Mohammad Yusuf is the man who started the micro loans revolution. An economics professor at Chittagong University in Bangladesh, he was devastated by the poverty around him, worsened by crop failure and famine that was going on at the time. He determined to find some way of applying the economic principles he was teaching to the dire state of the personal economies of people just beyond the campus gates.
He spoke to some of the villagers to see if he could do something – anything – to help. Talking to an old woman selling bamboo stools, he discovered she was making a profit of about 2 US cents a stool. This was after paying 20 cents for the bamboo.
What made her profit margin so desperately small was that she, along with countless others, was so poor she couldn’t fund the 20 cents capital for the bamboo. She had to borrow it from a moneylender, at an extortionate rate – sometimes as high as 10% a week. In reality she was a bonded slave to the moneylender, with no chance of breaking out of the vicious circle of slave labour and debt.
Yusuf sent a student to the village to find out how many other people were in the same situation, and how much there total debt was. The student reported that there were 42 people in a similar situation, and their total debt was $27.
Yusuf, realising such people were outside the conventional banking system, and thus unable to get bank loans, took the money from his own pocket. He told the student to lend the appropriate sums to the villagers on the firm understanding that it was a loan, not a gift, and that they should pay it back when they could afford to do so.
The villagers were enraptured, and took – and repaid – the seed corn money that helped them to survive through their own hard work. Yusuf realised this could be the mechanic that fanned the spark of personal enterprise and initiative that could pull them out of poverty.
The scheme spread, despite the resistance of conventional banks, who thought lending to such people was absurdly risky. In fact, their trustworthiness was outstanding. As the operation grew over time, two remarkable facts emerged.
The first was that 94% of loans were to women. The second was that 98% of loans were repaid – a much higher figure than for conventional banks.
The scheme grew (with little help from the financial community) into what is now the Grameen Bank. It has cumulatively lent over $5 billion dollars since 1983, and set countless people who were hardworking and honest, but penniless, free from financial servitude.
Well done the Nobel Peace Prize committee for recognising this fantastic act of Difference Driving.
Tuesday, 3 February 2009
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