Customer Reviews

Banker To The Poor: Micro-Lending and the Battle Against World Poverty

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In the 1970s Professor Mohammed Yunus had a great idea on how to help the poor of Bangladesh and he made it work. He invented micro-credit, or lending very small amounts to the poorest of the poor, without asking for collateral. This, rather than simple handouts, would help the poor become self-reliant enough so that they could lift themselves out of poverty. He concentrated on women. He relied on peer support to motivate repayment of the loans by making loans to one member of a group of women who would have access to credit only if the entire group had a good credit record (when a group started, they were assumed to have good credit). Professor Yunus's organization, the Grameen Bank, is a cooperative owned mostly by its members and boasts a repayment rate over 98%.

In the 30 years since Professor Yunus's first loan of 27 dollars, Grameen has now lent out billions to millions. It has liberated women in small villages, it has brought capitalist market mechanisms to the economic bottom 2% of the world population.

This first hand account by the American-educated Bangledeshi founder of Grameen Bank might not win any literary prize and it might end with a (I think) slightly naive vision of social work, but it effectively presents a simple story about a practical man who has made millions of the world's poorest people significantly better off.

If you know the story of Grameen Bank, and wanted to know more about the founder - I don't need to say anymore.

If you haven't heard of Grameen, prepare yourself to learn about a bank which has overturned the conventional wisdom about helping people who live in poverty.

Yunus' big idea can be put very simply: people who live on less than $1 per day (3 billion people) don't need to be tought how to feed themselves and survive - the very fact that they are alive is testament to their abilities.

His approach rests upon that faith in people's ability to help themselves, if given access to the very small amounts of loan capital they need to start a profitable venture - whether that is weaving cloth or repairing bicycles.

The road to reaching more than 2 million people in Bangladesh, and many other millions worldwide, wasn't smooth. What you get from reading this book is a sense that sometimes the 'homegrown' solution beats the 'imposed' ideas from the developed world.

A challenging book for liberals and conservatives alike!

The story of the Grameen bank is an excellent example of how social change initiatives can be combined with government and private industry support to acheive a greater outcome than the organization could acheive by itself. Yunus provides an excellent chronicle of his bank's formation as well as explaining its principles. Highly recommended for anyone interested in social entrepreneurship or social change. The only shortcomings are: 1) as a finance person, I would like to have read more about the operational side of the banks relative to their commercial competitors - what specific factors enabled them to be so successful (other than the broad social factors he identifies)? 2) Need more information about how these types of programs can be applied to industrialized nations such as the US.

Founded in Bangladesh by Muhammad Yunus in 1976, the Grameen Bank is one of the most successful attempts ever to employ capitalist principles to achieve social goals. By approaching poverty from a different tact, Grameen seeks to reconcile the inequalities inherent in capitalism by mobilizing the "informal sector" of society-the self-employed poor. By addressing the root cause of poverty (i.e. lack of access to capital) Yunus has succeeded where many others have failed. Often, well-intentioned governments fail to solve the issue of poverty because of "misguided development" policies and bloated bureaucracies. Similarly, many international financial institutions, such as the World Bank, have failed because their heavy-handed top-down approach excludes those most in need of aid. Yunus writes, "I have always believed that the elimination of poverty from the world is a matter of will" (248). Grameen succeeds where others fail because they appeal to the most downtrodden, the poorest of the poor-the bottom 50% of those already below the poverty line.

A precocious child and avid reader-especially of comicbooks-Yunus was one of fourteen children born to devout Muslim parents. The family lived on the second floor located above the jewelry store that his father owned and operated in Chittagong, the largest port-city in Bangladesh. His mother, despite her later mental illness, instilled a sense of charity early on in her son that would last a lifetime. While the seeds of the Grameen Bank were planted when Yunus was a child, they were certainly nurtured while studying under the tutelage of professor Nicholas Georgescu-Roegen in America. Yunus left to attend Vanderbilt University as a Fulbright scholar in 1965 after opening a successful packaging business in Bangladesh. The professor encouraged Yunus to question traditional economic theory, and to adopt a more pragmatic and social perspective. These influences resurfaced when Yunus returned to Bangladesh in 1972 to chair the economics department at Chittagong University.

Yunus experienced an epiphany one day while lecturing to his students. Amidst his moribund surroundings, Yunus became compelled to confront the obvious incongruence between the high theory he was espousing and the omnipresent reality of daily-life, "What good were all my complex theories when people were dying of starvation on the sidewalks and porches across from my lecture hall? Nothing in the economic theories I taught reflected the life around me" (viii). Yunus at once realized that he had an obligation as both a Bengali and a college professor to help alleviate the rampant starvation that wracked Bangladesh at the time.

After much contemplation Yunus decided that the best way to improve the material condition of the poor was to offer them a hand-up, rather than a handout. Yunus concluded that the poor were quite capable of prospering if only they were given the credit necessary to break out of poverty. He writes:

"But if you go out into the real world, you cannot miss seeing that the poor are poor not because they are untrained or illiterate but because they cannot retain the returns of their labor. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty (141)."

The limited access to capital kept the poorest of the poor enslaved to usurious rates charged by moneylenders whose strict terms affected the ability of the poor to ever repay. However, the very fact that the poor had managed somehow to survive is proof-positive that they too could become successful entrepreneurs if given the opportunity. With access to capital the poor can compete and retain control over profits.

In fulfilling its promise to raise the rural poor out of poverty Grameen has expanded its original income-generating loans to now include housing and education loans. The interest rates for each of the aforementioned loans are calculated based on simple interest and are 20%, 8%, and 5%, respectively. Proof of the strength of the Grameen project lies in its 98% recovery rate. Yunus attributes this success to making 95% of its loans to women. He believes that women are more likely to share the benefits of the opportunity with their family than are men. Unfortunately, this approach continues to meet strong opposition from conservative forces that view Grameen as a threat to their religious and traditional values. Nonetheless, the passion and commitment shared by villagers over the opportunity offered by Grameen eventually overcomes all local resistance.

The program requires a group of five to operate. As required by Grameen, an interested borrower must first pass an exam and also enlist others by explaining the program to them. Once they form a group, a chairman and secretary are elected. Then, two of its members requests a loan, typically for $25 each. Grameen encourages these groups to deposit 5% of each loan in a group-fund that can later be loaned out to members interest-free. After six weeks of successful repayment two more members may request a loan. Yunus writes:

"This is the beginning for almost every Grameen borrower. All her life she has been told that she is no good, that she brings only misery to her family, and that they cannot afford to pay her dowry. Many times she hears her mother or her father tell her she should have been killed at birth, aborted, or starved. But today, for the first time in her life, an institution has trusted her with a great sum of money. She promises that she will never let down the institution or herself. She will struggle to make sure that every penny is paid back (65)."

Despite all the good accomplished by Grameen, its micro-credit program represents only one element of a multi-pronged strategy needed to one day eradicate poverty from the surface of the earth, relegating it once and for all as an artifact of an unenlightened past.

Yunus envisions a more comprehensive program that would expand the notion of economic development to include "improving the general standard of living, reducing poverty, creating dignified employment opportunities, and reducing inequality" (72). He argues that the goal of such development should be measured by a new set of objective criteria, such as the "per capita income of the bottom 50% of the population" (146). The efforts of Grameen and others committed to fighting poverty culminated in the first ever "Micro-credit Summit of 1997" co-chaired by Hillary Clinton. Yunus believes that future success will require a new breed of "social entrepreneurs" who are driven by social goals rather than maximizing profit. The Grameen Bank's success has created an abundance of opportunities for social entrepreneurs to serve the needs of this emerging market.

Despite its demonstrated successes, Grameen still suffers attacks from its critics. Undeterred, Yunus embraces this criticism, "innovation can only sprout in an atmosphere of tolerance, diversity, and curiosity" (102). Pejoratively referred to by some as "poverty banking," Grameen has proven that its success is no fluke. Since making its first micro-loan of $27 to a Bengali basket weaver the Grameen Bank has grown to over 11,000 employees committed to ending world poverty. Grameen now operates in nearly 100 countries, originating over $4 billion in loans made to approximately 2.6 million borrowers worldwide. Much like its founder, Grameen continues to grow and meet the constantly evolving needs of its borrowers.

Muhammed Yunus has worked tirelessly for the poorest of the poor. He has developed an enormously exciting new model for economic and social empowerment. He has expanded it to serve millions of people and give out billions of dollars in loans. His story is thrilling, even inspiring. How in the world can you criticize someone like that?

Well, here's how.

First and most importantly, you can scour through Banker to the Poor and not find anything concrete about whether the Grameen Bank and all of its allied institutions have actually reduced poverty.

In the middle of the book, Yunus says that he wants outside independent auditors to look at the outcomes for Grameen borrowers. I believe him, but the man has been in business for more than 30 years now; it would be nice to have SOME indicator of effectiveness. Moreover, when he discusses the "star" system, whereby individual Grameen branches apply for recognition for outstanding performance, he notes almost in passing that only 21 of more than 1,100 branches have even applied for the "brown star," which is awarded if 100% of the borrowers have escaped poverty. Maybe none of them even received it. Now, 100% is a very tall order and it's not the best indicator. But it is the ONLY one that Yunus offers in the entire book.

Think about the scale of Grameen: it has delivered more than $4 billion in loans since it was founded. That sounds impressive until you realize that Bangladesh has more than 120 million people, about 40% of the size of the United States. $4 billion isn't even a drop in the bucket on that scale.

And yes, Grameen borrowers have a superb record of repayment. But they also paid back the brutally unfair loans that they got from rapacious middlemen before Yunus stepped it for precisely the reason that Yunus explains: they have no other choice. So we still don't know anything about outcomes.

This critique is necessary because Yunus makes some quite extravagant claims in the book, e.g. the government should get out of the business of social service, health care, and education provision altogether. Can the free market provide such things for the poor? Of course not, Yunus says: that's why he needed to start Grameen in the first place. He then proposes a rather hazy notion of "socially conscious entrepreneurs" that will fill the gap, and insists that this sector -- which really has yet to exist anywhere -- can do it. What structures will ensure this? How can the proper incentives be provided? How would these entrepreneurial ventures look any different from the traditional nonprofit sector? Yunus doesn't tell us.

In fact, although Banker to the Poor gives a decent enough overall narrative of Grameen and its founder, it tells us precious little about the model, how it works, and why it is successful. We get a few nuggets: one key innovation appears to be giving loans to small groups of borrowers, who essentially monitor each other. This seems to have been an ingenious idea. He does discuss how dedicated his staff is, and -- to his great credit -- he names many of the important staffers and how they contributed to the organization. But his account of why such talented people work for Grameen, how he is able to retain them, and whether such staff can be found in other places and at a sufficient scale, is not explained.

My suspicion got piqued when I realized that no one seems to have been able to replicate his model on the scale he has in Bangladesh -- or at least none that he discusses. He does talk about replications, but they seem to be small and not really making a dent.

And I confess to a certain amount of annoyance as to the style of the book: the intrepid advocate Yunus battles intransigent bureaucrats, lazy bankers, arrogant development agencies (who, like the World Bank, nevertheless have funded him lavishly since the early 90's). He even relates the exact words of the exact conversations. This tone is heightened by an overheated performance by Ray Porter in the unabridged audio edition.

This surfeit of heat over light really comes through when Yunus argues that credit should be a "human right." But he simultaneously says that Grameen only wants highly motivated and energized borrowers, who will work and commit to making their businesses become successful. There are lots of people like that, and lots of people NOT like that. What about those borrowers who are not as highly motivated and responsible? Do they have the right to credit, too? Yunus wants to end world poverty, and more power to him: but at the fundamental level, in this book he doesn't really seem to have thought through the most important implications of his argument.

If you know next to nothing about micro-finance, as I did before reading this book, it's worth it. Yunus seems to have done a great deal of good; smart, committed, effective people and organizations support him. It makes a good deal of sense and it's not as if anyone else has the magic bullet. It would just be nice to know exactly what he has done and how he has done it. I'm looking forward to reading his next book and finding out the substance, because Banker to the Poor certainly doesn't provide it.

One of the more fascinating life histories I've read in a long time, Muhammad Yunus' autobiography enlightens more than entertains. And what enlightenment!

Born in 1940 in British-ruled India, Yunus recounts India's and his native East Pakistan's independence through the eyes of the seven-year-old he was. Replete with juvenile impressions of contemporary political and religious prejudices with their accompanying tensions, Yunus' account of independence and partition of the Indian subcontinent opened my eyes to a much different view of that history than I had ever read in adult-centric volumes.

The watershed event for Muhammad Yunus was Bangladesh's 1974 famine that killed thousands. As a faculty member of Chittagong University, he petitioned government to wake up and do something. Instead of waiting for a bureaucracy to emerge, though, he began to organize farming projects and sought other ways to alleviate suffering.

By 1976, Yunus had stumbled onto micro-lending. Realizing that local stool makers were not much more than slave laborers due their complete and total dependence on wholesalers for both daily credit for raw materials and a monopolistic market over which they had no price control, Yunus broke the cycle by lending 42 stoolmakers the total equivalent of US$27 from his own pocket.

From those unplanned and humble beginnings, the Grameen Bank was founded by an economics professor who had no intention of becoming a banker-much less a banker to the poor.

Today, Grameen Bank ("grameen" is an adjective meaning "village" or "rural" in the Bangla language) serves over two million micro-borrowers in nearly 40,000 Bangladeshi villages. It leads the way as a model for similar micro-lending movements in dozens of other countries, including the United States.

Professor Yunus' vision of eliminating poverty (defined as a situation where one cannot provide for his/her own basic needs) by 2050 is a challenge for our generation. Are we up to the task? I believe I know the answer. After reading Banker to the Poor, you can also know.

If you are interested in microfinance, this book is a prerequisite. Dr. Yunus gives a historical account of the rise of micro-credit and the Grameen Bank. Of course, he is also the biggest advocate of the program. Therefore, most of his arguments are pro-expansion of micro-credit. In spite of this, he manages to show a clear and compelling picture of the micro-finance industry. But, make sure you balance the information with other microfinance books that does not proselytize as much. A good example is "Beyond Micro-Credit" by Thomas Fisher.

This is the story of one man who extracted himself from economic theory long enough to see poverty in human terms, to trust in human beings, to form them into self-help units, to express that "trust" in economic terms and watch the seeds of faith grow into an international garden of success. In this garden today, grow the solutions to the world's most pressing problems. Now it is up to the rest of us to harvest crop.

A book that makes you look at the world from the right perspective. It deals with major economic problems and provides solutions based on true experience. It has the clarity and simplicity that comes from having put the ideas into practice and having achieved results. Refreshing and inspiring in a world where its quite difficult to judge what is true.

Mohd Yunus is a leading authority on micro-lending and poverty alleviation. The book chronicles a one man's struggle against fighting poverty against all odds. Very easy to read and focuses on the issues and events and not the individual. After reading this book I had to re-examine and change my existing misconceptions about poverty.