Mr. Muhammad Yunus and the Grameen Bank were honored with the Nobel Peace Prize last year for being economic pioneers, distributing micro-loans to the poor of Bangladesh.  His first loan was to a group of 42 people. The amount was $27. His service has helped over 6.6 million people and is one of the most effective weapons against poverty. The majority of their loans are given to women, slowly leading toward economic equality. 

Mr. Yunus graduated from Chittagong University, where, upon graduating, he was offered a position teaching economics.  He worked there from 1961-65.  During that same period Mr. Yunus saw that East Pakistan (Bangladesh) was importing all of its packaging materials from West Pakistan, over 1,000 miles away and decided he should start an industrial plant to serve this need.  Ironically, the future “banker to the poor’s” father, who was chairman of the board, was reluctant to borrow any money from a bank, leading them to pay back the loan ahead of schedule to settle his nerves.  

Despite his success in business, Mr. Yunus wanted to further his studies and continue teaching, so after receiving a Fulbright scholarship headed to the US.  He studied for a summer at the University of Colorado – Boulder and then headed to the recently desegregated Vanderbilt University in Tennessee.  Emerging from his shyness, Mr. Yunus became somewhat of an activist, participating in antiwar rallies and protests, while still retaining a positive opinion about the United States.  After graduation he stayed in Tennessee and took a teaching position at Middle Tennessee State University.

Everything changed on March 25, 1971 when he heard on the radio that the Pakistani army was beginning to crush East Pakistan.  Immediately upon hearing the news Mr. Yunus took action and founded the Bangladesh Citizens’ Committee with a few friends.  Knowing they needed to raise awareness to their struggle, they issued a press release and gathered instant local media attention.  Within days, he was marching in Washington and visiting all the embassies asking for everyone to recognize the new nation of Bangladesh.  He helped create a plan to uphold democracy, to ensure the people’s right to a free and fair election and to a create a country devoid of poverty.  By December 16th 1971 they had succeeded, but by that time 3 million Bangladeshis had been killed, 10 million had fled to India and countless others were living with a memory of rape and other atrocities committed during the struggle for independence.

By 1972, Mr. Yunus had returned to his birthplace to head up the new government’s Planning Commission.  But bored with a position that really gave him nothing to do, he resigned to become the head of the Economics Department at his Alma matter Chittagong University.  It was on his drive to and from work that he began to notice the fallow fields surrounding the university campus.  At the same time he was deeply moved by the hunger of those suffering from the extreme famine of 1974 - an especially rough year in Bangladesh, a country ridden by natural disasters.

The thrill he once experienced teaching economic theories, which supposedly could cure societal problems, was gone.  He couldn’t fathom why the world’s leading economists spent all their time working on issues of development and prosperity but failed to look at the reasons and real ways to overcome hunger and poverty.   "Nothing in the economic theories I taught reflected the life around me.” he says in his autobiography Banker to the Poor. “How could I go on telling my students make believe stories in the name of economics?  I needed to run away from these theories and from my textbooks and discover the real-life economics of a poor person's existence."  

He asserted his leadership by asking the vice-chancellor of the university to lead a call to the nation’s leaders to end famine.  Wanting to do his part, Mr. Yunus went into the field with students as a class project to analyze what the villagers really needed.  They started by working with farmers to increase crop production and improving water management, discovering crop yields were at a mere 16% of their potential.  The newspaper printed photos of them up to their knees in mud, telling farmers how to plant rice in straight rows with string.

His Three Share Farm experiment was successful in its first year by bringing water out of the under utilized tube wells.  The sharecroppers and farmers he worked with successfully raised production levels.  But it was as the crops were harvested and the rice husking began that he had his eye-opening revelation where he saw the real difference between the poor who owned land, and the landless, which were “the poorest of the poor.”   It happened as around 30 destitute women came in to do this tedious, labor-intensive task.  In talking to them, one woman said, “Why should we be happy with your Three Share Farm?  After a few weeks of threshing, we are out of work, and we have nothing to show for ourselves.”  

Then he began to look deeper and was shocked to realize how many were living in basic servitude to moneylenders and middlemen. He spoke to Sufiya, a stool-maker whose life could be turned around for a measly 22 cents, if she could just break free of buying her materials from and then selling her product to the same man who was controlling the prices of both parts of the deal.  So he sent a student create a list of all the villagers in the same situation as Sufiya.  The list contained 42 names and all they needed was $27.  With the list complete, he reached into his pocket and told his student to go and lend them the money. 

But that fateful night he couldn’t sleep.  He realized this solution was too small.  There were millions who needed help.  This needed to happen on an institutional level.  With that thought he fell asleep and the idea for the Grameen Bank and his economic revolution were born. 

Of course, Mr. Yunus was a professor and didn’t want to go into banking.  So that very next day he went to his local bank and discussed the idea with the bank manager.  The banker was shocked and thought he must be joking.  Who would think of lending such trivial amounts of money, and based on trust, with no collateral?  It was an absurd idea.  He only listened because he was the Economic Chair at the University and they were the loaners of the successful Three Share Program.  Anyone else would have been laughed out of the office.  As he got up to leave, the branch manager told him “I know you’ll not give up.  But from what I know about banking, I can tell you for sure that this plan of yours will never take off.” 

With persistence and luck, he finally got the higher ups to agree to his plan and lent him $300 on the villagers’ behalf.  He had to put his name down as guarantor, but he clearly told them that even though he was the guarantor, if they defaulted he would not pay, explaining, “I can’t do that.  What would prevent the guarantor from taking advantage of the person whose loan he was guaranteeing?  He could end up a tyrant. 

He could end up treating that borrower as a slave.”  So it was with this idea that he formed what has no become a loan system based on trust. 

Mr. Yunus fully believes that credit is a human right that all people should have access to.  He feels that intrinsically people know what skills they have and how they can get themselves out of poverty, if they have access to the right credit to get started.  It has been this new economic theory that has gotten him to where he is today.   But this path was definitely not easy to forge.  It took months to build up the trust of women to come out from behind their doors and speak to him and accept a loan.  In this mostly Muslim country, there are strict cultural rules that he only broke through with his persistence and the hard work of eager students.
Mr. Yunus has the right personality for this work, as he can walk just as comfortably among the leaders of as country as with the beggars. 

As his program grew within existing banks, Mr. Yunus found dealing with the beaurocracy of other banks cumbersome.  At one point he had to get permission to leave the country every time he had program outside of Bangladesh. So after several years, the Grameen Bank was finally born as its own entity.  Realizing that the other banks served less than 1% women he set a goal of making his loans to 50% women.  It took 6 years to reach this goal.  And it was just as much of a struggle to keep female employees doing the work of a banker in his system.  In the Grameen system, the worker needs to visit the villages daily at first, forging the right relationships to find the future borrower and create the system that they found would work.  They teamed people up into groups of five to create a support system.  And the success they found came from keeping everything very simple.  The loans were all for one year at a 20% interest rate and the loans were paid weekly in increments of 2% so that the borrower would never feel overwhelmed. He also worked with reality and took the tension out of loans making it enjoyable for both sides by allowing more flexibility into the system. 

Besides the basic loan, he accepted that they would also provide flexible loans, where the borrower always retained their sense of dignity, so if they were incapable of paying the initial setup, they would still be expected to make the weekly payments, but allowed lower installments and longer payment plans, so that everyone remained capable of staying within the system.  This system works as after 30 years, they have a 98.85% payback rate, far greater than the average bank.  As a result, the Grameen Bank, which now belongs to the borrowers, is completely self-funded.