By: PALASH BISWAS
Without any significant media hype, Bangladeshi real-life economist and banker Mohammad Yunus and the Grameen Bank founded by him were awarded the Nobel Peace Prize for pioneering their work in helping millions, especially impoverished women, overcome poverty through a system of small-scale loans and micro credit. The Nobel Committee said, “Yunus and the bank he founded used the innovative programme to ‘create economic and social development from below’.”
In a way, recognition for Yunus also means recognising the fact that micro-finance can fuel entrepreneurship and also prosperity. For a state like Himachal, falling way behind on the entrepreneurship index, micro-finance can certainly work wonders. It is a great irony that a state endowed with rich natural resources has a near negligible money economy, just because there is no capital within the state to unleash the multiplier effect. That’s the reason why we people should take this man seriously and learn from his experiments.
Muhammad Yunus is incomparably the most honoured social activist of our era. He could have established himself in the developed part of the globe and could have preached poverty eliminination with theories, papers and surveys. But he used applied economics as a tool for class mobilization, and that too in one of the most underdeveloped countries in the world. No doubt, we the unfortunate Indians miss an economist like him as we are quite used to the great Indian brain drain. Recently,
Grameen Bank floated a mutual fund to enable its clients to invest in the stock market. After this what greater proof do we about the success of his initiative.
What began as an academic research project with a practical testing ground in the poverty-stricken villages around Chittagong in Bangladesh grew into a successful story of social entrepreneurship, which changed the way economists and policy-makers thought about the eradication of poverty. Yunus, 66, after winning the prize, said he would use the 10m Swedish kronor ($1.35m, £730,000) prize money to ‘find more innovative ways’ to help the poor launch businesses. Perhaps it was this spirit that led him all through. The Nobel Committee cited how his Grameen Bank aids the poor “to bring about their own development.” And the concept of extending loans to a largely female client base has also been credited with reducing domestic violence by giving women a previously unattainable degree of independence.
Yunus set up the bank in 1976 with just $27 from his own pocket. Thirty years on, the bank has 6.6 million borrowers, of which 97% are women according to the Grameen website. Returning from the US, Yunus was shaken by the 1974 famine and headed to the villages to see what he could do. He found the region’s women in severe. His initial goal was to persuade a bank manager to give villagers regular credit, but the banker said that was impossible without a guarantee. Yunus set out to prove him wrong and never looked back. Grameen Bank has lent $5.72 billion since it began. Of this, $5.07 billion has been repaid. Today the bank is 94% owned by the rural poor it serves and 6% by the government.
The economy of Bangladesh is run mostly by Bangladesh aid club. Japan is the most prominent aid giving country for Bangladesh. The country is sharply divided into two groups — haves and have-nots. Here Grameen Bank has 2,226 branches from which the micro credit scheme is run. In India, we celebrated the centenary of cooperative movement recently, but in reality we could neither manage bank credit for the poor without security nor could we help the poor peasnats to sustain themselves. With globalisation, the nationalised banks as well as the multinational ones adopted a credit policy suiting the haves only.
After India attained independence in August 1947, cooperatives assumed a great significance in poverty removal programmes. With the advent of the planning process, cooperatives became an integral part of the Five Year Plans. In the First Five Year Plan, it was specifically stated that the success of the Plan would be judged, among other things, by the extent it was implemented through cooperative organisations. Dr Manmohan Singh should know what happened to our cooperative and nationalised banking sectors as both failed to launch micro credit system at any level. The honourable Prime minister and an economist engaged with World Bank and IMF should know well that Professor Yunus has always emphasised the distinction between the Grameen Bank’s concept of micro-credit and other prevailing forms of small-quantum credit obtainable in rural areas, including that from the informal money-lender and other traditional informal groups, or groups sharing a common economic activity as livelihood. According to him, the Grameen Bank model focuses on credit as a human right, and is targeted to help poor families help themselves, especially women. Each borrower would have to belong to a group. There are obligatory as well as voluntary savings programmes that borrowers must
No wonder that the Grameen Bank is one of the most widely emulated institutions in the world. Not the least in India, where a couple of hundred rural banks were started. But here, the experience was less exhilarating. Many borrowers did not repay; defaults were so serious that almost half of the rural banks went bankrupt and were merged with the others — weakening the latter. Even Panchayati Raj and its successful record in states like Bengal could not help this.
So what are micro-credits?
They are very small loans, typically less than $100 (£54), made to the rural poor in developing countries who normally do not qualify for traditional banking credit. This is often the only way they can establish a business and lift themselves out of poverty.
Unlike conventional bank lending, security here is unsecured. Yunus invented a new collateral, namely the solidarity of poor women. They together guaranteed the loan of each; if one failed to pay, the others did for her. They not only promised to repay, but collectively insured the loans they took. Yunus used their modest but routine generosity to make lending to them viable.
How do micro-credits work?
Grameen transactions take place at the village level, usually in a local hall or temple. Typically a Grameen borrower will use a loan to buy tools and equipment to set up on their own. As the micro-credit idea has grown, the Grameen organisation has extended into foundations dedicated to fisheries and irrigation. By avoiding both employers and unscrupulous local moneylenders the Grameen loan aims to break a circle of exploitation that frequently condemns rural villagers to lives of poverty. And because the loans are often repaid by villagers banding together in loan clubs, this has led to accusations that some of the poor can come under peer pressure to repay the money they owe when times are tough. Grameen Bank has also survived accusations that it lacked adequate funds, though Professor Yunus was adamant that his bank could repay all of the money it raised from the commercial sector.