"Poverty is the absence of all human rights" -- Muhammad Yunus

"At the most basic level, the key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development. The ladder of development hovers overhead, and the poorest of the poor are stuck beneath it. They lack the minimum amount of capital necessary to get a foothold, and therefore need a boost up to the first rung" -- Jeffery Sacks

The poor are not creditworthy. This is not a shocking claim. Many members of well-to-do democratic societies understand it at an almost intrinsic level. It implies that being poor shows that you have not accepted the personal responsibility to correct your situation, that you cannot be trusted. The poor are different, apart from our comfortable selves. Being poor is a sign of moral weakness, of 'indolence and profligacy' (viewpoints, 86), all traits counter to creditworthiness.

What is creditworthy, though? Merriam Webster defines it as 'financially sound enough to justify the extension of credit'. In purely financial terms, it is someone worthy of investing in. We judge worth in investment by past track records. Is your credit history good? Do you have a loan you paid off? Do you own your house? Then, after proving our past history, we frequently need to go a step further and trade off our current equity for a temporary loan, we may need to put up the deed to our house for that small business loan. Lucky thing for us that we have such collateral. But what of those without? Are they really worthless? Is their past of beingpoor sufficient proof of failure of the first test of creditworthiness? What if the definition of creditworthy was 'need for credit' rather then 'a good investment'? If that were the definition of creditworthiness, then the poor are most creditworthy. Banks will not lend to them, though, and their only typical recourse is to apply to predatory lenders. Lenders so usurious that they make it nearly impossible to get out from under their thrall.

In 1974 Muhammad Yunus witnessed such an exchange and was moved to do something about it. He created the Grameen Bank and helped foster the use of microcredit on a global scale. Microfinance institutions have picked up were banks left off by providing credit to the poor and worthy rather then just the creditworthy. The Grameen Bank and institutions like it have helped increase the standard of living for entire nations by redefining the way people look at credit and worthiness.

Grameen claims over 98% return rates on loans. It does not require collateral or contract so how does it have such high rates of recovery? One of the hallmarks of the Grameen Bank is the idea of solidarity lending and social pressure. Solidarity lending is the process of creating 'solidarity groups' that receive a loan in total. Rather then lending to an individual and requiring proof of ability to pay (collateral or contracts), a group is given a loan. Initially only a few members receive a loan disbursement but upon the first members successful repayment the rest of the members received a disbursement. This reduces administrative overhead and streamlines the application and payment process. There is advantages for the banks as this can also distribute risk and distribution of risk usually results in reduction of risk. Additionally important to the Grameen structure of lending is the idea of social pressure and support. Grameen requires regular meetings of groups members, the adoption of certain lifestyle rules, and upfront communication of financial status. This has a twofold affect on the loan groups: creating a network to apply social pressure to help ensure loans are repaid (and thereby allowing the group to gain additional loans) and creating a network to help support the group members in asserting their individual rights in their pursuit of betterment.

The assertion of the need for basic human rights (and responsibilities) highlights one of the major differences between solidarity lending and other typical secured transaction lending (secured transactions are those involving collateral or contracts). The difference is that it is not just a desired side effect that the infusion of fund helps the community, it is a necessary requirement for solidarity lending. It also shows that money is not the only measure of creditworthiness. Typical secured transactions are backed by other forms of money. In essence, the only way to judge money is though money. Solidarity lending is not backed by any form of monetary transaction, its basis is on community. The stronger the community, the more secure the loan. Yunus talks of this as a social business, the sort of business whose goal is not to make money but to make a difference in the world.

Women are the majority lenders in Grameen and most other microcredit institutions. They account for 97% of all borrowers. Grameen Bank states that this is because giving loans to women brought about more benefits to the family. Outside of the Western World, it is an accepted practice. "Women are often responsible for the upbringing of the world's children and the poverty of the women generally results in the physical and social underdevelopment of their children. Experience shows that women are a good credit risk, and that women invest their income toward the well being of their families. At the same time, women themselves benefit from the higher social status they achieve within the home when they are able to provide income." (microcreditsummit) Women's labor accounts the majority of wealth generating tasks but the women themselves are frequently unpaid for the work. "Microfinance programs bring women into the cash economy, encourage the poor to develop entrepreneurial habits and skills, and sometimes help stimulate economic growth" (Explore 436). In a study of the impact of Microfinance (using the Grameen Bank in as an indicator) to see if it had affect outside of financial concerns, found the following 3 facts: participation in Grameen changed mean number of children per household and changed the strong parental preference for male children giving indication to an improvement status for female children; participants moved from being passive recipients of credit to active economic and social actors increasing self confidence and participation is non-economic activities; participants and the general community around them were more receptive to non-tradition opportunities that conflicted with existing values andcustoms. (Basher 182) The Grameen Bank literally codifies these desired outcomes though publishing of its 16 Decisions.

Muhammad Yunus was born in 1940, the third of nine children, in the village of Bathua in what was to become Bangladesh. His family moved to Chittagong while he was young. He enrolled in Dhaka University in 1957 and received his BA and MA in economics by 1961. He worked for the Bureau of Economics and as a lecturer for Chittagong College. He received a Fulbright scholarship in 1965 and obtained his Ph.D. in economics from Vanderbilt University. He worked briefly as an assistant professor of economics for Middle Tennessee State University before returning to Bangladesh, first as member of the governments Planning Commission, then as head of the Economics department at Chittagong University. In 1976, while working for Chittagong University, he was inspired by the awful economic conditions he observed in the village of Jobra (near Chittagong) to actions that would eventually result in the Grameen Bank. In 2006, Yunus and Grameen Bank received the Nobel Peace Prize.


The moment that started it for Yunus was observing the transactions between a money lender and Sufia Begum, an impoverished mother of 3 who made bamboo stools for a living in Jobra. In order to get the money for supplies (a total of $.09 needed per stool), Sufia took out a loan from the money lender who made a condition that she would sell all her products back to him for a value he would name. This value was far short of market value for the stools and resulted in a net profit of $.02 per stool for Begum. Yunus has stated on the event, "I thought to myself, my God, for [two cents] she has become a slave. ... I couldn't understand how she could be so poor when she was making such beautiful things." Yunus calculated that Begum was paying interest of 10% per day, totaling over 3000% a year and he knew that this was typical. It was a moment of focus, a Eureka moment as Yunus states. The next day he and his students surveyed Jobra and found 42 others that were dealing with similar circumstances. They totaled the amount lent out by the money lenders to be $27. Yunus decided to front the money himself. He gave out the loans with no collateral, no contracts, no expectations except that the money be used to better their circumstances and to try to pay him back. ( Explore, 445)

Grameen claims over 98% return rates on loans. It does not require collateral or contract so how does it have such high rates of recovery? One of the hallmarks of the Grameen Bank is the idea of solidarity lending and social pressure. Solidarity lending is the process of creating 'solidarity groups' that receive a loan in total. Rather then lending to an individual and requiring proof of ability to pay (collateral or contracts), a group is given a loan. Initially only a few members receive a loan disbursement but upon the first members successful repayment the rest of the members received a disbursement. This reduces administrative overhead and streamlines the application and payment process. There is advantages for the banks as this can also distribute risk and distribution of risk usually results in reduction of risk.

Additionally important to the Grameen structure of lending is the idea of social pressure and support. Grameen requires regular meetings of groups members, the adoption of certain lifestyle rules, and upfront communication of financial status. This has a twofold affect on the loan groups: creating a network to apply social pressure to help ensure loans are repaid (and thereby allowing the group to gain additional loans) and creating a network to help support the group members in asserting their individual rights in their pursuit of betterment. The assertion of the need for basic human rights (and responsibilities) highlights one of the major differences between solidarity lending and other typical secured transaction lending (secured transactions are those involving collateral or contracts). The difference is that it is not just a desired side effect that the infusion of fund helps the community, it is a necessary requirement for solidarity lending. It also shows that money is not the only measure of creditworthiness. Typical secured transactions are backed by other forms of money. In essence, the only way to judge money is though money. Solidarity lending is not backed by any form of monetary transaction, its basis is on community. The stronger the community, the more secure the loan. Yunus talks of this as a social business, the sort of business whose goal is not to make money but to make a difference in the world.

Women are the majority lenders in Grameen and most other microcredit institutions. They account for 97% of all borrowers. Grameen Bank states that this is because giving loans to women brought about more benefits to the family. Outside of the Western World, it is an accepted practice. "Women are often responsible for the upbringing of the world's children and the poverty of the women generally results in the physical and social underdevelopment of their children. Experience shows that women are a good credit risk, and that women invest their income toward the well being of their families. At the same time, women themselves benefit from the higher social status they achieve within the home when they are able to provide income." (microcreditsummit) Women's labor accounts the majority of wealth generating tasks but the women themselves are frequently unpaid for the work. "Microfinance programs bring women into the cash economy, encourage the poor to develop entrepreneurial habits and skills, and sometimes help stimulate economic growth" (Explore 436). In a study of the impact of Microfinance (using the Grameen Bank in as an indicator) to see if it had affect outside of financial concerns, found the following 3 facts: participation in Grameen changed mean number of children per household and changed the strong parental preference for male children giving indication to an improvement status for female children; participants moved from being passive recipients of credit to active economic and social actors increasing self confidence and participation is non-economic activities; participants and the general community around them were more receptive to non-tradition opportunities that conflicted with existing values and customs. (Basher 182) The Grameen Bank literally codifies these desired outcomes though publishing of its Sixteen Decisions.

The Nobel Prize:

In October of 2006, Yunus and Grameen Bank each accepted one half of the Nobel Peace Prize. In the presentation speech, Professor Ole Danbolt Mjøs states that "By means of this year's Peace Prize award, the Norwegian Nobel Committee wishes to focus attention on dialogue with the Muslim world, on the women's perspective, and on the fight against poverty." Later he continues, "Micro-credit has proved itself to be a liberating force in societies where women in particular have to struggle against repressive social and economic conditions. Economic growth and political democracy can not achieve their full potential unless the female half of humanity on earth contributes on an equal footing with the male." (nobelprize) By the awarding of the prize, the Nobel committee underscored the correlation between peace and a lack of poverty. Yunus and Grameen, after all have been award for the peace efforts, not their economic ones. In the citation given to the press the Nobel Committee stated that, "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty," and that, "Microcredit is one such means. Development from below also serves to advance democracy and human rights."

Criticisms:

Grameen is not without its criticisms. Even the awarding of the Nobel Prize contained the codicil (from Mjoes Q/A after prize presentation) "We are saying microcredit is an important contribution that cannot fix everything, but is a big help." Like all distributed delivery systems, there are issues with oversight. For all the heralding Grameen receives for its lending to women, men make up the majority of the bank employees and facilitators (one major exception being the telephone ladies of Grameen Phone, a separate but related agency that provide cell phones on credit to women who then charge fellow villagers for temporary use of service). There is an implication that women are the sole moral and financial guardians of the family which could lead to an increase of female responsibilities. The services of Grameen are tailored more towards advancement of the rural poor, opportunities for the urban poor are not as prevalent. The social pressures that make up part of the Grameen structure do not work as effectively in the more anonymous urban setting where the sense of community is sometimes dimmed by anonymity. It is possible for a good borrower to become stuck with bad repayers and thereby not be able to get any further loans unless they make some other arrangement to cover the costs together. There is a general expectation of being able to improve your situation that is not applicable to some of the neediest poor (to counter this assumption, Grameen started a 'beggars' program that has been inordinately successful but still does not address the issue of those physically incapable of helping themselves). Regular meetings can be a burden on family life and solidarity of a group can sometimes be difficult to maintain. Microcredit in general has been accused of being a substitute privatized welfare without the governmental oversight and that it weakens the structure of existing poverty programs. Grameen loan recipients are still vulnerable to natural disasters and catastrophes.
The criticisms against Grameen and microcredit are valid if there is an assumption that microcredit will replace all other existing poverty relief measures. This would be a mistake. Microcredit is not the end-all-be-all solution to poverty relief. It cannot replace government infrastructure improvements (which so closely tie into a countries developmental capacities). It cannot provide support it times of catastrophes (as witnessed by the great flood of 1998 that nearly decimated half of Bangladesh and nearly destroyed Grameen). It cannot take advantage of goal setting and long term planning. It cannot provide assistance to those physically unable to help themselves.

Finally!
Microcredit and the Grameen Bank have been lauded for the positive effect they have on the women and communities around them. Microcredit is not a substitute for charity or welfare programs but it is a valid tool to help support those stuck in poverty as they reach for the first rung in the ladder of development. Even more important then the financial gains brought about by microcredit are the gains to the community.

Websites

Grameen Foundation. http://www.grameenfoundation.org/
Mission Statement: Grameen Foundation's mission is to empower the world's poorest people to lift themselves out of poverty with dignity through access to financial services and to information. Official site

Grameen-Info. http://www.grameen-info.org/bank
Another semi-official site with personal histories and articles by Muhammad Yunus. Contains several informational sections on history and economics of microfinance

ING Blogs. http://www.ingblogs.com/microfinance/ and http://www.ingmicrofinance.com/home/
A non-NGO, more business focused look at mircofinance. ING is a global banking and finance group with strong Asian branches

Microcredit Summit Campaign. http://www.microcreditsummit.org/
A non-Grameen specific International microcredit support organization that emphasizes lending to poor women. Publishes a yearly report on the global state of microcredit

Nobel Prize. org. http://nobelprize.org/nobel_prizes/peace/laureates/2006/presentation-speech.html
Presentation speech on the awarding of the 2006 Nobel Peace Prize. Journals and Whitepapers

Articles

Amin, Sajeda; Rai, Ashok S.; Topa, Giorgio"Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh "
Journal of Development Economics, Vol. 70, Issue: 1, February, 2003. pp. 59-82
This paper evaluates whether microcredit programs such as the Grameen Bank reach the relatively poor and vulnerable in two Bangladeshi villages. It is very economics heavy

Basher, Md. Abul."Empowerment of Microcredit Participants and Its Spillover Effects: Evidence from the Grameen Bank of Bangladesh" The Journal of Developing Areas, Vol. 40, Issue: 2, April 23, 2007. pp. 173-183
This paper analyzes how participation in microcredit program helps to reduce the fertility rate. By using the data from the Grameen Bank of Bangladesh, the paper also examines whether the accomplished empowerment of the microcredit borrower remains limited only to economic activities or also reflected in their non-economic activities. The results show that the Grameen Bank transforms its participants from a passive recipient of credit to a well responsive and active agent

Bernasek, Alexandra. "Banking on Social Change: Grameen Bank Lending to Women "
International Journal of Politics, Culture and Society, Vol. 16, Issue: 3, Spring 2003. pp. 369-385
Evaluation of the Grameen Bank as a strategy for empowering and improving the socioeconomic status of women in Bangladesh, and identifying lessons from the Grameen Bank experience that can inform development policy more generally. Arguments for and against Grameen Bank are evaluated in the light of evidence from studies of the Bank

Explore: The Journal of Science and Healing. Elsevier Science Volume 3, issue 5 (September, 2007)
Contains Mohamed Yunus' Nobel acceptance speech and a 11 page editorial on Grameen and microcredit

Mahmud, Simeen "Actually how Empowering is Microcredit? "
Development and Change, Vol. 34, Issue: 4, September 2003. pp. 577-605
(Abstract) This article re-assesses the effect of microcredit programme participation on women's empowerment by applying an analytical framework that recognizes the conceptual shift in emphasis in the definition of empowerment, from notions of greater well-being of women to notions of women's choice and active agency in the attainment of greater well-being. The author finds that microcredit programme participation has only a limited direct effect in increasing women's access.

Books

Bender, David (pub), Poverty - Opposing Viewpoints, Greenhaven Press, San Diego California, 1999
A compilation of 30 different and sometime opposing viewpoints on seriousness, cause and solutions to poverty (America perspective)

Sacks, Jeffrey D., The End of Poverty - Economic Possibilities for Our Time, The Penguin Press, New York, 2005
Discusses actual case studies of collapsed, collapsing and never supported economies and the effect different methods of poverty relief have had (both good and bad aspects). A global perceptive.

Yunus, Muhammad. "Creating a World Without Poverty" PublicAfffairs, 2008.
A New Book by Muhammad Yunus, goals and history of Grameen.