The idea for microcredit began in the early ’70s, when Yunus — an economist from Bangladesh’s Chittagong University — led his students on a field trip to a poor village, where they interviewed a woman who made bamboo stools. Yunus learned that she had to borrow money at rates as high as 10 percent per week for the bamboo she used — a cost that left her with only two pennies a day as her total income. Had she been able to borrow under fair conditions, she would have been able to amass an economic cushion and rise above a subsistence level.
Realizing there must have been something terribly wrong with the economics he was teaching, Yunus took matters into his own hands. His students surveyed the village, compiling a list of 42 victims of usurious money-lending practices. Yunus then provided them with loans out of his own pocket. The sum total of his investment was the equivalent of 27 U.S. dollars. This modest experiment succeeded in putting the women on a self-sustaining cycle of business growth, lifting them out of poverty. It was also an epiphany for Yunus, who realized that tiny loans could make a huge difference in the lives of people trying to eke out a livelihood with small business ventures.
Against the advice of banks and government, who uniformly wrote off such people as unacceptable credit risks, Yunus started giving out microloans and in 1983 formed the Grameen (“village”) Bank, based on principles of trust and solidarity. Because women (far more than men) could be counted on to invest the loans in business and repay them on schedule, they became the overwhelming participants in Grameen Bank, where they receive 97 percent of all credit. According to its Web site, Grameen today has some 2,468 branches in Bangladesh, with a staff of 24,703 people serving 7.34 million borrowers from 80,257 villages. Grameen’s methods are applied in 58 countries — including the United States. And Yunus’s belief that women could be trusted to repay the loans was fully vindicated: Default rates for Grameen Bank (2 percent) are lower than for any other banking system.
In this interview from December 2007, UCSB Professor Richard Appelbaum (Sociology and Global & International Studies) and Professor Yunus discuss the origins and reasons for the success of the Grameen Bank, as well as Yunus’s call (in his latest book, Creating a World Without Poverty) for the creation of “social businesses” where profits would go not to investors but for poverty reduction.
Professor Yunus will give a free public lecture, Creating a World Without Poverty: How Social Business Can Transform Our Lives, on Wednesday, January 16, at the Arlington Theatre.
Your current work — which envisions eliminating world poverty through the creation of what you call “social business” — builds on the foundation of Grameen Bank, which you founded some 30 years ago. So let’s begin by talking a bit about Grameen, before moving to a discussion of this new form of business organization.