WoW Blog

In 2006 Muhammad Yunus and the bank he founded, Grameen Bank, were awarded the Nobel Peace Prize for "for their efforts to create economic and social development from below." The success of Yunus and Grameen Bank would have been impossible without the hard working, impoverished women of Bangladesh.

It all started in Jobra, Bangladesh in 1976. Muhammad Yunus was head of Chittagong University's Economic Department at the time. Yunus realized that the women in Jobra, who were all very poor and who sold homemade bamboo furniture to make money, had to take out usurious loans to buy the bamboo. The women had to pay these high interest rates because only money lenders were willing to lend to them. Conventional banks didn't deal in the small loans the women needed. Yunus realized that if he offered these women affordable loans, their profits would increase significantly, which would improve their standard of living. Yunus was a social scientist and activist and had been looking for a means to help the vast impoverished people of his country Bangladesh. Seizing the moment, he committed to his first loan, $27 dollars total (64¢ per person), lent to 42 women in the village of Jobra. He charged only 2¢ interest per loan which gave him a profit of .50¢ for all of the loans. Certainly not a fortune, but the point was that he had helped the poor without charity, by offering microcredit to women.

In December 1976. Yunus received a loan from the government owned Janata Bank and started offering microloans to the impoverished people of Bangladesh. Microloans being loans ranging from several hundred dollars to often less than $10 dollars. In 1983 Yunus' pilot microlending project became an actual bank and was named appropriately enough Grameen Bank (Grameen is Bengali for "Village").

Today Grameen bank has issued 6.38 million USD in loans to 7.4 million borrowers, 97% of which go to women. Why women? Mohammad Yunis explains that at first he didn't consider gender when he began offering microloans, but it quickly became apparent that women were much more likely to devote their earnings to their families and defaulted on the loan much less frequently. After a while it just made good business sense to lend only to women.

Soon many other institutions and nonprofits started microlending and it worked. They stuck to the same model of lending to the women, who more often than not spent the money on bettering their family and were reliable in paying back the loans.

Over time some of these banks wished to convert to more traditional banks that hold deposits, but still cater to the impoverished (since it was profitable). Unfortunately studies show that when a bank makes this transition, they tended to lend larger and larger amounts and much more frequently to men over time because such lending has higher profit margins, essentially reverting to the traditional banking model (source).

Grameen Bank itself has continued on it's mission of microlending. In addition it has also expanded into other ventures such as Grameen Communications, which enables rural poor to own a cell-phone. Again, because of their reliability, women are usually the customers, paying for a prepaid phone by a loan provided by Grameen Bank, and then being trained on how to charge others to use their phone so as to make a profit. Basically, the woman's cell phone becomes a pay-phone for the village which makes ownership of the phone a profitable venture. Such microbusiness applications based on the microfinance model are springing up all over impoverished nations.

Ultimately time will tell the tale of the success or failure of microeconomics. Will the system help poorer families change their stars and thus in turn improve the economic stability of their countries? Or will poverty perpetuate despite financially empowering mothers?