Academic journal article Social Education

Nobel Peace Laureate Muhammad Yunus: A Banker Who Believes Credit Is a Human Right

Academic journal article Social Education

Nobel Peace Laureate Muhammad Yunus: A Banker Who Believes Credit Is a Human Right

Article excerpt

Thirty-one percent of people living in East Asian countries survive on $1 to $2 per day, which is the very definition of extreme poverty, according to the 2006 World Development Indicators. (1) In Bangladesh, birthplace of Nobel Peace Laureate Muhammad Yunus, 49.8 percent of people exist below the poverty line. (2) Of all women in the country, 73.2 percent are categorized as "unpaid family workers." (3) These individuals may not have the financial resources to adequately care for their children or the ability to contribute to household income and stability. Both in Bangladesh and throughout the world, "[f]ew women have access to credit markets, capital, land, training, and education, which may be required to start up a business." (4) Without adequate funds to meet daily needs, there is no opportunity to invest funds in long-term approaches for creating financial security.


Logic dictates that financial institutions do not generally invest in individuals, families, or community groups who have no prior credit history, no collateral with which to secure loans, and little experience in running a business. But one man thought differently--Muhammad Yunus. He began what would become a worldwide phenomenon of lending small amounts of money to the poorest of individuals, to help them achieve long-term financial security.

One Person's Approach to Addressing Poverty

In 1976, as an economics professor at the University of Chittagong in Bangladesh, Muhammad Yunus decided to explore a new kind of banking system, one which would support the poorest individuals in an attempt to change their financial circumstances. (5) He lent $26 of his own money to a woman making bamboo furniture, and then lent additional money to other villagers in Jobra. (6) Yunus was seeking to liberate his borrowers from "loan-sharks," who charged excessive interest and kept borrowers in a cycle of permanent debt.

This new idea of "micro-credit" involved providing small loans of money to individuals or groups, given on personal trust. Clients are generally unable to provide collateral or security for amounts as little as $10. Borrowers use this money to start their own small businesses, purchase raw materials for an existing business, or pay off high-interest debts. The lending approach requires only a personal guarantee from its borrowers, and its loans are interest-free.

Yunus's initial experiments were a success: the impoverished borrowers paid back their loans on time and did not default. From this first group of borrowers, Yunus expanded his lending to neighboring villages. In 1979, he approached the central bank of Bangladesh and extended the project to other districts. In 1983, Grameen Bank was established as an independent institution, taking its name from grameen, the Bangla word for village or rural area. (7)

Today, Grameen Bank has 6.74 million clients and provides all kinds of financial services to the poor. (8) Its borrowers own 90 percent of the bank's shares. Women constitute 96 percent of Grameen's borrowers, and repayment rates have reached 97 percent. Grameen Bank has branches providing services in more than 72,000 villages in Bangladesh, covering more than 86 percent of all villages in the country. (9)

Research indicates that the average household income of Grameen Bank members is approximately 50 percent higher than comparable groups in non-Grameen supported villages. (10) Grameen's micro-lending approach has resulted in a sharp reduction of the numbers of individuals living below the poverty line, from 50 percent down to 20 percent.

Access to Credit as a Human Right

In 2003, Grameen Bank launched a new initiative, targeted at the neediest of Bangladesh's poor--individuals who engage in begging activities to survive on a daily basis. (11) Today, 81,000 of Grameen Bank's clients are street beggars, called "struggling members," who utilize the bank's financial and health insurance services. …

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