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World Affairs
The Grameen Bank Experiment—Providing Affordable Credit To The Poor
The process of globalisation raises some very serious questions about the kind of techniques used to achieve its goals and its implications on the deprived sections of society, who have been marginalised. Professor Muhammad Yunus' innovative experiment, through the Grameen Bank, has helped alleviate the poverty of millions of people in Bangladesh, by providing them with affordable credit.
World Affairs (WA): Professor Muhammad Yunus, while congratulating you for the success of your immense efforts in the empowerment of the poorest of the poor in Bangladesh, we would like to know, in your own words, how this process was initiated. What were the main hurdles and limitations that you had to overcome and how many people have already started to benefit from this initiative of the Grameen Bank?
Muhammad Yunus (MY): In 1976, when we first began giving loans to the landless in the village of Jobra in Bangladesh, we never imagined that within a few years our modest venture would take the shape of a full-fledged bank.
We started as a very modest local initiative. The work began when I found that the poor people in the village of Jobra, near the university where I was teaching, did not have any access to affordable credit. They had to turn to moneylenders who would lend at very high rates of interest. Most of what the poor earned from their income-generating activity had to be paid to the loan shark.
When I talked to the poor women in the village, I found that they needed very small sums of money for their activities. I lent US $27 to 42 women in the village. They were very happy and they paid back every penny. If they paid me back, why weren't the banks lending to the poor? I reasoned that if financial resources could be made available to the landless people at appropriate and reasonable terms and conditions, these millions of people with their numerous small pursuits could add up to create the biggest development wonder. I went to the local branch of a commercial bank to get a loan for the landless. The bank thought that it was crazy to lend to the poor because they had no security to offer. I could only get the loan after I stood as a personal guarantor.
The banks had a whole set of rules and regulations that made it impossible for those who were landless or without assets to get loans. There was also clear discrimination against the illiterate and women. I got the loan from the bank and lent it to a larger number of poor people and they continued to repay it in time. I eventually got permission to run an experimental project, the "Grameen Bank Project", through a sub-office of the Agricultural Bank. We continued to lend to the poor and continued to receive repayments in full. But the banks were doubtful that the experiment would work if it was extended beyond the village. They said the personal efforts of a persistent professor could make anything happen in one village.
So we tried it in the whole district and it worked. Then we tried it in different districts under the auspices of the Bangladesh Bank. Despite our success, the bank did not make any move to take it up as their own programme. This is when I requested the Bangladesh Bank to convert our project into a full-fledged bank. They were resistant at first, but finally it was brought before a bankers' meeting. The proposal was turned down because it was thought to be an absurd idea. But due to our persistence, we were eventually able to convince the Bank. In 1983, the Grameen Bank was born. In 2001 it has provided loans to almost 2.4 million poor people, mostly women. The experience of the Grameen Bank is being replicated in over 60 countries worldwide.
WA: What is the present overall scale of the Grameen Bank operation?
MY: The Grameen Bank has 2,390,810 members, 95 per cent of whom are women. The total loan disbursement to date is US $3,389.66 million. The bank has 1,170 branches covering 40,315 villages.
WA: What has been the most significant activity of the beneficiaries of this project?
MY: The activities include paddy trading, cultivation, irrigation, farming, milch cow rearing, cow fattening, poultry farming, tailoring, vegetable growing, sheep raising, apiculture, pisciculture and setting up small grocery shops. Grameen Bank borrowers now invest in mobile phones to sell phone services in the village. Our members engage in more than 200 different income-generating activities.
WA: Poverty alleviation has many facets, such as the satisfaction of the minimum basic needs for food, habitat, health, education and employment. In your opinion to what extent has the scheme contributed to the various parameters for the poverty upliftment process?
MY: Many in-depth studies have been undertaken by various research institutions around the world to study the impact of the Grameen Bank on the borrowers. They all come up with very positive findings. The nutrition level in Grameen families is significantly higher than the nutrition level in the non-Grameen families. Child mortality in Grameen families has gone down by 37 per cent. Adoption of family planning practices is twice as much as the national average. The income level of Grameen borrowers has been steadily rising. One-third of Grameen families have moved out of poverty. About 543,109 houses have been built with Grameen Bank housing loans. All the children of the Grameen Bank borrowers attend school. Many of their children have gone on to colleges, universities and into professions, such as engineering and medicine.
WA: Each one of the above parameters need supportive social and infrastructural linkages, such as need for energy or market, teachers for education and health workers. And for their productive activity, material resources and services. To what extent has such monetary assistance helped recipients of assistance to get integrated with the shifting social environment to impact the minimum needs programme?
MY: On the supply side, there is inadequacy to impact the minimum needs programme. In three major areas, Information Technology (IT) can play an immediate role in bringing an end to poverty: a) Integrating the poor in the process of globalisation by expanding their market through e-commerce, eliminating the middlemen in their business, creating international job opportunities through out-sourcing; b) bringing education, knowledge and skill training in a very friendly way; and c) bringing all health services on demand.
We can invite IT business leaders, product and system designers and researchers to contribute their time and talents to address the issues faced by the poor all over the world. IT creativity can enable the poor people and the poor countries to participate in the great wave of prosperity. IT can introduce new ways of participation by the poor men, women and young people in the global economy in cost-effective ways. For example, we can design a voice-activated IT terminal for an illiterate poor person which can become a friend, guide, communication device, business tool, information source, teacher, philosopher, doctor, consultant—in other words, everything to the person. No training will be needed for the person to use the gadget. The IT gadget itself will guide the person in learning the possibilities offered by the gadget.
WA: To what extent do the lives of people get stabilised and become independent of this assistance? Can they become a part of the normal process of expansion and growth on their own?
MY: Grameen Bank's members who have crossed the poverty line may choose to leave the Bank. However, since the Bank belongs to them, they can continue their membership with the bank for as long as they want.
WA: Can you provide a case study?
MY: The Rokeya's Story is a case in point (Extracted from "Poor, but Strong Women in the People's Economy of Bangladesh", by Ulrike Mueller-Glodde, edited by Karl Osner). Rokeya is a Grameen Bank borrower living in Narsingdi area of the Narayanganj Zone near Dhaka.
My father died when I was nine months old. My mother was very poor. When I was about seven years old, she could no longer feed my elder brother, my three sisters and myself. So I was sent to an "institution", an orphanage that we were not supposed to leave except during two religious festivals. I did not like it there. I missed my family. I felt as if I was being kept in a cage. I only ate when there was something left over. But they did teach us how to read, write and sew, and how to show respect for elders. I was educated up to the sixth grade. Then came the war of independence. Sometimes, there was nothing to eat at all for three days at a time.
After the country became independent I was married off. I had my first period a month after my marriage. We were nine people living in two very simple houses. The elder brother of my husband with his wife and two sons lived in the other house. My husband had to bear the burden of all nine of us by doing odd jobs. The family had nothing, only the plot of land with the house. It was a very small house and we had to sit on the bare floor. My husband did not have any work when I had my first son. We ate maybe twice a day. But there were days when we had nothing to eat at all. I had only one sari. After we had sold off all our trees, my husband went to work in a fertiliser factory in Polas, 20 kilometres away. He stayed there, because no bus or rickshaw went there.
My days were spent doing household work and taking care of my family. After I sent my son, Anjam to school in the morning, I would do a little hand sewing. I embroidered blouses, handkerchiefs and fans and sold them. If I made a fan in a week, I could sell it for Tk 30 (Tk 57 = US $1). To make a cushion case, besides taking care of all the other work, takes a week. I designed this pattern myself and got Tk 3 for it; for sewing I get Tk 6, for embroidering Tk 20. I fed Anjam in the afternoon when he returned, ate myself and then carried on embroidering. In the evening I helped him with his lessons, continued to embroider, and said my prayers. We lived from one day to another. We had nothing to spare. At the time my husband was making Tk 600 a month. Sometimes when he came home there was nothing to eat. I stitched and saved a little bit. I had learnt how to save at the orphanage; I practised mushti chal, which means saving one handful of rice at every meal. With these savings we survived those days.
My second child was born and then my third. My husband lost his job at the factory. So, he came back home and took a small piece of land on lease. He paid the lease with the harvested crop. Then he heard from the people of the village that they were better off with the help of the Grameen Bank. We thought if we got Tk 2,000 we could buy a sewing machine. I could sew things, people would pay me for them and then we could pay back the money to the Grameen Bank. We visited the centre and spoke to the field worker. We were asked to form groups of five. We went from door to door and asked the women if they wanted to join us. I told the women that the Grameen Bank gives loans and that people from other areas have benefited a lot from them. In this way we convinced the people.
I believe that work is a strength of mind. One cannot join the Grameen Bank and then just depend on one's husband. I thought: "Even if I am poor and my husband can't do anything, I can still manage it myself." This is the reason I became a member.
I took Tk 2,000 as my first loan. I was very happy. I never had so much money in my hands. I was not afraid because I knew how to work and I was sure I could repay it. They did not want the money repaid all at once, but in instalments. I thought, "Let me see whether I can increase my income by using this money".
We bought a cow and fattened it. I sold it for a profit of Tk 1,000 after one year. We paid the weekly instalments of Tk 40 from our income that came from sewing, stitching and basket-weaving. Then I bought my sewing machine for Tk 2,500 and the tubewell outside the house for Tk 700 from a relative in the village. I initially paid him Tk 500 and paid the rest gradually. It is an old tubewell, but then we did not have to go outside (for Rokeya "outside" means "beyond the household"; naturally the tubewell is outside in the open, but it belongs to the house and yard) to fetch water.
After I paid back my first loan, I took a second one for Tk 2,500. I bought a cow and some sewing materials. I sold the cow for profit and bought a piece of land for Tk 8,000. How could I do it? I took an interest-free loan of Tk 2,000 from the group fund, and I had saved Tk 2,000 from my sewing business. With my third and fourth loans also I bought a cow and sewing materials. Using the profits from the sale of the fattened cow, from things I had sewn and another loan from the group fund, I bought a second piece of land.
Now I have taken out a fifth loan of Tk 5,500. I have bought another cow for Tk 3,500. I took out a loan of Tk 1,000 from the group fund, and we have leased land for Tk 3,000. Now these people have to sell their land, and we want to buy 19 decimals (0.076 ha=760m_). It lies right next to the land we already own. Whatever we possess today, we bought after we joined the Grameen Bank. We have registered this house and the 12 decimals and 14 decimals of land in my name. We grow rice on that. If the harvest is good, we can eat for 10 months from that, but if it is bad we can eat for only 6 months. Besides our own land, my husband also share crops on a small bit of land. We grow mustard, lentils and sugarcane during the season. We can live for two months on the income from the mustard and lentils.
We have 15-20 banana trees, 9 guava trees, 4 mango trees, one pomegranate tree and one jackfruit tree. I received 10 coconut seedlings for Tk 15 each from Grameen Bank. We have pineapples around the field, a vegetable garden and 10-12 trees for commercial timber. They are very valuable and I get lots of money from those. Our income and expenditure are almost identical. We can eat and repay the loans with our income. I have a savings account with the Grameen Bank. I have this house with a latrine, a tubewell and a sewing machine.
Previously, we were much poorer. The difference is I didn't have much then and we were running short of everything, but not now. At the time I had one sari for Tk 100. Now I have two saris for Tk 150. We ate perhaps twice a day in those days; today, we eat three times a day. Isn't that a difference?
Now I have received my fifth loan. The term will be up in two or three months. With my last loan I intend to buy material and make dresses, which my husband will sell. I shall continue to borrow for three more years. We shall buy more land and it will be easier for us, so then we won't have to take any more loans. I have my homestead where I cultivate vegetables. I will be able to repay the loans from that, and also with the income from sewing work. I have my savings that also help me pay back the loans. I shall leave the Grameen Bank once we buy more land.
WA: : The world is going through an intense process of globalisation. This is affecting the economies, living habits and cultural mores of masses of people in most countries. And the products and services through people's own individual efforts are becoming unsustainable under highly aggressive centralising trends. How do you view the effect of these trends on the working of Grameen Bank and the activities of your clients?
MY: I strongly believe that globalisation can be made to work for the poor. It can be a boon for the poor all over the world, if we firmly ride the globalisation horse with the goal of reducing the number of poor in the world by 2015 by half.
Poverty is not created by the poor. It is created by the existing institutions, policies and concepts. If these institutions, policies and concepts remain unchanged in the fast-changing world economy, the poor will be bypassed for no fault of globalisation. This will happen because there is no bridging mechanism in the existing economic system to let the poor in. The only solution the world has ever invented for the poor people is to offer them public or private charity, that is, maintain them where they are.
If we continue with this same solution in the fast-moving world economy we will get the same result—more and more poverty in the midst of more and more prosperity. New financial architecture needs to be put in place quickly to achieve the 2015 goal.
Microcredit experience can form the basis of this new architecture. Grameen Bank has been tested on the ground for a quarter of a century. It has proved beyond doubt that the poor are credit-worthy and they can take full responsibility for changing their own lives. They have entrepreneurial ability, they are creative and they learn quickly. The real challenge that has emerged from Grameen's experience is to make the financial institutions people worthy.
The poor people can provide various types of services from their homes to the rest of the world. These will include security services by watching over the security monitors for homes, apartment buildings, commercial, industrial or office buildings, providing telephone answering services, following up on bills to be collected, ad campaigns, election campaigns, mail order processing, accounting, editing, designing, building and updating websites for companies and individuals, secretarial services, baby-sitting, providing companionship to old people, monitoring and data management services, or any other interesting service ideas people will come up with.
Opening the floodgate of globalisation without getting the poor ready to ride the waves will lead to total drowning of the helpless poor. We need to distinguish between the immediate impact of globalisation and the long-term impact. Moving from protected economies to open economies is obviously painful for some poor people. We must come up with innovative ways to make it less painful.
WA: Hundreds of millions of people in the Indian subcontinent can be classified as the poorest of the poor. Faced with the evolving idiom of globalisation, there will be a need for networking and co-operative efforts of millions of human level production and service units to define their own space within the emerging global equations and realities. Horizontal movement of the empowerment strategies through loans and educational health, technical, marketing and other assistance could help create a network of welfare for millions. How do you view such possibilities?
MY: I am a strong supporter of globalisation. I see globalisation as an exciting opportunity for the poor to get out of their poverty quickly and sustainably. More than 50 per cent of Bangladesh's population is under 20 years of age. These young people have to find opportunities to share with the rest of the world, not just be cooped up in their villages with no future for themselves. It is extremely important that we prepare ourselves so that the pain of transition can be minimised and the gain of globalisation maximised. Opening up of borders can become easier if countries can proceed in steps. The policy for opening up is to create a free trade area with neighbours. I wish Bangladesh keeps on making sustained efforts and succeeds in persuading her neighbours in creating a free trade area in South Asia, particularly with India and Nepal.
Information Technology (IT) is creating a borderless world much faster than globalisation. In addition, IT is creating a distanceless world. It will impact all dimensions of life, not just business. IT offers the world an unprecedented opportunity to end global poverty at the fastest possible speed. But this potential of IT will remain unexplored if we leave it to the market forces alone.
In the context of networking and poverty eradication a very promising feature of IT is its ability to connect individual to individual, anywhere, any time, in a personal way. IT eliminates middlemen not only for the big businesses; it can do so also for the poor. This is the best news for the poor people in their struggle to increase their income. One big problem faced by the poor is to retain their own earnings. Powerful middlemen always grab the best part of their income.
IT can change all that. Now all the self-employed people, such as craftsmen, artisans, farmers, service providers can sell their services and products directly to the consumers anywhere in the world. E-commerce opens up an exciting door for the poor. A poor basket-maker in a Bangladeshi village can sell her baskets directly to a Swedish buyer over the net, making both better-off financially and also forging a new human relationship.
WA: Does the conceptual framework of your effort have any special Bangladeshi or cultural input or could it be employed with equal facility in other countries with identical social constraints?
MY: The Grameen Bank was begun with the Bangladeshi poor. But it has been proved that the approach works in other countries as well. Grameen Trust, a partner organisation, has so far provided technical and financial assistance to 105 Grameen Bank Replication Programmes (GBRPs) in 34 countries around the world. These countries are in Asia, Africa, both the Americas, Europe and Australasia. These and other replication projects have proved the Grameen Bank approach to be robust across different social and economic conditions.
WA: How do you view the potential for such an effort in SAARC countries through an integrated effort?
MY: Grameen Trust has helped set up Grameen Bank Replication Programmes in Pakistan, Bangladesh, Nepal, Bhutan and India. Since these countries are socio-culturally similar the approach has been very successful, particularly in Nepal and India. They now need support to scale up their activities to reach the millions of poor families in the region.
WA: You have pioneered a number of related institutions in the developed countries. How are these benefiting your plans and furthering the welfare objectives of Grameen Bank?
MY: The Grameen Bank has always argued that credit is a human right, and that financial services should be made accessible to the poor wherever they are, in developed and in developing countries. France, Norway, UK and the USA have institutions similar to The Grameen Bank that provide the poor with access to finance in the hope of lifting them out of poverty. In our experience, we have seen that the poor have more things in common than they have differences.