Today, microfinance is a common buzzword. But it all started in 1974, when a man lent $27 of his own money to a group of basket-weavers in Bangladesh.
We’re sure you’ve probably heard of Kiva (if only because we can’t stop raving about it), and now that Natalie Portman’s put her pretty face behind the cause, microfinance seems to be the latest buzzword for business-minded philanthropists everywhere. But if you want to know how this trend got started, you’ll have to look beyond Kiva and its counterparts, all the way back to Bangladesh in 1974, where a young economics professor named Muhammad Yunus served as the world’s first banker to the poor.
“One thing that led me to what I do now was a woman making bamboo stool. She told me she made two pennies a day. I couldn’t believe why she made two pennies a day. She made beautiful bamboo stools,” Yunus told CNN.
The woman told him that the rest of the money she earned went to a loan shark, who’d set her up with initial funding for her business, but forced her to pay it back at ridiculously high interest rates, sending her further and further into debt. Borrowing money legitimately through banks at a reasonable interest rate was not an option –because she was low-income, banks saw her as a financial risk, and refused to meet with her.
Yunus was appalled by the fact that she and other women in her impoverished village, Junta, were unable to make ends meet. He knew they only needed small loans to help them become financially independent. He began wandering around the village marketplace, talking to women who made and sold baskets, and asking them how large a loan they would need to get out of debt.
The total amount it would take for 42 poor basket weavers to get back on their feet? A mere $27 from Yunus’ own pocket.
These days, $27 is barely enough to buy dinner in most cities, but for these impoverished Bangladeshi artisans, it made all the difference in the world. And as soon as Yunus supplied the small loan, he saw that the banks had all been wrong about the risk: The women all saw such growth in their business from the tiny loan that they were able to increase their profits and pay the money back within months.
Once Yunus discovered what good such a small amount of money could make, he knew he had to take a bigger step –so, after years of doling out small private loans in villages around Bangladesh, he created the Grameen Bank in 1983. Unlike other banks, Grameen was there to serve the poor, and to provide them with the micro-credit loans they needed to make their businesses successful.
Though many thought such a bank was destined to fail, Yunus quickly proved his naysayers wrong. In the 25 years since its founding, Grameen Bank has grown to over 1,000 branches throughout Bangladesh. It has lent over $3 billion to two million individuals, with strikingly high repayment rates: In the village of Tati, 80 percent of the residents have loaned money from Grameen Bank. In the 13 years since their branch opened, no one has ever missed a weekly payment. Grameen Bank is such a financial powerhouse, in fact, that it adds, on average, 1 percent to Bangladesh’s gross domestic product each year.
“So the fact that the bank manager was telling me that poor people are not credit worthy now has clearly demonstrated that they are very much credit worthy,” Yunus told CNN. “The real question to be asked is whether the banks are people worthy.”
In 2006, Yunus, who served as the inspiration for Kiva and other new microfinance organizations, was awarded the Nobel Peace Prize for his contributions to Bangladesh’s society. Not content to rest on his laurels, he’s recently developed a Grameen Bank program in Queens, New York, to help American women find the same financial support that he’s been offering in Bangladesh for decades.
“I just want to live a little better, and one day own a little house or something,” Socorro Diaz, 54, a struggling saleswoman, told The Washington Post. “I’m trying to change my life. Bit by bit.”
Thanks to Grameen Bank, she’ll have the chance –she and a group of 99 other initial borrowers will have the chance to borrow amounts ranging from $500 to $3,000, at interest rates far lower than they’d find elsewhere.
Yunus has high hopes that Grameen Bank will invigorate the American economy, just as it has done in Bangladesh. And though Grameen Bank is world-renowned as the “bank of the poor,” Yunus wouldn’t mind a new nickname, he told CNN: “Our success will be when we are described and accepted as the bank of the former poor.”
Want to learn more about this remarkable man and how to help the world through microfinance? Check out his books, Banker to the Poor and Creating a World without Poverty.