Small-loan pioneer wins peace prize

Nobel recognizes founder, bank offering microcredit

October 14, 2006|By Tom Hundley | Tom Hundley,Chicago Tribune

LONDON -- It would have been more charitable - and certainly a lot easier - just to give the poor woman the money. But instead, Muhammad Yunus lent her $27.

"Charity is not the answer to poverty," Yunus wrote this year. "It only helps poverty to continue. It creates dependency and takes away the individual's initiative to break through the wall of poverty."

The woman and several of her friends used the small loan to start a furniture-making business and to escape the bonds of poverty in their rural Bangladeshi village. They repaid the loan in full.

Thirty years and more than $5.7 billion in loans later, Yunus' insight into the nature of poverty and the spirit of entrepreneurship has earned him the Nobel Peace Prize.

Yesterday, the Norwegian Nobel committee awarded the $1.4 million prize jointly to Yunus and the Grameen Bank, the lending agency he founded in 1983 to pioneer the concept of microcredit - small loans that have helped lift millions out of poverty.

"Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh but also in many other countries," the Nobel committee said in its citation.

As a jubilant nation cheered Yunus, he told reporters in the capital, Dhaka, that he wants "to work to create some more new things in the world" and would use the award money to start a company to produce cheap, nutritional food for the poor and to set up an eye hospital to treat impoverished patients.

The award "is a global recognition to my country," he said, "and we achieved it as we were able to give something to the world through my sincere efforts."

He said winning made him "feel more encouraged" about developing other "poverty alleviation" projects.

Yunus said the idea of using seemingly insignificant loans to help the poor came to him in 1974 while he was doing field work as a rural economist at Chittagong University.

He met a woman named Sufia Begum, a 21-year-old mother of three, who was trying to make ends meet by making bamboo stools.

She told him that she borrowed about 5 taka (9 cents) from a village moneylender for the raw materials to make each stool but collected only 2 cents in profit on the finished product after repaying the interest on her debt.

"I thought to myself, my God, for 5 takas she has become a slave," Yunus said. "I couldn't understand how she could be so poor when she was making such beautiful things," he said.

Yunus investigated further and discovered that the female artisans in the village owed the moneylender a total of 856 taka, $27.

"I couldn't take it anymore. I put the $27 out there and told them they could liberate themselves," he said.

By cutting out the moneylender and his exorbitant interest rates, the loan enabled the women to earn a decent return on their labor, and they repaid their loan to Yunus.

Yunus' revolutionary idea was that the poor could be as creditworthy as the rich and that small loans could unleash the entrepreneurial talents of people who had historically been written off as economic basket cases.

He founded the Grameen Bank on this principle. Since opening its doors in 1983, the bank has made small loans - usually about $200, but some as little as $20 - to more than 6 million borrowers, almost all of them women.

Instead of the usual tests of a borrower's creditworthiness, Grameen's approach was to lend money to small groups of people, with each responsible for the other's debt. The strong culture of personal shame and honor that prevails in rural Bangladesh served as sufficient collateral.

The Grameen Bank has a repayment rate of 98.5 percent and has turned a profit in all but three years of its existence.

In most developing countries, government-subsidized banks that lend money to businesses and the affluent usually end up writing off about 50 percent of their loans.

"Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development," the Nobel committee said.

The model developed by Yunus and his bank has been successfully replicated in several other Third World countries.

The Nobel Peace Prize often goes to a noted humanitarian, or a political leader who has opted for peace instead of war. Nelson Mandela, the Rev. Martin Luther King Jr. and Mother Teresa received the honor. So have Henry A. Kissinger, Menachem Begin and Yasser Arafat.

This year, the oddsmakers' favorite was former Finnish President Martti Ahtisaari, who helped the government of Indonesia reach a truce last year with rebels in Aceh province and who is leading talks on the future status of Kosovo.

Yunus, who was nominated for the peace prize at least twice before, is the first person from Bangladesh, a country of 147 million, to win a Nobel Prize. Yunus' Nobel Prize is a rare bright light in a country struggling to defeat Islamic terrorists, and which is chronically inundated by floods and battered by storms that blow in from the Bay of Bengal.

But in announcing this year's unconventional winner, the Nobel committee recognized that "lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty.

"Microcredit is one such means. Development from below also serves to advance democracy and human rights."

Tom Hundley writes for the Chicago Tribune. The Los Angeles Times and the Associated Press contributed to this article.

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