Learning from a Nobel-laureate’s ideas: Micro-credits - A New Wonder Cure for Poverty By Tobias Baedeker On October 13th, Stockholm and the Nobel Foundation were once again the focus of worldwide attention when they announced this year’s Nobel Prize winner, Bangladeshi banker Muhammad Yunus and his Grameen Bank. How could a banker win the Nobel Prize for peace, a profession infamous for its greed and not compassion or benevolence? Indeed there was a moment of surprised silence as the winner was announced. The media around the world was shocked: “Business instead of pity,” said Der Spiegel. Listening to the poor
Muhammad Yunus was born in Bangladesh in 1940. He studied economics in Bangladesh and the US. Upon his return he became professor of economics at Chittagong University. A famine in 1974 led him to think about poverty and measures to reduce it. He thus developed the concept of micro-credits, a very small loan directed at poor people ineligible for common loans because of their lack of collateral. In a post-Nobel prize interview with the BBC, he described a crucial experience: During a trip to the countryside, he had met a woman that plaited baskets for a living. She told him how she was unable to come up with the necessary money to buy tresses of wood, her primary resource, out of her own pocket. She therefore referred to a basket salesman, who gave her tresses under the condition that she manufactured baskets exclusively for him and at a fixed low price. The result was a big profit for the salesman and an inappropriately small margin for her, inappropriate because she had done most of the work. Mr. Yunus explained that had she been able to acquire the approximately $27 worth of tresses she no longer would have to suffer poverty, but could instead enjoy an increase in profits. A new form of loan: vicious versus virtuous cycles Common loans require the recipient to balance the borrowed money with some kind of security, such as real estate or other tangible forms of capital. But poor people do not possess such assets, they are unable to borrow money in the classic system. Since loans or acquisition of capital are the first step to become an entrepreneur, the poor found themselves deprived of such an opportunity. A very small sum of money could make a huge difference, transforming the vicious circle of “low-income, low saving, and low investment” into a virtuous circle of “low income, injection of credit, investment, more income, more savings, more investment, more income.” The wonder cure: the unbeatable advantages of micro-loans Granting micro-loans does not mean merely throwing money at people, however. A micro-loan is unlike certain forms of developing aid such as food provisions, where people get a single-use item like food that once it is consumed disappears. Nor does it mean giving money to highly ineffective and often corrupt governments the so-called “watering can principle.” Micro-loans have two major advantages over other anti-poverty measures. First they provide people with the necessary means to help themselves, thereby relying on their own will for a change. They can decide what to do with the money, and they have to decide what is best to do with the money. Secondly, they have the potential for economic self-sustainability by generating profits in much the same way as “normal” banks do. This is important, for it means that no altruism is needed to implement these measures. Once proven to work these loans can sustain themselves. Founding Grameen Bank Happy and full of confidence with this new concept, Yunus approached several major banks but soon found that they weren’t interested for reasons that seemed more than obvious: lack of security and the seemingly low probability of any entrepreneurial success for poor, often illiterate, people. From a bank’s perspective, these were the worst possible conditions for granting a loan. Frustrated that nobody believed in the feasibility of his idea, he decided in 1976 to establish a bank that would provide the poor with the much needed money: Grameen Bank. The bank turned out to be more then just a success. As of 2006 it has granted an astonishing US$ 5.72 billion in loans and accomplished a striking recovery rate of 98.85%. Despite basing loans on sheer trust, this rate need not fear comparison with “normal” banks. The bank has evolved into a large corporate family, including various activities such as Grameen Communications (including Bangladesh’s biggest telephone company Grameen Telephone), Grameen Shikkha/Education (promoting mass education in rural areas), Grameen Cybernet (Bangladesh’s biggest internet provider), etc. It’s burgeoning, a fabulous example of an NGO success. Impact on poverty: Nobel Prize not surprising any more According to a recent internal survey at Grameen’s website, 58% of Grameen borrowers’ families have crossed the poverty line. The remaining families are moving steadily towards the poverty line from below. An extremely high ratio for a poverty fighting program, especially if one considers Grameen’s complete independence of donations (since 1995). Grameen has hereby achieved a paradoxical excellence, being a highly effective development program that doesn’t require any external funds “it’s as if one of our major global problems has started to solve itself. With these facts in mind, awarding the Nobel Peace Prize to Muhammad Yunus can only seem adequate, since poverty reduction is such a fundamental factor for promoting world peace. As Ghandi put it, "people with full bellies are peaceful people.” With this recognition, we expect that the model we have developed will spread across the world.“ –Muhammad Yunus The Nobel Prize for peace is one of the world’s most prestigious awards. For outstanding contributions to peace and humanity, it bestows its winners with the very special status of recognition as a Nobel laureate around the world and a tidy sum of money: US$1.3 million. Founded by Alfred Nobel, a Swedish entrepreneur and the inventor of dynamite, through his famous last will; the Nobel prizes annually go to the most outstanding physicist, chemist, physician, man of letters and as for the peace prize: "the person who shall have done the most or the best work for fraternity among nations, for the abolition or reduction of standing armies and for the holding and promotion of peace congresses”. - Interestingly, Nobel’s own interest in dynamite stems from a background of a land-mine construction family business. a
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May 2024
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