Tiny loans make a big difference Bank: Starting in Bangladesh, a new kind of bank proves that lending small sums to people who have no collateral is good business and good social policy.

Sun Journal

January 31, 1998|By LOS ANGELES TIMES

For Muhammad Yunus, it all began with a challenge in 1976, when he was an economics professor at Chittagong University in Bangladesh.

"I had no intention of creating a bank," says Yunus, founder and now managing director of Grameen Bank, which, to date, has lent a total of $2 billion to 2.3 million people, 94 percent of whom are poor women.

He started with $27 of his own money and lent small amounts to the poorest Bangladeshi women, who used the money to raise milk cows or buy supplies for their small home-crafts businesses. As they earned money, they repaid the loans.

"All I was trying to do," explains Yunus, "was convince the guy who was telling me it could not be done."

Yunus pioneered what have come to be known as microloans. The 57-year-old professor, who earned a doctorate in economics at Tennessee's Vanderbilt University in 1970, says, "This had nothing to do with theory.

"I was caught in a situation where my personal response was to give the money from my pocket, and then I thought, 'If so many people are so happy with such a small amount of money, how can you walk away from it? Why can't you do more of it?'

"So I went to the bank to arrange more loans, and banks said we can't lend money to the poor. The debate, the struggle began."

His Grameen Bank -- Grameen means "rural" in Bengali -- operates only in Bangladesh, but microloan programs are now ** found in 60 countries, including the United States.

"The talk in the beginning was that it was good only for poor countries. People are surprised all of sudden -- why the U.S.A.? I said anywhere anybody is rejected by the banking system, you have room for a Grameen-type program. That is exactly what happened in the U.S.A."

Despite his success, Yunus is battling the status-quo mentality of banking. Outlays to international microloan programs for the poor have been held up by endless studies and reviews of existing Grameen-type programs. He talked of his frustrations and hopes for microloans during a recent visit to Los Angeles.

Q: You have said that credit is a human right just like food. Isn't that a stretch?

A: You can list everything as a human right -- food, shelter, housing, health and education. How do we ensure these human rights? One way is to create an enabling environment where each of you can establish those rights for yourself. One of the best conditions of an enabling environment is access to money, credit, so one can start to earn an income. When income flow begins, then the right to food, shelter and everything else becomes a reality.

So I am saying not only should [credit] be included in the list of rights, if I was arranging them by priority I would put credit as No. 1. Credit represents the creation of self-employment, creation of income flow. This is something we have to see that everybody has equal access to. So anything which discriminates against someone getting access to credit is something we should get rid of as soon as possible.

Q: Are you saying we should get rid of some of the big international lending institutions?

A: No, no, no. I'm not getting rid of any institutions. I am saying access to credit should be ensured for everybody. It should not be based on the ownership of property or anything else. The basic requirement of financial institutions today is collateral. Unless you have collateral, you cannot have access to credit, and that has created two different categories of people: one who has access, one who has no access. That is the discriminating factor. That has created what I call financial apartheid: some who got it, some who never get it.

Q: Now you've had success with these programs largely overseas in Third World countries. How are these microloan programs working in the United States?

A: There are now more than 200 programs working in the U.S.A. And many have helped people to come out of welfare. That is the most exciting thing to happen because the welfare system in the States is such that once you are in welfare, you spend your lifetime in welfare, and then your next generation spends their lifetime in welfare. So something that helps you come out of welfare is something to be applauded. So this is what is happening with the U.S.A.

Q: If you could construct a way to help people in the United States off of welfare, what would your idea be?

A: I would offer them a credit option. I'd say, "Look, there are two things you can do: You can get a free check every month, or you can take a loan which is flexible, which suits your needs, is negotiable. You can make it bigger as you go along, but welfare is fixed -- this is all you get."

If 10 percent of all welfare recipients accept the second option, the credit option, and half succeeded in getting out, that is tremendous success. Seeing their success, many others on welfare would say, "Let me try that part."

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