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A success story

An economics professor defies banking rules to lend money to women and the poor.

By KRIS HUNDLEY
Published May 5, 2006

	[Getty Images]
	Professor Muhammad Yunus, the founder of Grameen Bank and a pioneer of microcredit, speaks at a 2004 press conference in Dhaka.

By KRIS HUNDLEY

Times Staff Writer

In 1974, the newly independent nation of Bangladesh was suffering a famine. And Dr. Muhammad Yunus, a professor of economics who had recently returned to his native country from the United States, was suffering a crisis of conscience.

"I wondered what good an economist was while people were dying right outside my university,'' said Yunus (pronounced U-nus), who was then teaching at Chittagong University in Dhaka. "My elegant theories weren't having much use.''

A poor villager who made bamboo stools set the professor straight. After hearing about the exorbitant rates she paid to borrow money for raw materials, Yunus decided that something as simple as low-interest loans could help the poor move out of poverty. He pulled $27 out of his pocket, lending it to 42 struggling entrepreneurs. When they repaid the debt through tiny, daily repayments, Yunus extended his experiment to more and more villages.

Today, Yunus' practice of funneling small loans to the poor for income-generating activities - dubbed microlending - has spread throughout both developed and underdeveloped nations around the world. The professor will be honored for his pioneering efforts next week in Tampa when he receives the Global Citizen of the Year award from the Patel Foundation for Global Understanding.

In contrast to the honors he is receiving today, Yunus said bankers in Bangladesh acted like he had lost his mind when he initially suggested the concept. "They said you couldn't lend to the poor because they didn't have collateral,'' he said. "They argued that it wouldn't work.''

So in 1983, Yunus established Grameen Bank, which today has more than 1,000 branches and 2.1-million borrowers in this south Asian nation. Bank president Yunus said Grameen, which means village, succeeded by reversing traditional banking rules.

Grameen's customers are the poorest of the poor - people with more than one room in their house or a solid roof don't qualify. The bank prefers to lend to women because such loans are more likely to result in better living conditions for their children.

And initial loan approval comes from a small group of the borrower's friends. "They understand their mutual problems and talents, and they are frank,'' Yunus said. "It is better than bankers posing as experts."

Grameen Bank, which has been profitable for all but three years since its founding, has assets of about $558-million and a return on equity of about 9 percent. The bank is owned by its borrowers. It lends $600-million a year and collects an average of $1.5-million in weekly loan repayments.

The bank's average loan size is $120, and monies must be used for a business venture, not living expenses. The bank said it has a recovery rate of more than 98 percent, though a Wall Street Journal article in late 2001 said bank records showed repayment was closer to 90 percent.

Yunus, 66, said he has faced plenty of critics and naysayers over the past three decades. Various religious groups said lending to women went against their religious principles.

Political groups opposed microlending, with the left branding it capitalism and the right calling it communism.

And when Grameen started a cell phone company, lending women money to buy cell phones so they could sell the service in their villages, Yunus was told illiterate women could never master the technology.

"Now we have over 200,000 telephone ladies all over Bangladesh,'' he said of the women, who also sell the phones and soon may be selling Internet service. "Those who argued these women would not know how to use the technology have been proven wrong.''

Grameen's principals have been adopted by groups around the world. Grameen Foundation USA, based in Washington, D.C., is one ally that says its global network has 52 partners in 22 countries, including partners in Dallas and New York City.

The largest microcredit lender in the United States is Accion USA, an affiliate of an international group, which began making microloans in 1973.

Though microlending has had mixed results as it has been adopted internationally, Yunus said failures should be blamed on the lenders, not the borrowers.

"In cases where it has not worked, it is not the principles, but the application of the principles that is to blame,'' he said. "I've heard people say it won't work in certain areas like Africa, that people are too lazy or there are no opportunities. But people are people everywhere. They all have the same hope for a better future.''

Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

Grameen Bank

Headquarters: Dhaka, Bangladesh

Founder: Muhammad Yunus

Established: 1983Number of branches: 1,084

Number of borrowers: 6-millionPercent of women borrowers: 94

Repayment rate: more than 98 percent

Amount lent per year: $600-million

Average loan size: $120

Source: Grameen Bank

Muhammad Yunus will receive the 2006 Patel Foundation's Global Citizen of the Year Award on Tuesday. For more information about the award ceremony, contact the Patel Foundation at 813 471-4380.

[Last modified May 5, 2006, 06:02:10]