October 21, 2006
Last week a financier won the Nobel Peace Prize. This is unprecedented.
Furthermore, it was the most important decision the Nobel committee has made for years. The reason you have heard nothing about the prize winner is because he is a self-effacing, modest, apolitical man.
Unlike previous winners ‘ from Henry Kissinger to Yasser Arafat -Muhammad Yunus, the founder of Grameen Bank, shuns the limelight. Yet his story is much more relevant to the vast majority of the world’s population than most of the political grandees who have picked up this prize in the past.
In addition, he has provided a blueprint for economic development which has the potential to lift billions out of poverty. So what has he done? Travelling around his native Bangladesh in the mid-1970s, Muhammad Yunus was appalled at what he saw: poverty, aid agency corruption and the subjugation of women.
In one desperate village, he found that the village had total borrowings of just $27.He decided that this was the key. The total absence of credit kept the people in poverty because it prevented them from investing in their own futures.
So, rather than look for World Bank or aid agencies’ top-down solutions, Yunus decided to tackle poverty fromt he bottom up. He set up a bank that would only lend to the poorest of the poor. He lent to people without any collateral and those lacking any sort of formal financing. He lent to the financial untouchables. What is more,Yunus insisted, unprecedentedly, that the loans contain no provision for legal recovery in the event of default. He also gave highest priority to women.
Today, Grameen Bank has six million customers, the typical loan is $130 and it has a 99 per cent repayment rate. The bank has played a significant role in bringing Bangladesh’s poverty rate down by 10 per cent in the past five years. This rate of improvement puts Bangladesh on course to meet the Millenium Development Goal of halving poverty by 2015. It is one of the very few developing countries on the right track.
The reason the bottom-up rather than top-down approach has been so successful is that it puts the onus back on the individual. By giving people access to credit – even very small amounts – you begin the process of economic incentives – the incentive to plan, to invest, to own and to dream about the future. Credit is the great under-reported catalyst to economic growth and social change.
We saw this in Ireland, where a lack of widespread access to credit from 1922 to 1992 was probably the main drag on the Irish economy and society. Once cheap credit was made widely available, the economy took off. Today, there is too much credit around and we are drowning in the stuff – bringing its own problems. But without it, we would still be in the economic dark ages.
In Bangladesh, Grameen ”taught the hungry man to fish, rather than giving him a fish”. The women who got the loans built businesses. They began to own the fruits of their labour, rather than simply earn a subsistence wage. They started to sell the clothes that they were making and started to club together to invest in these micro-businesses.
Also, because Yunus did not ‘go after’ his clients if they defaulted, the system reinstated trust in the rural society. The entire system was based on a handshake and trust.
When trust is lost in a society, only lawyers win. Imagine a society where the banking system is not upheld by enforceable contracts but by human trust. We think it is impossible, but it’s not! By introducing micro-banking, Muhammad Yunus also gave respect and dignity to people who were without hope. Think about the positive uplifting effect credit has on a dirt-poor family. Think about the self-confidence this would bring to someone who has been ignored all her life.
Just imagine the excited conversation that first night a desperately poor mother came home with her money. Imagine the pride she had in telling her children that now they had a chance. And imagine, in particular, this happening to mothers in a traditional Muslim society where women were discriminated against in the first place.
The positive emotional, psychological and economic ramifications of this liberation by credit have been transforming. The women are now sovereign for the first time in their lives and Bangladesh is slowly but surely moving out of desperate poverty.
Grameen is a great example of ‘the theory of small things’ at work. Small changes on the ground can have enormous ramifications and, in many cases, lead to much better results than big initiatives. The main reason for this is that the repercussions – trust, dignity, inventiveness, liberation, re-investment and growth – from micro-credit spread like a viral network through the society where each person affected passes the positives on to the next person they meet or do business with.
In contrast, big initiatives tend to replicate the pattern of donor and donee without seeping into the system. For years, the debate on how to lift the Third World out of poverty has centred on big things like the World Bank financing a dam, creditors writing off debts or countries like Ireland stumping up a certain proportion of GDP for aid. Most of these things are beneficial, but wouldn’t it be interesting if we took our aid budget and set up a microbank with it?
We could lend to the poorest of the poor in countries where we know the terrain and in so doing, repeat Grameen’s miracle. We have the money, we know the areas, we have the aid workers and we have the bankers; it might just be do-able. It is about time that the Nobel Peace Prize committee recognised that peace is a function of human dignity and dignity is a function of purpose.
By lending to the poorest of the poor, Muhammad Yunus gave millions of desperate women and their families purpose and hope; he is a worthy winner of a prize for peace.