Grameen Bank in Bangladesh

Grameen Bank,
This bank, now called Grameen Bank, works only for lending money to the poorest people in Bangladesh-landless, assetless people. Today we have over two million borrowers in this bank.

Walk into any bank and ask for a loan and the bank manager will pull out the forms and start asking you about the value of your car, your house, your salary. Before the bank will loan you money, it wants to know in effect whether you already have lots. In Bangladesh, a unique institution called Grameen Bank is pioneering a different approach. It's a bank that lends only to the rural poor. Often its borrowers lack even a change of clothes or a roof sturdy enough to keep out the rain. And yet an astonishing ninety-eight per cent of them pay back their loans.

The loans average about $150-too small for other banks to even bother with-and yet with these loans people revolutionize their lives. Grameen Bank is founded on a bold but simple idea that the answer to poverty is not charity but credit. In nineteen years of operation, it has disbursed over a billion dollars to more than two million people. It has lent predominantly to women in a country where this was previously unheard of, and it has been emulated around the world. The Grameen system now operates in different shapes and sizes in some forty-five countries.

Grameen Bank began out of the pocket of one man, Dr. Mohammad Yunus. His story begins in 1972, the year after Bangladesh won its war of liberation from Pakistan. Yunus had recently completed his graduate studies at Vanderbilt University in the United States and was teaching at a college in Tennessee when he was invited to take up the position of head of the department of economics at Chittagong University in southeastern Bangladesh. He arrived home in the midst of the euphoria and high hopes that followed independence.

I went back and joined everybody else in the country, and I thought, now things will start moving and moving up. To my surprise and to the surprise of all of us, the country was sliding downwards very rapidly. And by 1974, we had a terrible famine. A lot of people were dying on the streets. So I got very frustrated with what I teach, development economics and all those theories where everything sounds so good and it all works out. Because when you walk out of the university campus, you see that the real world is very different from what you describe in the classroom. To me the classroom was like a movie house: you go to a movie, you see how everything is working, and you consider that the hero in the end will win and at the end he does win. You come out of the classroom just like you come out of the movie house: the real world is very suddenly different-everybody gets beaten, nobody wins. I thought, what's the use of teaching this economics if I don't have faith in it? How can I teach my students who are so credulous? When I'm disenchanted, how can I inspire my students? So I wanted to learn economics the way I feel it should be, the way the real world is, and I wanted to know from the people around. Chittagong University campus is located among villages, it's out of town. So I had the advantage that I could just walk out of the campus and into real Bangladesh villages. And I chose to talk to the very poor people in the village because that's where the problem is: Why can't they change their life? Why can't they improve their living conditions? And I kept on talking-not as an economist, not as a teacher, not as a researcher-just as a human being, as a neighbor. Why do things remain the way they are?

And I learned so many things. I started feeling that this was the real university I missed out all my life. And in my classroom, in my textbooks, I never learned all these things that they're saying now. So among the many things I learned, I came across a woman and she makes only two pennies a day by making bamboo stools. And I couldn't accept why anybody should work so hard and make only two pennies. And she explained why she makes two pennies: she doesn't have the money to buy the bamboo from the bamboo store, so she has to borrow money from a trader, the same trader who buys the final product. So he lends her the money to buy the bamboo. When he buys the final product, he offers her a price that barely covers the cost of the raw materials. Her labor comes almost like free, so she works like a slave. So I said, look, this is so simple to solve. It doesn't need big theories to solve this.

If somebody could make this money available to her so that she can buy her own bamboo, she can sell the product wherever she gets a good price. And I took a student of mine, and went around the village for several days to find out if there are other people like her who are borrowing from traders and missing out on what they should earn. And in a week's time, we came up with a list of forty-two such people. The total amount needed by all forty-two of them was thirty dollars. I was so ashamed of myself because, despite all the big theories we were talking about in classroom, here's a situation where we have not organized our society in a way that well-bodied, well-trained, skilled, hardworking people could get even thirty dollars to do their job. So my first reaction was to take this thirty dollars out of my pocket, and I asked my student to distribute this money to them as loans, tell them that it's a loan and that they have to pay me back. They can sell their product wherever they want, wherever they get a good price.

Having done that, I thought I had found a solution to this problem. A couple of days later I started feeling down again. I saw that this was not a real solution, because when they needed money they wouldn't come to me because I'm not available to them. I'm a teacher in a university, I'm not in the money business. I thought there must be some institutional, rather than personal way of handling this.

So I thought of the bank. The bank should do the distribution. When I went to the bank and talked to the manager, he gave me a big laugh. He thought it was such a funny idea even to talk about. I said "Why?" He said, "This little money is not even worth all the papers they have to fill in and so on, and the bank is not going to do that." I said, "Why not? To them this is really important." Then he said, "Well, we can't give loans to the poor people." "Why not?" "They don't have any collateral."

I said, "So what? You don't eat collateral, you want your money back." "Of course we want our money back, but at the same time we need collateral." "To me it doesn't make sense: if somebody can be sure that the money comes back, why do you need collateral?" He said, "That's our rule." He said, "I can't help you. Why don't you go and talk to the officials in a higher position than me to convince them."

And I tried. I moved around, ran around to different offices trying to persuade. And everybody said the same thing: "Look, this is the rule. We can't do anything else." Somebody suggested, if you could find a guarantor in the village for each loan, a well-to-do person, then we can give the loan. I said, "No, I can't do that because then the guarantor would treat the other person as a slave, because he became the guarantor of the loan." I said, "I won't do that." Then I had an idea. I said, "Why don't I become the guarantor?" Why don't you accept me as a guarantor? I'll sign everything you give me." Then they were put on the spot. They thought about it and asked me, "How much money are you talking about?" I said, "Oh, altogether probably three hundred dollars, not more than that." And they said, "Okay, we'll accept you as a three hundred dollar guarantor, but don't ask for more money. That's all we can give you." I said, "Okay, that will be enough for me." This was in 1976. But after all this discussion, when I really wanted the money, they said, "No, we need permission from the head office." It took six months of writing back and forth to get it formalized and finally, at the end of 1976, I succeeded in taking a few loans and lending the money to the poor people at the village. That was the beginning of what I'm doing today-but after a long struggle. And I wanted to make sure that people do pay back so that the bank does not stop this procedure, and people did pay back. So I gave more loans and it became wider and wider. I then told the bank, "Why don't you do it yourself? Why do you need me as a guarantor? It's working. You said people will not pay. Now they're paying." "No, no, you can do it in one village, you have your students with you, you yourself work very hard, but if we do it, it won't work." I said, "That's funny." They said, "If you do it in more than one village, it won't work." So I said, "Okay, let me try." So I did it over several villages. Still it worked, but still the bankers were not satisfied. They said, "No, this is not big enough." So I did more villages, to the extent that I was challenged to do it over a whole district. I did it over a whole district. And still it worked. But the bankers were not persuaded.

So I said, why am I running after these bankers? Why don't I set up my own bank and just settle the whole issue? Then I started running around the Central Bank and the government offices to get permission to set up a bank that will work only for the poor people. It took a long time. Finally in 1983, the government permitted us to set up a bank and we became an independent bank.

This bank, now called Grameen Bank, works only for lending money to the poorest people in Bangladesh-landless, assetless people. Today we have over two million borrowers in this bank. We work in thirty-five thousand villages. We have 1,048 branches. And this bank not only lends money to the poor people, it is owned by the poor people. The people that we lend money to, they also become the shareholders of the bank and own the bank. Out of the two million borrowers that we have today, 90% are women. Our average loan size is less than $150.

The fact is that all along the way, in the last nineteen years, at every point we were told that it could not be done, and there were very compelling reasons why it could not be done. Whenever we debated whether it could or could not be done, whoever was saying that it could not be done would always win.

But the reality of the situation is not only that it is being done, but it is being done in a way that in Bangladesh you would not expect such a thing to happen. I have been asked about bureaucratic corruption in Bangladesh, and how Grameen's staff can remain honest and deliver the services that it delivers. In a corrupt environment, a staff of over twelve thousand carries cash all the time on their own bodies. Each day we carry as much as one-and-a-half million dollars on our bodies, going miles to our borrowers distributing loans or getting repayments back to the bank every week. So each week our staff goes to 35,000 villages to physically meet-do business at the doorstep of-two million borrowers, and during this time not a single case ever happened that one of our staff came back to our office with torn clothes or a beaten face or something, saying, "I've been robbed." Not even anybody has faked it, even though it's very easy to fake it, and then get away with the money. No way you can prove or disprove that he is faking it, because along the way somebody might have attacked him and took the money. And we always promote the idea that if you are under attack, if somebody wanted to snatch that money, don't put up a struggle because your safety is much more important than the money that you carry, so just give the money and don't put up a fight. It's very easy to come and say, well, I was attacked, so I gave the money and walked on, as you said. But it didn't happen. It doesn't happen.

It is not easy to explain how, in somewhere like Bangladesh, where the law and order situation is not one of the best in the world, people are letting this money be carried in a situation where people kill each other for much less money than that. For a very petty sum people will attack. So this is something to understand, because it is not happening in one village, it is not happening in a couple of hundred villages, it is happening in thousands of villages in Bangladesh.

Why do the staff do it? Well, in official government transactions or businesses, whatever they do in the government banks, they don't appear in the office on time; they do not deliver the service the way you would like it. In Grameen, they start their daily work early in the morning and continue to work late in the evening non-stop and very hard. Salary wise, they get the same salary as the government bank staff would get.

So these are the things that one has to look at, and the only explanation I can come up with is saying that in helping people, and because of your own personal role, you change the life of another person. And you see it happening right before your own eyes. That is, I think, a very intoxicating experience. You just can't get over it.

If the same person is offered a job in town, in the urban area, with a lot more fringe benefits and higher salaries and so on, if you have worked in Grameen Bank just one year, it would be impossible for anybody to persuade you to leave Grameen Bank job and accept another job.

Speculation was that if we were looking for staff, it would be very difficult to find staff to work in Grameen Bank, because if it is a university graduate, no university graduate worth the name would come to work in Grameen Bank because he would have to work in the villages. Nobody would like to work in the villages because amenities in the villages are not comparable to the amenities in urban areas. But when we went into it, the situation, we found out it was just the reverse. We got a lot more people than we needed, and they worked very hard. They not only stayed in the villages: one of the problems Grameen faces today, when we transfer anybody from any rural area to our head office, we get a lot of running around and lobbying by the staff to cancel that transfer.

One of the arguments is, What am I supposed to do in the head office? Sit behind a desk? And how can I do that? Here I work with people, and that's a very pleasing thing to me. I work and I see those smiling faces, and it makes me alive. So they don't want to get transferred to the head office. We were told right from the beginning that we could not attract university graduates to work with us to go and work in the rural areas. So at each point everything that people normally thought turned out to be just the reverse of what actually happened.

So what can you do with this small a loan? This was, again, a very usual question that we faced, both in Bangladesh and outside. This is a $10 loan, a $15 loan, a $30 loan. So what?

Again, if you see the magic of that $30 loan, for one who for the first time received a loan, an amount of cash held in their hand, and the tremendous amount of self-confidence that it brings that you are worth the trust of that kind of money, this is a very routine kind of experience for us when new groups start in a new village. When this loan is handed over to a person, she will hold it and start shaking, start trembling, unable to believe that she is really holding such a big treasure in her hand, because she has no experience in her life holding such a large amount of cash in her hand. And many of these women never touched money in their life, because money is a matter for the men to handle. Women don't get involved with money. But this is her money.

I'm sure many of them think in their mind that an organization who trusted her with such a large amount of money, she will never let them down. She will work very hard to make sure that the trust that they put in her is worth it, and they really work very hard to make sure that the trust is justified.

The women who take these loans repay in weekly installments, usually a very tiny amount. When you take a 1,000 taka loan, each installment would be about 20 taka. When you pay that 20 taka, a tremendous amount of feeling goes into it: "I made it." Because everybody, everybody in the village told her, "You will never make it. You are no good." Her friends told her so, and her own life experience told her so, because since the time she was born, everybody in the family was very upset because she was a girl. And the rest of her life she was told by her parents and everybody else in the family and the neighborhood that she brought misery to the family because she is a woman, she is a girl, and she is no good.

Going through that process, now for the first time having money in her hand, and having been told, don't join Grameen Bank because you will create more trouble for your family, you won't be able to pay back, and they will catch you and put you in jail, and your family will be running around to get you out of that jail, she defies everybody and takes that money and really earns money. Now, here is the 20 taka for the first installment.

She finds a new identify for herself. And imagine that woman when she completes the loan payment and pays the last installment to the bank. It's not only in the bank's book that the loan is complete, payment is completed, but so far as she is concerned, she is a completely transformed woman. Now she has started believing in herself and her ability to make it.

So this is the process that one goes through at each cycle of the loan. She will start looking at the world in a different way. So it's not simply the monetary calculations of how much money she took in and how much she paid back. It is the worth that she finds in herself and the fact that she can take care of herself and her family, and her life and the world look so different for her.

So when the staff shares these experiences, this rubs onto the staff, and that is what keeps Grameen Bank moving, and we get inspired to come up with newer loan products like we are doing recently, like we did in the past, the loans for housing. People didn't believe that the poor deserve to get a housing loan. And how can they pay back a housing loan? And we have gone through this cycle of arguments. We understand when you give a loan for a cow, the cow gives milk, she sells the milk and pays you back. But the house doesn't give milk. How does she pay back the loan for the housing?

So we had to go through lots of arguments. We kept saying that housing is very productive because it enhances the productive capacity of the person in a monsoon country where it rains at least four months a year very heavily and usually five months. She can't work in a thatched house or with leaves over her head for a roof. If she has a roof house, well, she can keep the floor dry, and she can work all the year. She can pay back the loan without any problem. Besides that productivity argument, the self-worth again, the dignity that she starts enjoying, living like a human being, brings a tremendous amount of strength to her.

These are the human aspects of the credit operation that we go through in Grameen Bank, and there are literally millions of such stories.

--MOHAMMED YUNUS:
Muhammad Yunus is founder and director of the Grameen Bank in Bangladesh; both have been awarded the 2006 Nobel Peace Prize for their pioneering work against poverty. Originally printed in Lapis Issue 2, this article was compiled from two sources: Part 1 is extracted from an interview on the CBC radio program Ideas broadcast in 1991. Part 2 is transcribed from a presentation made by Dr Yunus at the October 1995 World Bank symposium on Ethics and Spiritual Values in the Promotion of Environmentally Sustainable Development.

http://www.lapismagazine.org/