A Better World, Part 3: The Grameen Bank

One of the enduring concerns of Ripostejournal is poverty – pockets of it in industrial countries and pervasive poverty in many less developed countries. The latter appalling situation has many causes from adverse climatic conditions giving rise to droughts and desertification to unfair agricultural trade practices. To think that a single solution such as Free Trade or even Fair Trade will eradicate poverty is preposterous. If there is a will by the populations of industrial countries to attack this kind of poverty seriously and in a generous, informed and intelligent way, (and this is by no means certain), technical and practical problems will still abound. But part of any solution is the rejection of despair and the celebration of people and projects which are working.

The Grameen Bank of Bangladesh is an example of something that should be celebrated. It was founded by Professor Muhammad Yunus in 1976 and is still led by him. The concept is simple but revolutionary. Poor people who want to become more productive need some capital to do so. However, traditional lenders did not and do not lend to borrowers who have no collateral. Professor Yunus started to lend small sums to borrowers, mostly women, who had a clear idea what they wanted to do, such as purchasing a sewing machine, a cow, or chickens, setting up a store where it was needed or providing a service.

Almost immediately a startling fact emerged: The borrowers turned out to be excellent credit risks. The percentage of defaulting borrowers was lower than that of those who used traditional lenders, except for those who started out with substantial resources. It has taken 25 years, but the Bank now has 2.3 million borrowers and 12,000 employees. The loans vary considerably from month to month. In 2001 the variation in local currency was the equivalent of $16 million U.S. ($ Can 23 million +/-) to 29 million U.S. ($ Can 38 million +/-). In addition, the Bank itself no longer has to borrow or ask for donations. It accepts deposits by non-borrowers. This means that it is making money from its operations as would a savings bank. As a general principle, I see absolutely nothing wrong with responsible businesses making an honest buck, even from the poor.

Grameen happens to be untypical, since the Bank has non-profit subsidiaries in the field of electricity generation and Information Technology and reduces costs to borrowers with a part of its profits.

There are players in Microbusiness lending who do not expect to make a profit. One of these is MEDA, the Mennonite Economic Development Association for which American and Canadian Mennonites are responsible. The aim and approach are very similar to those of Grameen but the projects are not focused on Bangladesh. Also, American and Canadian Rotarians contribute to the “Rotarian Initiative for Population & Development.” What I found particularly encouraging was that these projects are undertaken by specific Rotary Clubs, and give individual Rotarians invaluable experience, even if they are not in the field in great numbers. The Initiative has a web site (www.rifpd.org) which lists eight Microbusiness projects in Venezuela, either completed or in final stages. There is no problem with both profit making and charitable organizations helping Microbusiness borrowers. The profit making organizations can show the others how to operate efficiently, and the charitable organizations can raise the alarm when the Yunuses of this world are replaced by executives who think they should operate solely to maximize their salaries and the price of their shares.

“Microbusiness” is a buzzword for businesses which are smaller than what is generally considered to be “small,” and are often single proprietorships. What is the difference between someone operating a shoe repair shop and a Microbusiness? None at all! What has happened is that academic institutions and governments have recognized the job creation value of these establishments at a time when “large” businesses are shedding hundreds and sometimes thousands of employees. On the academic side, there has been major Japanese funding for a Microbusiness study in Mexico, and in Britain the University of Newcastle upon Tyne has a Centre for Rural Economy which has published on the subject and so forth. Major involvement has come from different levels of government. These efforts all seem to have roughly the same approach – to train, advise, and help Microbusinesses in a variety of ways, yet without advancing any cash. In the United States, individual States from Rhode Island to Montana are active. Peru has the Prodame program which does this work and in Guatamala the equivalent is called Micronet. Finally, there is even a “MicroEnterprise Journal.”

To evaluate the success of these many organizations is beyond the scope of Ripostejournal. However, the Grameen story – helping the smallest businesses before the word “Microbusiness” became current – is important to illustrate that world poverty, while immense, is not hopeless. Other approaches to the various aspects of this problem have been found and finding many more would benefit us all.

July 2003