Microcredit Changes Lives

Grameen-Credit as a Seminal Innovation in Social Engineering

The news of riots, violence, and street demonstrations over food crises, due mostly to rapid price hikes worldwide, has been broadcast the world over since the beginning of 2008. But how could a natural disaster-prone country — Bangladesh, with its population of 150 million squeezed into a floodplain the size of Wisconsin — avoid such food riots?

What is the story behind the scenes? Apart from Bangladesh’s soil being one of the most fertile on earth, I believe that the introduction of microcredit (initiated by the Grameen Bank) and its multi-faceted impacts on the socio-economic life of the poor has helped to stem such crises.

Watching TV footage of food riots in many countries, I understood the connections between hunger and violence and why Professor Yunus, Managing Director of Grameen Bank, Bangladesh was awarded the Nobel Peace Prize in 2006.

Like many other young people, I read about the mechanism of microcredit in books, but like most MIT students, I was not satisfied with mere theoretical knowledge and wanted to get the ‘real’ picture, by working in the field. So, I spent three beautiful months in summer, learning firsthand, through an internship with the Grameen Bank, how microcredit works to change people’s lives.

Most importantly, watching Grameen Bank’s story in real life, I was awakened with a sense of the vast potential of mankind. I met women borrowers at the branch meetings in the villages, who would tell the tale of how they had started off destitute, with zero resources and no money, but had started businesses using a microloan from Grameen and by doing so had lifted themselves out of poverty.

This new idea — ‘small loans without collateral,’ and that the poor are bankable was a revolutionary concept in the field of banking, initiated back in 1974 by Dr. Yunus, who was then an Economics Professor at Chittagong University in Bangladesh. Since then, it has made great strides in the fight against poverty.

Microcredit has had a number of social benefits in terms of emancipation and empowerment of poor women in villages, increased school enrollment ratios among children of borrowers, and improved health of borrowers’ families. Grameen uses the system of group responsibility in loan repayment, where peer pressure is the secret behind a 97 percent repayment rate.

Grameen used another revolutionary approach: in a country like Bangladesh where poor, uneducated women in the villages have traditionally been discriminated, Grameen Bank identified them as the main beneficiary. Loans are mostly given to women rather than men — this has helped to raise the status of women in a society where wife-bashing for dowry is common in villages.

Women are organized into groups of about five which meet regularly at the branch offices. During the meetings, they learn by heart and recite 16 decisions which are basically goals in social, educational and health areas. The four basic principles of Grameen Bank — discipline, unity, courage, and hard work are instilled in the borrowers and this empowers the poor with confidence.

I had several opportunities to interact with borrowers during branch meetings in several villages, which really gave me a personal, tangible picture of how Grameen was having a macro impact on society by working on an individual level.

This hugely successful microlending model has been replicated all over the world — even in the US. Several sister organizations have been set up, like Grameen Phone and Grameen Shikkha (Education), which offer services like cellphone access for poor villagers and opportunities for poor women to market their finished goods.

I had an opportunity to visit the newest social enterprise in the Grameen family — a yoghurt factory operated in collaboration with Danone Company of France. This produces cheap, yoghurt, fortified with micro-nutrients, for poor children. I feel that it is social entrepreneurship of the type I saw, which can boost development through large positive externalities and this is a field in which I am sure many of you are interested. Grameen Bank attracts students from many countries of the world who do internships to learn firsthand how the Grameen model works.

Many of you may be wondering how Yunus could come up with this groundbreaking idea which has opposed all conventional banking methodology. I thought the same. I got my answer in a personal conversation with Dr. Yunus where he recalled his disillusionment with the novel Economic theories he was teaching in the classroom against the backdrop of famine and abject poverty in Bangladesh in the 1970s.

It was then that he felt he had to take initiative to enable access of poor to capital which the conventional banks and commercial money-lenders failed to provide. Thus, the concept of microcredit was born. Thus, my fellow students — if you, like me often feel frustrated with the problems of the world around us and wish you could do something to change something but have no clue as to how, don’t feel upset or inadequate. Who knows, maybe some of us might be the next Yunus?

I clearly recall the look of confidence and determination that I saw in the eyes of the women microcredit borrowers, which imbued me with the spirit of resilience that characterizes the Bangladeshi people in their struggle against the odds of poverty and recurring natural disasters.

My time at the Grameen Bank has enhanced my faith and trust in the potential and ingenuity of human beings. My fellow students, I would like to leave you with a statement of Dr. Yunus, which he shared with us Interns: “Let’s put poverty into museums.”

Farhana Khan is a member of the Class of 2012.