Muhammad Yunus is an economics professor in Bangladesh. He is also the creative mastermind behind a new banking trend called microcredit. Unlike traditional business loans, microcredit loans are tiny loans given to people in poverty to help them get on their feet with a small business. With no collateral, background check, or interest, it might surprise you to learn that most of the loans are repaid in a timely manner.
Until the microcredit concept was introduced, banks only loaned large amounts of money to privileged people starting major companies. These loans were charged interest and were subject to approval. Poor people had no chance in this market, but today they are able to get small loans, usually less than $1,000, to open businesses like roadside fruit stands.
Even now, traditional banks rarely or never offer these small loans to the poor, so Muhammad Yunus founded Grameen Bank. In 2006 he and the bank were jointly awarded the Nobel Peace Prize. The bank now has about 2,500 branches in rural Bangladesh serving 80,000 villages. The bank is 94% member-owned, and those members are people who have no land or less than an acre of land.
Most business owners worldwide are men, so of course most of the major loans are in a man’s name. Microcredit is different. About 96% of loans are made to women. Women in poor countries traditionally oversee basic needs such as food and clothing, so of course the businesses started are things like food stands and clothing stores.
Muhammad Yunus made his first personal loan in 1974. At that time, there was a famine in Bangladesh. People were struggling and turning to loan sharks. As a professor of economics, Yunus saw that the real world isn’t anything like the theories taught in a classroom. He wanted to help these poor people dig themselves out of poverty.
It was amazing to Yunus to find just how little money was needed to turn someone’s life around. His first loan was to a group of 42 women who together were only $27 in debt to loan sharks. With the $27 he gave them, they were able to rebuild their lives and eventually pay back the interest-free loan. When Muhammad Yunus approached banks about his idea to help more people, he was denied.
The microcredit idea was born and the Grameen Bank was founded because of one man’s passion to help others. Little things are sometimes more powerful than one could ever imagine. Muhammad Yunus believes everyone is bankable and that credit should be a right for all, not just the privileged.
Microcredit banks are the opposite of traditional banks in so many ways, yet the repayment rate is still almost 100%, even when disasters like floods or earthquakes happen. There is no need for lawyers or collateral. Payments are made by honest people working hard to change their lives and the lives of their community.