The Bank That Trusted the Poor

A young woman sat on the floor of her mud house in the village of Jobra, weaving a bamboo stool. Her fingers moved quickly. It was the work she did every day.

The economics professor who had come to see her asked how much she earned. The answer startled him. After paying back the trader who lent her money for bamboo, and who then bought her stools at a price he chose, she was left with only a few pennies a day.

Her name was Sufiya Begum. She was not poor because she was lazy. She was poor because the only person who would lend to her also decided what her work was worth.

Lessons that meant nothing

Muhammad Yunus was born in 1940 in Chittagong, in what is now Bangladesh, the son of a jeweller. He won a Fulbright scholarship to study in the United States, earned a doctorate in economics at Vanderbilt University, and taught in America for some years.

After Bangladesh became independent in 1971, he went home. He became head of the economics department at Chittagong University.

In 1974 a terrible famine struck Bangladesh. Hungry people came in from the countryside, too weak even to beg. Yunus later wrote that the elegant theories he taught in the classroom seemed to have nothing to say to the hunger outside.

So he began walking into Jobra, the village beside the university, to learn how poor people there actually lived.

Forty-two names

After meeting Sufiya Begum, Yunus asked a student to help him make a list of everyone in Jobra who was trapped in the same way, borrowing small sums from traders and moneylenders on harsh terms.

The list had forty-two names. When he added up what they all needed, the total was 856 taka, about 27 US dollars.

He was shocked that so little money could hold so many people down. He lent them the money from his own pocket, so that they could pay off the moneylenders and sell their work at a fair price. He told them to repay him whenever they could.

They paid him back, every one.

No bank would do it

Yunus thought the answer was obvious: the banks should lend to people like these. He went to a bank and was told that the poor could not be trusted. They had no land or property to offer as security, and many could not read or fill in forms.

In the end he offered himself as guarantor, signing for each loan. The bank agreed, still expecting failure. The borrowers repaid.

The bankers said it would not work in another village. He tried it in other villages, and then across a whole district, and it worked there too. Grameen means "of the village" in Bengali, and the work became known as the Grameen Bank project. In 1983 it became an independent bank of its own.

Small groups, large trust

The Grameen way had a few simple rules. Borrowers did not need to offer any security. They joined small groups of five, met regularly, and repaid in small weekly amounts. Members supported one another, and each person's good record helped the others to borrow.

Most of the borrowers were women. Yunus found that money lent to women more often went into children's food, schooling and the home. In time, the borrowers came to own most of the bank's shares.

It was not easy. Some religious leaders and village elders opposed women borrowing money and earning outside the home. Some husbands objected. Many women had never handled money of their own. Grameen's workers went from village to village, and slowly, the women came.

A prize for the village

The idea of small loans for the poor, often called microcredit, spread to many countries. In 2006 the Nobel Peace Prize was awarded jointly to Muhammad Yunus and the Grameen Bank, for their efforts to create economic and social development from below.

Microcredit has had its critics too. Later studies found that small loans alone do not lift everyone out of poverty, and some lenders elsewhere charged high interest and pushed people deeper into debt. The debate goes on.

But in Jobra the beginning was simple. A professor listened to a woman weaving a stool, and asked why she stayed poor. Then he trusted forty-two people with twenty-seven dollars, and they kept their word.

Want to read more?

Muhammad Yunus tells the story of Jobra and the Grameen Bank in his memoir Banker to the Poor, written with Alan Jolis. The Nobel Prize website has the 2006 Peace Prize announcement and Yunus's Nobel lecture.