Banker To The Poor: An Overview Of The Grameen Bank And Muhammad Yunus’s Experience In Arkansas

Overview of Grameen Bank

The book entitled ‘Banker to the Poor: Micro – Lending and the Battle Against World Poverty’, is an autobiography of Muhammad Yunus, founder of the Grameen Bank, who was awarded the Nobel Peace Prize in 2006. The book is written by Muhammad Yunus and Alan Jolis.  The book offers an insight into the early life of Muhammad Yunus, and shares a glimpse of his college days and his years as a Professor of Economics at Chittagong University.

Muhammad Yunus, born on 28^th June 1940 in Chittagong, completed his B.A. and M.A. in Economics from Dhaka University and did his PhD from Vanderbilt University. He was awarded the Nobel Peace Prize for founding the Grameen Bank and inventing the concept of microcredit and microfinance. Grameen Bank provides loans to people who are extremely poor, too poor to qualify for bank loans. In 2006, Muhammad Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize “for their efforts through microcredit to create economic and social development from below.” Akhtar (2017). The Norwegian Committee said “that lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty and that across cultures and civilizations Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.” Antohi (2016). Muhammad Yunnus has been bestowed with other awards as well such as the Ramon Magsaysay Award in 1984, Independence Day Award in 1987, Aga Khan award for Architecture in 1989, World Food Prize in 1994, Pfeffer Peace Prize in 1994, Gandhi Peace Prize in 2000, Volvo Environmental Prize in 2003, Presidential Medal of Freedom in 2009 and Congressional Gold Medal in 2010.

While Muhammad Yunus was a professor at Chittagong University, he was deeply moved by the extreme poverty of the villagers around him at Chittagong and decided to do something in order to eradicate property. In 1976, Muhammad Yunus took the help of Maimuna Begum to collect data of the poor people living around him in Jobra. Most of these people took a loan from a money lender to buy some raw material to make a product, and then sold the product back to the money lender to repay the loan and made a very meager profit. One woman named Sufia Begum who was interviewed made no more than two cents per day making bamboo stools using this system. The list that Maimuna Begum brought back to Muhammad Yunus showed forty-two women who were living on credit of 856 rupees. On seeing this data, Muhammad Yunus realized that all it took was 856 rupees to make these women financially stable and independent. Muhammad Yunus decided to loan them his own money without any collateral and interest on the loan. After his money was repaid, Muhammad Yunus conducted a survey to find out if this was a common phenomenon, and he found that this cycle of poverty and enslavement to moneylenders was extremely common amongst the poor people in Bangladesh. Muhammad Yunus decided that something had to be done to help these poor and destitute people and so he went to the local bank and requested the officials at the bank to loan money to these poor people but the officials at the bank refused. He took up the matter with the top bank in Dhaka “finally securing credit to loan to local borrowers. Thus in 1977 the Grameen Bank was born”. Bryant (2017)

Strengths of Grameen Bank

The Grameen Bank started on completely different principles and goals and was unlike any other bank in Bangladesh. Its guiding principle was “that each borrower had a human right to credit.” (Karlan & Appel 2015). People had to form groups of five in order to avail a loan from the Grameen bank. A loan was then provided to two people in the group. After the two people in the group successfully paid the loan for six weeks, the next two members were eligible to take a loan from the Grameen bank.  The fifth member of the group, i.e. the chairperson was usually the last person to avail a loan from the Grameen bank. The terms of repayment of the loan was based on five basic guidelines such as loans would last for one year, the installments on the loan had to be paid weekly, repayment on the loan commenced one week after the loan was granted to a  person, the interest rate was 20% on the loan and every week the borrower had to repay 2% of the total loan for fifty weeks. This program of micro-credit started by Grameen, has been emulated and adopted in many countries worldwide with great success.

The strength of the Grameen bank lies in the fact that it shows that it is possible to alleviate poverty by giving micro – credit loans to extremely poor people so that they can generate new self- employment opportunities and be financially stable.

The major weaknesses that threaten the existence of Grameen Bank include an increase in the rate of domestic violence against women. It has been noted that women who have received loans from the Grameen Bank have been subjected to greater levels of domestic violence. Grameen Banks give out loans to families through women in order to empower them and help them move out of poverty. However it has been noted that this change of power within families, where women have more financial power over men and are not dependent on men, have contributed “to a sense of instability and fear for change – which has partially manifested itself in the increased violence towards women.” (Morduch & Cull 2017).

Secondly, it has been noted that since Grameen banks provide loans to families through women, there have been instances where the men in the family, like the husband and the son of the woman have spent the money leaving the woman in the family responsible for paying the loan.

Thirdly the policy of group lending which the Grameen bank adheres to, wherein if one member in the group does not repay their loan; it leaves the other members in the group ineligible to apply for loans. This has led to pressure, conflicts and animosity among families. Very often it has been observed that the family who is struggling to repay the loan taken from a Grameen Bank, often recourse to borrowing from the local ‘paikars’ who charge a very high rate of interest thereby defeating the whole purpose of the original loan given by the Grameen Bank.

Thus the Grameen bank founded by Muhammad Yunus has been extremely successful in its fight to alleviate poverty among the poor people and it continues to be adopted by various countries and emulated around the world.

A social entrepreneur is a person who achieves a great social change due to his visionary and innovative ideas. Social entrepreneurship is about applying an innovative and practical approach to benefit society in general, especially among people who are impoverished and poor.

Muhammad Yunus went to Arkansas in 1986 at the request of then Governor Bill Clinton to offer guidance to the people of Arkansas about the concept of micro financing the poor. From that trip originated the Southern Good Faith Fund, a division of Southern Bancorp. The fund offers financial assistance to the poor and impoverished people of the Delta. According to Muhammad Yunus, the concept of lending money to the poor and impoverished people can work in Arkansas or anywhere else in the world. The Good Faith Fund in Arkanas assists families to buy houses, start businesses and send children to colleges.

Muhammad Yunus has been critiqued as encouraging capitalism in the international context, by encouraging debt and consuming. This perception is completely wrong because Muhammad Yunus founded the Grameen Bank in order to help the poor and the needy, to alleviate poverty from society, to empower the poor people and make them self sufficient and financially stable. 

References:

Akhtar, N. (2017). Embedded neoliberal governmentality in Bangladesh’s microfinance sector.

Antohi, M. (2016). Microfinance, capital for innovation. In Social innovation and territorial development (pp. 55-78). Routledge.

Bryant, E. (2017). Diffusion of microfinance in development: the role of US philanthropic foundations.

Frese, M., Gielnik, M. M., & Mensmann, M. (2016). Psychological training for entrepreneurs to take action: Contributing to poverty reduction in developing countries. Current Directions in Psychological Science, 25(3), 196-202.

Kabir, S., & Salim, R. (2016). Two-staged Capital Structure: An Operational Guideline for Islamic Microfinance System(No. 05-16). Monash University, Department of Economics.

Karlan, D., & Appel, J. (2015). More Than Good Intentions: How a New Economics is Helping to Solve Global Poverty.

Morduch, J., & Cull, R. (2017). Microfinance and Economic Development. In Handbook of Finance and Development. Edward Elgar Publishing.

Partzsch, L. (2017). Powerful individuals in a globalized world. Global Policy, 8(1), 5-13.

Regmi, K. D. (2015). More Than Good Intentions: How a New Economics is Helping to Solve Global Poverty (2011) by Dean Karlan and Jacob Appel. Alberta Journal of Educational Research, 61(3), 367-370.

Saeed, M. S. (2014). Microfinance activities and factors affecting the growth of microfinance in developed & developing countries. International Finance and Banking, 1(1), 39.

Yaacob, M. R. (2015). Social business: a model to alleviate poverty in islamic countries.

Yunus, M. (2017). Social business entrepreneurs are the solution. In The Future Makers (pp. 219-225). Routledge.