in this regard.

Yunus summarized his findings in this way - “This is the beginning for almost every Grameen borrower. All her life she has been told that she is no good, that she brings only misery to her family, and that they cannot afford to pay her dowry. Many times she hears her mother or her father tell her she should have been killed at birth, aborted or starved. To her family, she has been another mouth to feed, another dowry to pay. But today, for the first time in her life, an institution has trusted her with a great sum of money. She promises that she will never let down the institution or herself. She will struggle to make sure that every penny is paid back.”

These data inspired Yunus to organize an institution to lend directly to these industrious entrepreneurs. What started with humble beginnings ended with the state-sanctioned Grameen Bank that has a presence all over the world including, Malaysia, Philippines, South Africa and even the United States. The Grameen Bank officially began operations in January of 1977. The operating assumption of the Grameen Bank is that every borrower is honest. Borrowers are required to adhere to a regular repayment schedule. In addition, borrowers are encouraged to enter into groups with the idea that as a member of a group, a borrower will have additional incentive to behave responsibly. Membership in a group also affords each member additional support and encouragement. The bank suffers less that 1% of bad debt. Prior to the bank, less than 1% of borrowers were women in a society where women typically bear the brunt of poverty.

On October 2, 1983, the Grameen Bank was recognized by the government as a separate bank that could also issue home loans. Currently 75% of the shares in the Grameen Bank are the borrowers themselves. As of 1999, 190 million dollars has built 560,000 houses with near perfect repayment. In the 1980s, one hundred branches were added each year. In 1985, a Grameen Branch was set up in the state of Arkansas during the governorship of Bill Clinton. It was called the Good Faith Fund. Branches have also been set up in Oklahoma and Chicago, Illinois. Today the Grameen Bank has about 8 million members (some 40 million individuals counting family members) and has loaned about 8 billion dollars to the poor in Bangladesh. Grameen America is a growing organization in the U.S. that uses the group lending and savings model pioneered by Yunus.

As a result of his monumental efforts, Yunus was awarded the Nobel Prize for Peace in 2006. The following is an excerpt taken from his acceptance speech -
“If we consider ourselves passengers on “Spaceship Earth,” we will find ourselves on a pilotless journey with no discernible route to follow. If we can convince ourselves that we are actually the crew of this spaceship, and that we must reach a specific socioeconomic destination, then we will continue to approach that destination – even if we make mistakes or take detours along the way.”

In my mind, Yunus demonstrated by his actions the remarkable power of an idea. His solution to the endemic problem of poverty that surrounded in him in his native country of Bangladesh was a simple one, yet it had profound beneficial consequences for many thousands of individual lives and families. In his mind, the primary goal of the Grameen Bank was and continues to be economic development. Its obvious success is a testimonial to the validity of his thinking. His brainchild, has spread beyond the borders of Bangladesh and has found worldwide application.