By Dipankar Das March 2010 The belief that the poor are worthy of credit had few takers, till Muhammad Yunus set things right It was in the early 1970s. After its bloody war for independence, Bangladesh had sunk deeper into the throes of poverty. Hunger stalked the devastated land. Economists, as usual, had ready recipes to resolve the issue, but none really worked on the ground. One economist in particular was pained by this gap between the economic prescription and its efficacy. Muhammad Yunus was with a community of bamboo furniture makers. They desperately needed money to ply their craft. So Yunus collated their needs and was shocked to discover that all they needed cumulatively was just $27. Having read about multi-million dollar aid projects, he was stumped to know thatall these poor people wanted collectively was such a small sum. Yet there was no one to lend them even this small amount of money. So Yunus decided to do the unthinkable – loan money to the group of bamboo furniture makers from his own pocket. Such a long journey Yunus now went to more villages and did encores. But the banking system remained deeply sceptical. So, Yunus decided on the next step, setting up a separate bank for the poor. Today, the bank has loaned out more than $ 5 billion (approx Rs 25,000 crore) to four million borrowers, 96 per cent of whom are women. Grameen Bank’s strategy is to offer small loans to extremely poor people, giving them the means to generate income, and thus climb their way out of the pit of poverty. From the development perspective, micro-credit is all about giving poor people a chance to work themselves out of poverty, to be treated as responsible, productive agents with the capacity to improve their own lives. Avatars of micro-credit The idea of micro-credit has now taken off and there is no stopping it. Micro-credit has now touched more than 100 countries. In Central Asia and Eastern Europe alone, there are more than 6,000 micro-credit institutions, and disbursement has touched $12 billion. The Grameen Bank itself has diversified into diverse ventures, all resting on the vision of giving power to the poor. For example, the bank launched the Grameen Phone and took mobile phones to the villages of Bangladesh. It gave loans to borrowers, particularly women, to buy cellphones and start phone services. Soon it became a growing business. Every village had one, if not more. Now any farmer could stay connected to the market and sell only when he could expect good rates. They could call the doctor in an emergency. It was a leap to a new life. Today, more than one lakh women are running PCO-like services in the villages of Bangladesh. Grameen Bank has set up a joint venture with Danone to produce fortified yoghurt for malnourished children. It is also looking at a joint venture to supply clean drinking water to villages affected by arsenic poisoning. Micro-credit in India Grameen Bank does not have commercial operations in India. In India, micro-finance institutions are not allowed to accept deposits, and this forces them to depend on bank refinancing, or donor money to expand their activities. Yunus questions the validity of such economic models. Grameen Foundation is, however, active in India. It works with 25 micro-finance institutions such as SKS Microfinance, whose founder Vikram Akula had won the Ernst & Young Entrepreneur of the Year award. These partner organisations have already given loans to 1.7 million families. Microcredit Ratings International, a Gurgaon-based agency, assesses the potential demand for micro-credit in India, which houses a third of the world’s poor, at about Rs 480 billion ($ 12 billion). Warts and all This is not to say that micro-credit does not have its problems. One of the problems is that lending to groups and communities, the way Grameen Bank started out in Bangladesh, has not always been successful in many countries, where the individual is the denominator. Secondly, data shows that profitability in giving to the poor is actually higher and the repayment rates are better than traditional banking sectors in developing countries. Some of the microfinance institutions have shown a five per cent return on assets and 30 per cent return on equity. In short the message has been – the poor are bankable. This realisation has resulted in the influx of large banking corporations, even hedge funds, setting up microfinance divisions, which often do not have the ultimate benefit of the poor as their end goal. Also, the quality of management in some of the institutions has been questionable. Muhammad Yunus’s vision Muhammad Yunus has come a long way. Among the many recognitions that have come his way, one of the most memorable has been the Nobel Peace Prize for 2008. But Yunus still has miles to go. For one, he has the vision to make credit a human right. So that people can access loans, and implement their ideas. So that self-exploration becomes possible for all and not just a select few. The second hope is that one day not a single human will suffer from the misery and indignity of poverty; and poverty will be relegated to museums. “Poverty,” he says, “is unnecessary.” In an interview he observed, “The human being is quite capable of taking care of himself or herself. But we have created a society that denies opportunities for poor people to take care of themselves.” He compares poor people to bonsai plants because society has denied them the real soil. He believes that if we allow them the real soil, real opportunities, they will grow as tall as anyone else. Dipankar Das started his career at Life Positive. He now works as a Training and Development specialist.
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