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Microcredit Bank Grows Out of a $27 Investment

A Bangladesh economics professor tested his theories in one village. His success inspired a model for small loans worldwide.

April 04, 2004|Beth Duff-Brown | Associated Press Writer

DHAKA, Bangladesh — The father of a banking revolution that has helped millions of poor people says his "eureka moment" came while chatting with a shy woman weaving bamboo stools with calloused fingers.

Sufia Begum was a 21-year-old mother of three when economics professor Muhammad Yunus met her in 1974 and asked how much she earned.

She said she borrowed 5 taka, about 9 cents, from a middleman for the bamboo for each stool.

After repaying the debt, she was left with 2 cents for each stool.

"I thought to myself, my god, for 5 takas, she has become a slave," Yunus said.

That epiphany ultimately led to something called microcredit and the Grameen Bank, which has granted $4.18 billion in small loans to 3.12 million Bangladeshis. A model for microcredit financing in 65 developing countries, the system has helped about 17 million borrowers worldwide and pledges to eventually lift 100 million people out of poverty.

In essence, one man from one isolated and blighted country helped millions with just $27.

Not everyone sees microcredit as an unalloyed success. Some economists at home and abroad say that its claimed 99% loan recovery rate is an exaggeration, and complain that Grameen's interest rates are too high.

Still, when more than 1,000 microcredit proponents recently gathered to take stock of the movement in Dhaka, the Bangladesh capital, the star attraction was Yunus, the man former President Bill Clinton once said deserved a Nobel Prize.

Queen Sofia of Spain, honorary chairwoman of the Washington-based Microcredit Summit Campaign, called Yunus the "pioneer of this great and already universal achievement."

In 1974, Bangladesh was a newborn nation, ravaged by war and famine. Yunus, then 33, had returned two years earlier with his American wife, leaving behind a comfortable life in the United States.

With a PhD in economics from Vanderbilt University, he became the head of the economics department at Chittagong University on the Bay of Bengal. But he felt foolish pontificating in the classroom as people starved just outside the campus, in the city where he was born to a middle-class jeweler.

"There I was, teaching all these elegant theories in the classroom while out in the streets, I saw these people going hungry," Yunus said.

Yunus told his students to follow him to the nearby village of Jobra to study economics from the ground up. The first person he stumbled on was the young woman weaving bamboo stools.

"I couldn't understand how she could be so poor when she was making such beautiful things," he said. He was determined to teach her to help herself, although not quite sure how.

The next day, the students did a survey and discovered that 42 villagers in Jobra owed a total of 856 taka, about $27.

"I couldn't take it anymore. I put the $27 out there and told them they could liberate themselves" and pay him back whenever they could, he said. The idea was to buy their own materials and cut out the middleman.

They all paid him back, day by day, over a year.

"They were so excited and I thought, if you can make so many people so happy with so little money -- why not make more people happy with a little more money?"

Yunus drove his white Volkswagen Beetle to the state-run Janata Bank to apply for a loan. After months of negotiations, the bank loaned him enough to replicate the Jobra experiment in 100 more villages.

All those loans were paid back as well. Encouraged, Yunus won government approval in 1983 to open Grameen, Bengali for "rural."

Today 1,194 Grameen Bank branches serve 43,500 villages, or 60% of rural Bangladesh. Loans average $200 per borrower.

This in a country that Henry Kissinger once dubbed "South Asia's basket case."

The globe's most densely populated country -- 140 million people sandwiched into an area the size of Iowa -- staggers under 36% unemployment and an average income of a dollar a day. More than 70% of its people have no electricity or safe drinking water.

Yunus and his wife divorced; she returned to the United States with their daughter, Monica, now a soprano with the Metropolitan Opera. Yunus remarried, to a Bangladeshi physics professor, and they have a teenage daughter.

Yunus is 63 now, handsome with a head of thick gray hair and wearing a traditional cotton tunic. He says his mother imbued him with compassion for the poor. She had 14 children, nine of whom survived, and she would sock away pocket change for needy neighbors.

He has enormous faith in women. They are more than 95% of Grameen's borrowers, they make their payments on time and they put their profits back into the family, he said.

He was speaking during a visit to Kashipur, a village of rice paddies just north of Dhaka, where water buffalo lumber down dirt paths alongside a woman speaking Bengali on a mobile phone.

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