October 26, 2006 | Read Time: 4 minutes
The awarding of the Nobel Peace Prize to the Bangladeshi economist Muhammad Yunus this month may provide a lift to the already rapidly growing field of microfinance, and bring financial services to a larger percentage of the world’s poor, microfinance experts say.
In 1976, Mr. Yunus founded the Grameen Bank, which makes very small loans to poor people in Bangladesh so that they can start their own businesses.
Grameen now has 6.6 million borrowers, and has lent $5.7- billion, mostly to women.
Grameen also helped create an industry. More than 3,000 microfinance organizations now operate in more than 100 countries.
“Yunus’s long-term vision is to eliminate poverty in the world,” the Norwegian Nobel Committee said in a release announcing that both Mr. Yunus and the Grameen Bank had won the Nobel Peace Prize. “That vision cannot be realized by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part.”
Last year, an estimated 100 million people received small loans from microfinance organizations, according to the Microfinance Summit Campaign, an advocacy group. The average loan was about $250.
Geoffrey K. Davis, president of Unitus, a nonprofit group in Redmond, Wash., that helps microfinance organizations accelerate their growth and eventually convert to for-profit status, says he sees that number growing exponentially over the next 5 to 10 years, to the point where perhaps half of the world’s estimated three billion impoverished people have access to loans.
Spreading the Idea
The prize to Mr. Yunus is just the latest sign that microfinance is catching hold, he says.
Large multinational banks like Citigroup and an increasing number of foundations in the United States, including the largest, the Bill & Melinda Gates Foundation, are making investments and grants to further the spread of microfinance.
The industry is also diversifying beyond loans, with new insurance, money-transfer, and savings products being designed to help the very poor.
“I’ve been surprised that at dinner parties and on airplanes, I don’t have to describe what microfinance is anymore,” Mr. Davis says. “We are at a cusp of a breakthrough and this prize might be what is needed to reach a tipping point. Within 5 to 10 years, microfinance will become mainstream.”
Mr. Yunus, who has a Ph.D. in economics from Vanderbilt University, was teaching economics at Chittagong University in the 1970s when Bangladesh was hit by famine. He started what would become the Grameen Bank by lending $27 from his own pocket to 42 villagers.
Focus on Women
The Grameen Bank’s group-lending model has been widely copied by other microfinance organizations.
Women seeking loans are placed in groups of five, and initially only two of the women receive loans for businesses such as milking cows or making pottery.
The other three women receive loans only when the first two have established a strong weekly repayment record.
Grameen, which started operations as a nonprofit organization but is now organized as a for-profit bank, says its repayment rate is 95 percent.
Alex Counts arrived in Bangladesh as a Fulbright scholar in the late 1980s and witnessed widespread hunger and poverty.
“I saw scarcity driving people to all sorts of disruptive behaviors,” Mr. Counts says. “And I saw Grameen, in a businesslike approach, alleviating that.”
Mr. Counts is now president of the Grameen Foundation, based in Washington, which was started in 1997 to spread the Grameen Bank’s success in other countries. In bestowing the prize on Mr. Yunus and Grameen, he says, the Nobel committee was “looking for the most successful and scaled-up way to attack poverty.”
“Eradication of poverty can give you real peace,” Mr. Yunus told reporters at his home in the Bangladeshi capital, Dhaka, after learning that he had won the prize. “Now the war against poverty will be further intensified across the world.”
Several experts in microfinance say that providing poor people with a shot at economic self sufficiency will make all countries far safer.
“Poverty is the breeding ground for desperation, and desperation is the breeding ground for terrorism,” says Christopher A. Crane, president of Opportunity International, a Christian nonprofit organization that makes loans to 900,000 people per year in 28 countries. “Imagine a world where everyone who wanted to work had the capital they needed. They could repay the loan and provide for their family. Terrorism would be dramatically reduced.”
