Tiny Loans Are Making A Huge Difference for Some of the World’s Poorest Peoples

Listener: 6 January, 2007.

Keywords: Growth & Innovation; Macroeconomics & Money;

The Nobel Memorial Prize in economics was founded by the Bank of Sweden in 1979. Economists have only been tangentially involved in Alfred Nobel’s much older awards for achievements which benefit mankind.. Most notably for New Zealand, the 1965 Nobel Peace Prize was awarded to UNICEF. Because Bill Sutch was instrumental in ensuring the UN agency’s permanence from 1949, diplomat Benedict Alpers wrote ‘the award must record somewhere (however small the print) the names of W.B. Sutch and New Zealand as joint recipients.’

But the 2006 Peace Prize was directly awarded to Bangladeshi economist Muhammad Yunus and the Grameen Bank (www.grameen.org) which he founded. The bank empowers the rural poor (‘grameen’ means ‘village’) by providing them with ‘micro-credit’ at low interest rates instead of usurious ones.

Bangladesh, with a population of 145 million, is the world’s poorest large economy. Bangladeshis earn in a year what we earn in three weeks. The average $250 advance of the Bank may seem trivial to us, but it is lot to their poor.

Extraordinarily, 97 percent of the 6.5 million borrowers are women, who are the poorest in most of the world. They use the money for many things: from making their homes more inhabitable to going into small business. Despite there being no guarantees, references and legal documents, 99 percent of the loans are repaid. The village enforces the repayment defying banker’s conventional wisdom. You are going to make sure your neighbour repays if you do.

Grameen has extended its scope. Your Trade Aid shop may stock some of its products; its rural telephone program has provided mobile phones to nine million subscribers without access to landlines; it has installed solar panels in 80,000 homes and provided interest-free loans to 45,0000 beggars.

Other countries have implemented similar micro-credit schemes for their poor. Grameen works because the poor lack any collateral, other than their good faith, to invest in high return projects. (Inspired by Yunis, Bill and Hillary Clinton initiated the Arkansas Good Faith Fund.)

The biography of economists’ first full peace prize Banker to the Poor shows a charming, thoughtful, shrewd man, impatient with bureaucracy and inventive at finding ways around it. Totally committed to women’s needs, he is a feminist, if one may apply the term to a man. The book is good read for all, and a must-read for economists, reminding us that our theories have to be applied with sensitivity to culture and institutions.

Below are the 16 decisions of Grameen Bank which show how Bangladeshi’s poor lead so different lives from our own. Even so, their bank gives them the possibility of leading decent and dignified lives, with opportunities for their children. UNICEF would applaud.

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The 16 Decisions of the Grameen Bank

1. We shall follow and advance the four principles of Grameen Bank – Discipline, Unity, Courage and Hard work in all walks of our lives.

2. Prosperity we shall bring to our families.

3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.

4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.

5. During the plantation seasons, we shall plant as many seedlings as possible.

6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.

7. We shall educate our children and ensure that they can earn to pay for their education.

8. We shall always keep our children and the environment clean.

9. We shall build and use pit-latrines.

10. We shall drink water from tubewells. If it is not available, we shall boil water or use alum.

11. We shall not take any dowry at our sons’ weddings, neither shall we give any dowry at our daughters wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage.

12. We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.

13. We shall collectively undertake bigger investments for higher incomes.

14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.

15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline.

16. We shall take part in all social activities collectively.