The Village Bank & 27 Dollars

B y S i n g u l a r N e w m a n

This article will focus on the historical contributions of the micro credit revolutions and the genius of a certain genial economist.

Mohammad Yunus1) is the ideological and entrepreneurial, genial spirit behind Grameen Bank. The word Grameen literally means ‘of the village’ in the local dialect. The project started out in Bangladesh. The state of Bangladesh was formed in 19722), separating itself from Pakistan amid violence and tensions that contributed to the suffering and impoverished population.

Professor Yunus holds a degree in economics from the University of Colorado and Vanderbilt University as well. He was also a Fulbright scholarship winner, a very important distinction to be paid close attention here. Had Professor Yunus not been awarded this scholarship at the time, offered by a charitable philanthropic organization, the world would have suffered a great loss. It is a thought worth contemplating for we shall see, in the following pages, the world wide scale change, a man’s dream backed up by 27 dollars can accomplish. I find it revolutionary, fascinating and unbelievable. However, this world is way overdue a few unbelievably good things and fortunately this is one of them.

In 1971 Professor Mohammad Yunus decides to move back to the newly formed state of Bangladesh and starts work, as an economics professor at Chittagog University3). While there he is exposed to the complex dilemma, faced by the large country’s numerous and extremely poor population. The soul crushing cycle of endless generational poverty seemingly self-perpetuating, creating a vicious cycle that feeds itself with the lives and souls of all those caught by its generational claws of despair. Yes, being poor is a burden upon humanity in my opinion and it effects all of us. When one man is a slave none are free it is said, and I say the same can be applied to these people. When millions are poor, no man can be truly rich.

I believe Professor Yunus saw that these people were too weak to help themselves, and too broken to be of any worth to, well to pretty much anyone, especially to the global banking elites and Wall Street investment bankers. As well the problem of poverty is a rather large problem, affecting billions of people on this planet. It is a problem as old as the world, as Jesus Christ remarked once in John 12:84), “For the poor always ye have with you; but me ye have not always”.

At the most basic level, the problem of poverty is easily explained. Most people that are very poor, have arrived at this state by outside intervention, for example being born in a slum city, being orphaned young, abandoned, illness or injury, basically all outside factors. Since the problem was caused by outside factors a majority of the time, the solution and help line will need to come from the outside as well.

Here I go with cliches again, “give a man a fish, feed him for one day, teach a man to fish, (and give him a loan for a fishing rod) and you have helped him to help himself, in the process feeding himself a whole lifetime and most often not only himself but his wife, children and hopefully even the neighbors. The extremely poor need sustained help. By that I am saying that the poorest of all need to be helped systematically. The solution to solving sustained poverty is a systemically sustained kinetic apparatus. Help that multiplies becoming catalytic is needed. Just as poverty multiplies affecting all of the people around, help for the poor should function the same way, except in the opposite direction, gain, acquire, build, add, grow and multiply. In turn, those that are being helped can and will most likely help and build up those around them, the people who need it most, fostering the creation of a mutually positive enterprise.

I give professor Yunus the credit for being a great psychologist as well as a good judge of human character. His ideas are rather revolutionary in terms of the current business lending practices. As a matter of fact, I believe this very system of loans, interest and credit, is what determined the stellar economics Professor to lead a trail blazing pat in a new direction.

The most important factor in all this is theory, followed by perfect practice of course. The underlying principle behind Grameen bank’s philosophy can be described by the idea that the most important aspect of business is relational, not numerical. Working with people, not just numbers and percentages, first help the man than help his bank account. Obviously you are helping both when investing in human capital, genuinely and strategically. Delving deeper to the root cause of this systemic problem, it was discovered that the cycle of poverty was accommodated mostly by the policies of the banks and their corrupt middle man. When lending to the extremely poor, the banks charged outrageous interest rates defending themselves by pointing to the lack of collateral which was obviously non-existent. Sometimes the rates were as high as 10% a week!

Struggling to make a return of investment on the loan, of barely 2 cents per day, the group identified and studied in the pilot project by Professor Yunus and his students was caught up in an endless loan, interest, debt cycle. It was and still is a completely useless, erroneous, biased and mostly unfruitful system, seemingly designed to keep poor people poor forever.

A group of 42 villagers were identified. These people only needed a combined 27 dollars in order to pay off their debts and together go into business for themselves. Various traditional baking institutions were asked to participate. In the end, Janata Bank5) reluctantly agreed and only after the Professor cosigned for the loan as a guarantor. The Grameen Project was started in January of 1977.

This 27 dollar seed gave life to a money tree, that today, 34 years later, literally stretches its branches around the world, budding with good will and helping to reshape our vision, while creating better relationships, more understanding and finally less poverty, destruction, pain and misery.

What I liked most about the Yunus plan is the strategy of accountability he came up with. The idea was to cluster the loans into groups of five, having the five members become collectively responsible for each individual loan. On top of that 5% of each loan would be accumulated into a group fund that served as insurance for the loan. The loans were termed at one year and the repayment schedule was daily, making large lump sum monthly repayments, easier to cope with since the villagers would repay minute amounts daily. This was soon changed to a weekly schedule as the accounting load presented multiple challenges, (this was as well before the age of the computer).

The system worked and it worked marvelously. The rate of repayment was an unheard of 97%. The group strategy as well helped Grameen6), enter the world of women, most often taboo in the Muslim religion. The Sharia7) and Purdah8) Islamic laws banned women from conducting business alone and outside the home but as a group it was perceived as mostly acceptable. Women were encouraged to start home based businesses. This in turn proved to become an advantage for Grameen as it was established statistically than women as a group were far better at managing investment loans than their male counterparts who are notoriously prone to selfish expenditures supposedly. The Grameen project functioned through the Janata Bank for another year and became very successful. In 1978 it signed an agreement with the Bangladesh Agricultural Investment Bank. The program had less than five hundred clients at this time. A short year later, the program was expanded by the Central Bank of Bangladesh throughout 25 branches. By 1981 Grameen had loaned in excess of 13 million dollars. In 1982 Grameen loaned close to double that amount, 23.9 million dollars and expanded to over 28000 members.

Using my excellent math skills, I can deduct that Professor Mohammad Yunus invested 27$ in January of 1977. By 1982 his investment had turned into 24 million dollars in cash. That is a rate of return of eight hundred and eighty eight thousand eight hundred and eighty eight percent. Divide that by 5 years and the money invested rose at an unbelievable, (here is that word again) one hundred and seventy seven thousand, seven hundred and seventy seven percent yearly! For those slightly dyslexic like me, that’s 177,777%! That’s what investing in human capital yields these days. World Bank, pay attention or your days are numbered short.

The program was up scaled nationally, to five regional districts, financed through the Central Bank of Bangladesh as well as a generous loan of 3.4 million dollars from the International Fund for Agricultural Development. Grameen was able to borrow money at 2% and return a profit of 10 to 12% annually while charging borrowers 20% a year. Following its immense success, by 1983 Grameen Bank becomes independent, maintaining Yunus as the managing director. Initially the government of Bangladesh owned a 60% share of assets. This number was gradually reduced to 25% and by 1993, over 88% of Grameen bank was actually owned by its clients, unbelievable!

The list goes on and on and many volumes can, and will be written about this case. As of last year Grameen Bank had 7.4 million borrowers, of which 98% were women. This man has done more for women than any other man in history seemingly, and this while in an Islamic society that treats women as second class humans and in some areas as subhuman! Grameen would go on to extend credit for house and shelter construction, business, farming and agriculture, cell phones (my favorite program) and higher education, providing over 50,000 scholarships. Students would simply sign a promissory note saying that once they entered professional careers they would repay back the loans. That fact alone in my opinion makes this a successful project.

Let’s imagine if just 1% of these students follow the path set forth by professor Yunus and become world changers of their own. In 1997 women outnumbered the men voters in Bangladeshi elections, a historic fact. Not only in voting numbers, but actually running for political positions, something unheard of before. As a matter of fact, Grameen Bank makes sure that all members of the family vote in all national elections. This is a direct measurable result that the availability of micro-credit9) loans has had on the society as a whole. There are many other factors that can be measured but basically, at the core the idea is to build trust, communication and partnerships between people, creating accountability between peers, forming bonds of respect and friendship between neighbors and communities. It is about investing in people capital, by allowing the unhindered flow of information technology and micro-credit10), to empower people to help themselves, to lift each other out of poverty and slowly but surely, to build a better future.

Building on its success, of which there is a cubic mile, the space for which is not to be fond here, The MacArthur Foundation11) funded Grameen Trust12) in 1984, which was entrusted with the replication of the model in other impoverished countries such as Brazil, Malaysia and the Philippines. In 1999, the Soros Economic Development Fund13) gave Grameen Telecom14) a 10 million dollar loan with the goal to equip 50,000 rural towns with phones. This is what catalytic philanthropy is all about.

And this is what it’s all about, people and ideas from all over the world, joining together with one goal. The world is finally taking notice. This is phenomenal and I am awed, silenced and amazed by what this type of philanthropy can accomplish and as well by what a single man with a dream has accomplished. He transformed millions with fives and today the book of economics is quickly and decisively being re-written, autographed in a great part by the Nobel Prize winning, Professor Mohammad Yunus.

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