Microcredit work gets Nobel Prize

The Nobel Peace Prize was awarded Friday to the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, for pioneering work in pulling millions of women out of poverty through small loans. Unlike most political approaches, this one is a bottoms up effort to create economic and social development.

The award has couple of firsts to it. It is the first time a Bangladeshi has won the Nobel Prize and the prize, often won by statesmen and humanitarian agencies, has never been awarded to a financial institution or banker before.

Who is Muhammad Yunus ? The son of a wealthy goldsmith, Yunus has stressed that it was his mother’s charitable nature that instilled in him a sense of duty to the poor. The inspiration for Grameen Bank came to Yunus during a trip to Jobra, a village in Bangladesh, during the devastating famine of 1976. He met a woman who was struggling to make ends meet weaving bamboo stools. Because she had no assets, she was unable to borrow from the conventional banks and had to turn to local moneylenders. The extortionate interest left her with virtually no earnings. Yunus, then a professor of rural economics at Chittagong University, lent $27 of his own money to her and several other villagers, enabling them to buy raw materials for their work. He was surprised to discover that the borrowers, mainly women, paid back their loans in full and on time.

Even today when banks lend, they prefer those who have assets or collateral of some form. You ask anyone in India who has taken a loan and they will narrate the agony of getting one. For the poor it was impossible.

Determined to prove that lending to the poor was not an “impossible proposition,” Yunus went from village to village that year offering more tiny loans. In 1983, Yunus formalized his loan portfolio as Grameen Bank, which employs a fundamental innovation in credit: Instead of managing risk by taking collateral, Grameen made borrowers, almost always women, take out loans in groups of five. Each would thus be guaranteeing the other’s dependability. The threat of being shamed by their peers was often enough to deter those considering a default.

“We have no guarantee, no references, no legal instrument, and still it works,” says Yunus “It defies all the conventional wisdom.” The bank now reports having 6.61 million borrowers, 97 percent of whom are women. Its loan-recovery rate is a near-flawless 98.5 percent.

Why the peace prize ? Announcing the award, the Nobel Committee said: “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.” Mr Yunus said on Friday that eradicating poverty “can give you real peace. There is no self-respect and status when you are burdened with poverty.”

His hope, “One day,” he has often said, “our grandchildren will go to museums to see what poverty was like.”

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