The following article is divided into two parts, the first derived from Wired magazine, and the second derived from the Opinion section of the Los Angeles Times, but both deal with the same man, Muhammad Yunus. Yunus innovated the idea of "micro-loans," aimed at facilitating individuals in their pursuit of financial independence. He found -- over a 22 year period -- that the poor are often more credit-worthy than the rich. His activities also highlight the neglect of the major banking and lending institutions of the world, which have poured cash into major boondoggles while the great majority of the human race live without indoor plumbing.

MICROLENDING IN BANGLADESH

Fifty-seven year old Bangladeshi economics professor Muhammad Yunus is an irrepressible dreamer. Unlike many dreamers, however, Yunus has proved to be a brilliant pragmatist. His outlandish notions about transforming his impoverished homeland have prompted him to make available to the needy 65-cent loans, cell phones, and, any day now, wireless modems. Through his Grameen Bank, he’s helped develop enterprises dedicated to weaving, farming, and fishing, as well as solar energy and telecommunications; he’s also helped launch a cellular phone network and an ISP (Internet Service Provider) that facilitates the bank’s innovative microloan program. The loans, Yunus says, have already helped one-third of Grameen’s 2.2 million borrowers rise above the poverty line.

Yunus first became an entrepreneur in 1976, when he realized that "the economic theory I was teaching had nothing to do with the reality of my students’ lives." So he dug into his pockets and started a microloan program with US$26, divvying it up among 42 villagers and thus founding the Grameen Bank. In the 22 years since, the bank has loaned $2 billion, mostly to women (who make up 94 percent of the clients), and the program has become a model for several microcredit initiatives – including some in the U.S. – which lend or give sums small enough to buy, say, scissors and a blow-dryer for would-be beauticians to set up at-home salons.

These days, Grameen loans average $160 (roughly enough to buy a cow and sell milk), and borrowers are expected not only to repay the loan plus interest, but to save money as well, thereby creating a credit union. Loans are made to groups of five women at a time, and if any of the five defaults, lending privileges are suspended. This peer support system has made for an astounding repayment rate of 98 percent, while the focus on women has had a perceptible effect on family planning and nutrition.

Yunus and Grameen, meanwhile, have made a decisive move into high tech. Grameen CyberNet went live in July 1996, and now it offers Net connections to some 2,500 dialup customers in the Bangladeshi capital of Dhaka. Last year in March, Grameen Telecom launched a cellular service, expected to serve some 68,000 villages within four years. And, most recently, Grameen negotiated a link between its service and a fiber-optic cable passing through nearby Calcutta, giving Bangladeshi villages Net access. Soon, Yunus says, his country could be one of the world’s leading "outsources," with villagers in a position to work over the Net for distant companies. "Jobs," he smiles, "will come to their doorstep."

Kaitlin Quistgaard
WIRED MAGAZINE, FEBRUARY, 1998

INTERVIEW:

MOHAMMAD YUNUS

For Muhammad Yunus, it all began with a challenge in 1976, when he was an economics professor at Chittagong University in Bangladesh. "I had no intention of creating a bank," explained Yunus, founder and now managing director of Grameen Bank, which, to date, has lent a total of $2 billion to 2.3 million people, 94% of whom are poor women. He started with $27 of his own money and lent small amounts to the poorest Bangladeshi women, who used the money to raise milk cows or buy supplies for their small home-crafts businesses. As they earned money, they repaid the loans. "All I was trying to do was convince the guy who was telling me it could not be done."

Yunus pioneered what has come to be known as micro-loans. The 57-year-old professor, who earned his PhD in economics at Vanderbilt University in 1970, explained, "This had nothing to do with theory. I was caught in a situation where my personal response was to give the money from my pocket and then I thought, if so many people are so happy with such a small amount of money, how can you walk away from it? Why can’t you do more of it? So I went to the bank to arrange more loans and banks said we can’t lend money to the poor. The debate, the struggle, began."

His Grameen Bank operates only in Bangladesh, but micro-loan programs are now found in 60 countries, including the United States (Grameen means "rural" in Bengali). President Bill Clinton started a micro-lending program in Arkansas, according to Yunus. Today, such programs exist in the city of Los Angeles and in Pomona, Pasadena and Orange County (California). "The talk in the beginning was that it was good only for poor countries. People are surprised all of a sudden – why the USA? I said anywhere anybody is rejected by the banking system, you have room for a Grameen type program. That is exactly what happened in the USA."

Despite his success, Yunus is still battling the status-quo mentality of banking. Outlays to international micro-loan programs for the poor have been held up by endless studies and reviews of existing Grameen-type programs. He talked of his frustrations and hopes for micro-loans during a recent visit to Los Angeles. Yunus’ wife, Afrozi, is a professor of physics at Jahangir Nagar University in Dhaka, where they live with their 11-year old daughter. His 22 year old daughter lives in Princeton, New Jersey.

QUESTION: You have said that credit is a human right just like food. Isn’t that a stretch?

ANSWER: You can list everything as a human right – food, shelter, housing, health and education. How do we ensure these human rights? One way is to create an enabling environment where each of you can establish those rights for yourself. One of the best conditions of an enabling environment is access to money, credit, so one can start to earn an income. When income flow begins then the right to food, shelter and everything else becomes a reality. So I am saying not only should it (credit) be included in the list of rights, if I was arranging them by priority I would put credit as No. 1. Credit represents the creation of self-employment, creation of income flow. This is something we have to see that everybody has equal access to. So anything which discriminates against someone getting access to credit is something we should get rid of as soon as possible.

QUESTION: Are you saying we should get rid of some of the big international lending institutions?

ANSWER: No, no, no. I’m not getting rid of any institutions. I am saying access to credit should be ensured for everybody. It should not be based on the ownership of property or anything else. The basic requirement of financial institutions today is collateral. Unless you have collateral you cannot have access to credit and that haws created two different categories of people: one who has access; one who has no access. That is the discriminating factor. That has created what I call financial apartheid: some who got it, some who never get it.

QUESTION: Now you’ve had success with these programs largely overseas in Third World countries. How are these micro-loan programs working in the United States?

ANSWER: There are now more than 200 programs working in the U.S.A. And many have helped people to come out of welfare. That is the most exciting thing to happen because the welfare system in the states is such that once you are in welfare, you spend your lifetime in welfare and then your next generation spends their lifetime in welfare. So something that helps you come out of welfare is something to be applauded. So this is what is happening with the U.S.A.

QUESTION: If you could construct a way to help people in the United States off of welfare, what would your idea be?

ANSWER: I would offer them a credit option. I’d say, look, there are two things you can do, you can get a free check every month, or you can take a loan which is flexible, which suits your needs, and is negotiable. You can make it bigger as you go along, but welfare is fixed – this is all you get. If 10% of all welfare recipients accept the second option, the credit option, and half succeeded in getting out, that is tremendous success. Seeing their success, many others on welfare would say, "Let me try that part." The conditions are that you must not create an atmosphere of fear… There should be a bridging arrangement so that you continue to make efforts but you’re not losing anything (health benefits such as Medicaid) yet. Once you cross the bridge, then you are on your own; we say, goodbye. You are a full income-earning, tax-paying citizen, instead of living on someone else’s taxes.

QUESTION: What apparatus should do this? Should it be small nongovernmental organizations, foundations or big banks?

ANSWER: All of the above. Why not? Banks can do it. This is banking we’re talking about. You’re not talking about charity. But how do you address that within the banking system because banks are focused on big business credit. They are not thinking about this tiny guy who needs a little money to get out, who has nothing to offer in exchange. Just because he or she doesn’t have anything to offer as collateral doesn’t mean he or she is not credit-worthy. This is what banking has been telling us: The poor are not credit-worthy – which is not true. What Grameen has to offer is that this is absolutely wrong because, for the last 21 years, the poor in Bangladesh have demonstrated, again and again, they are more credit-worthy than the rich in Bangladesh.

QUESTION: Are there any countries that do not allow Grameen-type programs?

ANSWER: No. Even China has several Grameen programs operating and they have support of even the Communist Party and their Congress talked about Grameen programs, and expressed their strong support for the programs as a poverty alleviation project. I don’t see anywhere people having any reluctance. Theoreticians have been arguing back and forth that this is not development. Development means big investment. They can discuss and debate, but the research on Grameen shows enormous changes have taken place among the borrowers in terms of increase in incomes. One World Bank report said one-third of Grameen borrowers have crossed the poverty line already. About one-third are about to cross the poverty line. So, there is a distinct movement out of poverty in the Grameen system.

Nutrition is higher in Grameen families. Recently, one international study tells us that child mortality within Grameen families has been reduced by 34%. We are not a health program. We are not a family-planning program, but the impact it has made within the family is tremendous…

QUESTION: International lending institutions like the World Bank and some others are complimentary about Grameen Bank. How much money are they committing to programs like this? Are they doing much?

ANSWER: After a lot of lobbying, after a lot of discussions, finally, a mechanism has been created, it’s called CGAP – Consultative Group to Assist the Poorest. This was the first time the World Bank seriously got involved in the micro-credit program.

QUESTION: When was this?

ANSWER: In 1995. We were asking for more. We were not asking for this CGAP type of thing. We were asking for a third window within the World Bank. As a compromise, they created the CGAP mechanism – which is not really a World Bank mechanism. The World Bank is only one member of CGAP. At the moment there are 25 members, mostly donor countries plus international development financial institutions, such as the African Development Bank, InterAmerican Bank and Asian Development Bank. What CGAP is saying is, "Yes, we will commit some funds to go into micro-credit programs and all of us 25 members will coordinate policies so we have similar standardization of the policies – so we do the same kind of thing and not do things at cross purposes…" In two years, they are still preparing the rules.

QUESTION: No actual money?

ANSWER: The commitment has been made. The commitment comes to about a half a billion dollars right now into CGAP. But that money has not gone as loans into hands of the poor women yet.

QUESTION: What’s it mostly been used for?

ANSWER: Mostly spent on consultants. When we were debating and finally succeeded in having CGAP, we had no idea that money earmarked for micro-credit would end up in the hands of consultants – not in the hands of the poor women. That was not the purpose of this. So we say, "Please… don’t bring all the consultants, researchers, academics to do their brilliant research and things at the cost of not giving that money to the poor women." So this is the struggle we are going through right now. This is the extent of World Bank involvement in this.

QUESTION: What are they studying?

ANSWER: I don’t know. All kinds of consulting are going on and I’m tired of this. Big consulting firms kind of keep the World Bank surrounded all the time. They are brilliant people. They immediately grabbed this… and said, "We are the ones to tell you what to do." At the last meeting of CGAP, in Manila, I said, look, now see consultants are helping micro-credit programs in different countries. These consultants are like football coaches, going around the world teaching everybody how to play football. Unfortunately, these football coaches never played football in their own life: Not only did they not play a football game in life, they have never seen a football game in their life. And they are the coaches going around and telling everybody how to play football?

I said: Please save us from this. If you need consultants, why don’t you go to a program which has been happening the last 10 years, 15 years or even five years. They have experience. Maybe he doesn’t write English the way you want, maybe he doesn’t speak English the way you want, but he is the guy who is doing it. Another guy who has never seen a micro-credit program in his life becomes a consultant and tells you this is the way you should do it.

QUESTION: If you have one thing to say to all those members of CGAP, what is it?

ANSWER: I try to be nice to them because they were upset when I criticized them publicly. The first phase of CGAP was a learning process. We’ve come a long way. Let’s now get everything set so we can really get into action. Enough of talk, enough of study. Now let’s do the job. Because, after all, look at the number of poor people, 1.3 billion, and that number is increasing. So if you keep spending time in deciding what to do, that number is not stopping for us. We have enough experience around the world to keep us on track. It’s not something that we’re bringing out of the blue.

Nancy Yoshihara, Interviewer
Los Angeles Times, 25 January, 1998

SOURCE: These articles were derived from Wired Magazine, and the Los Angeles Times, Orange County edition, on the dates indicated. Excerpted in the public service of the national interest of the American people.