The Current in Conversation:
Examining Muhammad Yunus's Grameen Bank
Sumaiya Ahmed

It's not a new story: distribution of wealth in the global economy is disproportionate. For decades, people have been building projects to make economic markets more accessible to the poor. The most promising of these projects provide microcredit, small loans to people without financial services from traditional banks.

The largest microcredit institution in the world is Grameen Bank, which targets the poorest of the poor in Bangladesh and especially recruits women as borrowers. In an interview at Grameen's Head Office in the capital city of Dhaka, Bangladesh, Economics Professor Muhammad Yunus, the founder of Grameen, explained to The Current's Sumaiya Ahmed the role microcredit can play in poverty eradication.

Microcredit allows the world's poor to share in the benefits of borrowing. By not requiring collateral and by providing small loans—allowances to which major banks do not agree—microcredit removes two main barriers keeping the poor from being able to borrow. "The things enjoyed by others," Yunus said, "can also be enjoyed by the poor."

Yunus believes credit is a human right. Without access to credit, the poor do not have the opportunity to exercise their entrepreneurial skills, to take risks, and to help themselves. To rise above the poverty line and to pursue financial security requires credit. Before the advent of microcredit, there were no institutions to which the poor could turn to start small businesses. "If you want to have a big project, you want to have money," said Yunus, "the government or bank will give you your deposit and you make money. But the poor cannot do that, because they don't have that facility. So what they have are loan sharks. They give loans but make sure that they get all the 100 percent benefit out of that. So the poor who took the loan simply work as a kind of slave labor. This doesn't need to be that way."

Replacing loan sharks with microcredit is not an act of charity. Banks for the poor can be economically viable, perhaps even as profitable as traditional banks that target upper classes.

In 2006, Yunus and Grameen Bank jointly won the Nobel Peace Prize for applying microcredit to poverty eradication in Bangladesh. This made Yunus an international icon, but he and Grameen had already devoted decades to development.

Like many of the nongovernmental organizations in Bangladesh, Grameen formed in response to the unstable political and economic climate that followed Bangladesh's war for independence from Pakistan in 1971. In 1974, Bangladesh fell into a famine of incredible proportions. Starving people poured into the capital city of Dhaka in search of food, beyond the city's capacity to provide for the masses. Yunus, who was at the time the head of the economics department at Chittagong University in southeastern Bangladesh, sought a way to help.

When Yunus visited the poor village of Jobra near his university, he came across Sufia Begum, a woman in her twenties who wove stools out of bamboo. She would buy bamboo for five taka, or 22 cents and sell the stools for five taka and 50 paisa, for a 2 cent profit. Because Begum did not have the money to buy large amounts of bamboo, her profits remained small. Taking out a loan in order to buy bamboo in bulk was not an option, because moneylenders would charge ten percent interest per week, or sometimes even ten percent per day. Begum and others like her could not invest to expand their businesses. To help, Yunus lent $27 in total to 43 villagers, telling his borrowers to pay back the loans whenever they could.i Since that first loan in 1976 (and since it became a formal bank in 1983), Grameen's method has become more systematic—as is demanded by a borrowers list of 7.27 million people.

Today, many of Grameen's borrowers are landless, living without running water or indoor plumbing, and under tin roofs or under none at all. Exacerbating their difficulties are the annual monsoons and the constant political instability, which has led to riots and other disturbances.

The circumstances are especially difficult for women, as they do not have equal opportunities for education and employment. Families in rural areas of Bangladesh send their sons to school and keep their daughters at home to help with household tasks. If women in the villages work for money, it is often as servants in upper or middle class homes. In these cases, women turn their earnings over to brothers or husbands. There is a stark distinction between women and men in urban areas too, where the largest employer of women continues to be the garment industry.

It has been courageous of Yunus to envision the viability of small businesses for female micro-entrepreneurs in the stifling social and economic environment of Bangladesh. The confidence that surfaces with owning one's own business was entirely foreign to Grameen's borrowers before Yunus's innovations. "One way to invest is not a big project," Yunus said, "but self-employment: I do my own work, and sell things and buy things, and I make money. Because I have some money in my hand, I can invest it." The investment creates a feeling that "I can do things." The emphasis on self-employment is especially convenient for women, Yunus said, "because they cannot go around and find jobs in factories and things. They have to look after their children and so self-employment is very convenient for them. They can stay home and do things. And make money. So that way poor people don't have to be at the mercy of others. They can take care of themselves." Grameen's insistence on self-employment challenges the marginal position women have held in the past.

Aside from building confidence, small businesses also allow women to find material security. "You create ownership," Yunus said. He explained that for a woman taking out micro-loans, "whatever money she borrowed and whatever money she has gathered with that money, belongs to her, very clearly, in a very well defined way." For the long term, Grameen requires that borrowers deposit a portion of their weekly income in a savings account, so women create financial security through savings.

Women are targeted by Grameen not just because of their history of marginalization, but also because lending to women is a way of investing in the development of youth. "One of the first impacts that you see when the woman has control of the money," Yunus said, is that "the [money] benefit of that goes directly to the children." As the primary caretakers, women are more likely to spend money with the interests of their children in mind. Chief among these interests is education. "Mother always wants to see a better future for the children," Yunus said. "Father wants it too, but mother wants it more intensively than the father does, because father is too involved in many other things." By recruiting women borrowers, Grameen targets their traditional role as caretakers as a way to invest in the education of children.

According to Yunus, the traditional stigmatization of women actually makes them more reliable beneficiaries of microcredit. "Between men and women," Yunus said, "a woman works harder to get out of poverty than men, because she feels that being a woman is a bad thing and then being a poor woman is an extra bad thing. So she works very hard. She cannot change the fact that she is a woman, but she can work hard to make sure that she is not poor." Given their vulnerable position, women are likely to follow the financial plan that Grameen dictates for loans, repayment, and savings.

There is something troubling about Grameen's system. For an organization that intends to build confidence and encourage self-sufficiency, it is in many ways authoritative toward its borrowers. The strict requirement to deposit savings is just one example. Grameen is able to dictate borrowers' plans because the women borrowers have few, if any, other choices. The door that Yunus has opened for women is undeniable. As Yunus said, the women have the opportunity finally to feel that "this is my money, that I can stand by myself." But it is still disconcerting that Grameen considers itself bound to exert such a level of control in the process.

Though Grameen's attempt to empower women financially has been revolutionary, women borrowers continue to encounter resistance from men. Grameen Bank's exclusive focus—97% of its borrowers are women—has added tension to the social relationship between women and men. That women invest and earn money can disturb men, as a fear looms that if women are financially independent, they may cease to fill their centuries-old societal roles. Who will take care of the children? Will the stability of family life resist the pressures that ensue when both partners work outside of the home? In some cases, men have turned to violence to get money from women borrowers. Often women will pass their loans off to men, or use their loans in cases of emergency, not only relinquishing the financial control Grameen seeks to provide, but also risking the shame that arises from being in debt.ii In an anthropological study of women and microcredit in rural Bangladesh, Aminur Rahman writes that "despite the success of the Grameen Bank in delivering loans to poor women and bringing socioeconomic changes to many of these women's households, my findings suggest that there are still many borrowers who become vulnerable and trapped by the system; they are unable to succeed." The exclusive focus on women conflicts with, but does not necessarily change, the traditional attitudes regarding gender in society.

A microcredit institution in a developing country has to be attuned to the societal transformations it may cause. To only challenge the system without accounting for the consequences of that challenge is to fall short of responsibility. An institution can fulfill this responsibility by stabilizing as much as possible the social situations in flux.

Grameen might learn from the example of the Bangladesh Rural Advancement Committee (BRAC), an NGO in Bangladesh that is currently the largest in the world and that, like Grameen, started out with a focus on aiding women. When BRAC began a primary education program in 1985, 70% of its students were girls. Now, 60% of students in BRAC's primary schools are female. This gradual move exemplifies the sort of planning that developmental institutions can implement to anticipate the societal tensions they may cause—even by their good work. For Grameen, easing this tension by moving toward gender neutrality could be a valuable next step.

There also seems to be room for improvement in the structure of Grameen's loans. The current structure makes it easy to fall into a debt-repayment cycle that may keep borrowers from advancing to higher incomes. The cycle underlines the risk inherent in loans of such small scale. Yunus gave an example of how Grameen deals with the risky nature of its investments. "What happens?" he asked. "You take the loan, you wanted to buy a cow, that's a dream investment for you, and you bought the cow, and three months later, the cow dies. All of your investment is gone overnight. So you're totally numb, helpless, you don't know what to do." The solution to this situation is usually another loan. "You can come back to the bank and say, well this happened, can I take another loan?" Yunus said. "And do what? Well, I would like to buy another cow. This one didn't succeed, but...and we will accept that." The bank extends the first loan for a longer period and issues an entirely new one in addition. The extension of the loans over a longer period, however, keeps the borrower in debt.

The bank's interest system can further contribute to the low-income cycle of its borrowers. Grameen caps interest on all loans at the amount of the principal of the original loan. So there is no concern that a 10,000 taka loan will become a 100,000 taka loan. "It will never happen," said Yunus. "No matter how much time you take, it can only go up to 20,000 and it stops there. No more interest is accumulated." The cap on interest due is reassuring, but that, in addition to the continual availability of loans and the pressure for repayment, encourages borrowers to take out money. Rahman writes that, "many borrowers maintain their regular repayment schedules through a process of loan recycling (paying off previous loans by acquiring new ones) that considerably increases the borrowers' debt liability."iii As the loan recovery rate of 98.54 percent can attest, very few people default on their loans.iv But with each disappointing investment, borrowers have to take out more loans while continuing to pay for their initial ones, and it becomes increasingly difficult to get out of the low-income cycle.

Another difficulty seems to be that even if borrowers can break out of the low-income cycle, there is no mechanism to ensure a clear path for securing larger loans within the traditional banking system. M. Rehan Rashid, the country representative to ICICI bank, the second-largest commercial bank in India, said in an interview that it wasn't clear to him how Grameen and Yunus intend to have borrowers eventually take out loans from traditional banks. Yunus "is not interested in linking" the microcredit sector with traditional banks, Rashid said. "How do you allow borrowers to graduate from one level to the next? He thinks the whole thing would flourish by itself."

Grameen doesn't seem worried about the path from microfinance to traditional banks right now, perhaps because it has so many other projects. Grameen Bank is, in fact, much more than a bank. There is a Grameen Network that includes such companies as Grameen Phone Ltd., Grameen Telecom, Grameen Star Education, and Grameen Knitwear Ltd. There is even Grameen Check, a type of plaid fabric women in the company knit and sell.

Microcredit banks in Bangladesh have become hubs for social services in order to compensate for the lack of a reliable governing body. As the International Herald Tribune has reported, Grameen and other NGOs "have stepped in to do a great many things that would normally be expected from government: building schools, offering health care, and creating economic opportunities for the poorest in a country that is among the poorest in the world." In Bangladesh, where the government cannot be relied upon for typical services, non-governmental organizations have assumed those tasks.

Despite taking on governmental roles, Grameen has deliberately avoided government assistance or involvement. By allowing involvement of the government, "you can get exposed to many troubles," Yunus said. "So if government is not involved, you feel better, secure, that you can do your own thing." At present, borrowers own 94 % of the bank's total equity. The government owns the remaining 6 percent, but it used to own 60 percent.v "We didn't want it," Yunus said. "All of our struggle is: take back your money! We don't need it! But they say, no, we want to be associated with such a big thing."

The Grameen Network's influence in telecommunications, clothing, education, healthcare, and economic projects has prompted Rashid to compare Grameen's system to a command economy. In command economies, a central body makes decisions that impact people in many aspects of their lives; such systems can be monopolistic, limiting people in their choice of service providers. Grameen seems especially vulnerable to these charges in its telecommunications and clothing enterprises, where the free market has very little role in decision-making. In addition to having monopolistic elements, Grameen also acts as an informal government. When people campaign, they campaign to win the votes of people in the villages, yet Grameen has managed to recruit people for its network without a formal political process. For many people in the villages, the alternative to joining Grameen would be starving. Without another choice, the borrowers in Grameen's network rely on a non-representative government that does not hold title as one, a benevolent oligarchy.

However, such charges against Grameen cannot be levied in a vacuum. For Grameen operates in a political environment that may well require it to provide services in the way that it does: political and personal feuding has dominated the government of Bangladesh for years, which has led to suspended elections, arrested politicians, and an exhausting hope for reform.

Hope for political change is tied to plans for changing the role of Grameen and similar NGOs. Currently a committee of journalists, development leaders, and academics are looking ahead to elections in 2008 as a potential turning point in Bangladeshi political life. If a stable government results from the elections, this committee is aiming to assemble a national body that will somehow incorporate the NGOs into the formal This would of course be a major change for the NGOs, who share Yunus's aversion to government contact, but it is ultimately in the interest of the poor that the government be able to provide for the basic social welfare of its people.

Not only would Grameen's borrowers be less reliant on the charisma and influence of Yunus, but a functioning government able to provide for its people would give Bangladesh a place in the international political community. The indigenous creativity nurtured by Grameen can, in turn, contribute to the global economy.

Until then, the people of Bangladesh will continue taking great pride in Grameen and in the infrastructure that has been vitalizing the economy up from the grassroots level. Grameen has played a major role in improving Bangladesh's international standing, exerting an influence to help eradicate poverty and restore dignity in the lives of the poor in other parts of the world.

"There was no way any Bangladeshi could avoid knowing about it," Yunus said. Many villagers had not heard of the Nobel Prize before, but they understood what the recognition meant. "It was on national television, live coverage, in the newspapers, all the celebration all over Bangladesh, every single village, every single nook and corner. So everybody knew that Bangladesh did something," Yunus said. "They felt part of it."

i Muhammad Yunus and Alan Jolis, Banker to the Poor (London: The University Press Limited, 1998) 7.

ii Aminur Rahman, Women and Microcredit in Rural Bangladesh: Antrhopological Study of the Rhetoric and Realities of Grameen Bank Lending (Boulder: Westview Press, 1999) ix.

iii Ibid., 3.

iv Muhammad Yunus, Grameen Bank At A Glance (Dhaka: Grameen Bank, Apr. 2007) 3.

v Ibid.,1.

vi Julfikar Ali Manik and Somini Sengupta. "Bangladesh Imposes Curfew to Stifle Protests," The New York Times 23 Aug. 2007.

SUMAIYA AHMED is a junior in the College majoring in History and concentrating in French, although Arabic consumes most of her time. She has been visiting Bangladesh, where her parents are from and where much of her family resides, since she was two.
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