“Poverty does not belong in a civilized human society. Its proper place is in a museum,” writes Muhammad Yunus near the end of Banker to the Poor: Micro-Lending and the Battle Against World Poverty. “I want to see a world free from poverty.”
If anyone else made such a pronouncement, you might be justified in dismissing it as idle fantasy. But after reading 250 pages describing Yunus’ thirty-year micro-lending project, the reader knows that he is not dreaming — he’s deadly serious. What’s more, he just might achieve his goal.
Muhammad Yunus, who won the Nobel Peace Prize for 2006, is a Bangladeshi banker and economist. Born and raised in Chittagong, he came to the United States during the 1960s to study economics. He returned to Bangladesh to teach at Chittagong University in the early 1970s, but found the poverty around him at odds with the material he taught in class.
I used to feel a thrill at teaching my students the elegant economic theories that could supposedly cure societal problems of all types. But in 1974, I started to dread my own lectures. What good were all my complex theories when people were dying from starvation on the sidewalks and the porches across from my lecture hall?
It’s this delineation between economic theory and economic reality that makes Yunus’ story so compelling. Instead of ensconcing himself in an ivory tower, discussing economic policy based on ideas, he chose to put these ideas into practice, to see how they worked in the real world. There’s a big difference between fighting poverty in theory and fighting it in fact.
Yunus found that most of the poor people in the villages around his university didn’t lack initiative, but only lacked opportunity, opportunity that existing financial institutions were not prepared to grant. Yunus established the Grameen Bank to help the poor help themselves.
Commercial banks assume that every borrower is going to run away with their money, so they tie their clients up in legal knots. Lawyers pore over their precious documents, making certain that no borrower will escape the reach of the bank. In contrast, Grameen assumes that every borrower is honest. There are no legal instruments between the lenders and the borrowers. We were convinced that the bank should be built on human trust, not on meaningless paper contracts.
Grameen Bank offers small low-interest, collateral-free loans to the poor. These micro-loans — most of which are given to women — are used for entrepreneurship. One woman might make stools, another might weave baskets, another might own and operate the only cell phone in a village. In nearly every case, however, the loans allow the women to break free from the chains of poverty. This video offers a more comprehensive overview:
These micro-loans don’t just fight extreme poverty; they lead to deeper societal changes, as well. They help elevate the status of women, decrease the birth rate, lead to better education, and foster political activism.
The poor, once economically empowered, are the most determined fighters in the battle to solve the population problem, end illiteracy, and live healthier, better lives. When policy makers finally realize that the poor are their partners, rather than bystanders or enemies, we will progress much faster than we do today.
Banker to the Poor is a must-read for those interested in socially-responsible investments. It’s also good for those interested in charity, or in economics. Yunus has an agreeable style: he’s both humble and candid. I expected the book to be dry, the work of an economics professor. It is the work of an economics professor, but it’s anything but dry.
Last March in The New York Times, Nicholas Kristof wrote a piece entitled, “You, Too, Can Be a Banker to the Poor“. Kristof profiled Kiva, a web site that allows folks like you and me to make micro-loans to entrepreneurs hoping to escape from poverty. Here’s a PBS/Frontline clip about Kiva:
I love the concept of micro-lending. It combines community-based and community-centered finance — in essence, communism (or “communalism”, perhaps) — with good old-fashioned entrepreneurism and free enterprise — in essence, capitalism. It takes the best of both economic systems and binds them together. In doing so, it helps people in need.
Addendum: Thanks to GRS readers who are forwarding additional information. At Grameen’s official site, you can read about the 16 decisions, which loan recipients are required to affirm. Like Kiva, the Grameen Foundation (which is “inspired by” (though not affiliated with) Yunus’ Grameen Bank) offers people a chance to contribute to the microfinance projects around the world.
Thanks to Ramit Sethi of I Will Teach You to Be Rich, who mailed me this book several months ago. I’m glad he did.
I read this book several months ago and also found it very inspiring. Micro-lending is really an amazing concept that addresses and helps to solve so many social and economic problems. Poverty is not just about the lack of money and Grameen and other micro-lending organizations are successful because their concept recognizes and adresses that.
His Nobel Prize was well deserved…
Thanks for highlighting this issue. I have heard great things about change in third-world villages where these micro-loans are being extended.
By the way, it’s very easy for individuals to extend micro-loans; you can actually lend small amounts through various organizations and receive pictures and updates updates on how your borrower is doing.
I don’t believe this is communism at all, because the community isn’t being required to give all of their possessions into a “pool” where some committee decides who gets what (and eventually exempts themselves from the same rules and expectations they force everyone else to follow).
This is the true spirit of capitalism where one becomes successful by working diligently to encourage and grow success in others around him or her.
Mr. Yunus is a true capitalist as he used free market ideas to motivate and invest in those who will work – not use the power of a police state to take away and redistribute.
I’m going to have to read this book. I am a big believer in microfinance. I currently donate monthly to Women for Women International, which is similar to Grameen.
When I first joined, it was because I wanted to give back, and I think there’s a lot to be said for “teaching a man (or woman) to fish.” But after being in the program for a year, I also see the reverse side. The people who get these loans don’t want hand-outs. They want to be successful, they want to earn their own living, and that’s something I think we as Americans can identify with.
Michael wrote: I don’t believe this is communism at all, because the community isn’t being required to give all of their possessions into a “pool” where some committee decides…
Ah, but I mean communism in theory rather than communism in practice. There is a strong community element to Grameen’s system, and the individual borrowers are accountable to the group. This is one of the reasons the repayment rate is so high.
All the same, maybe I ought to have said “communalism” instead.
Hey JD,
Thanks for writing this article. I was getting depressed about the time it takes to pay down debt, and this put things into perspective. I set up a recurring payment with the Grameen Bank, over at http://www.grameenfoundation.org. It feels great to help out a worthy organization.
I think the word you’re looking for, J.D., may be communitarianism.
Peter Kropotkin had a term “Mutual Aid” that may apply here. Although he was a Russian Anarchist…See also, Bookchin, Murray.
Why and how is it that microlending makes the poor in developing countries better off, and the poor in developed countries worse off?
Great to see you highlighting the phenom of microcredit! I volunteered at the Microcredit Summit V in NYC a few years back and it was one of the most inspiring few days of my life. If you are in a position to invest money in CD’s for a 3 year term, you can become a microcredit lender through Equal Exchange, a FairTrade coffee cooperative. Here’s the skivvy on that: http://moneychangesthings.blogspot.com/2007/08/equal-exchange-cd-exciting-way-to-make.html
I look forward to the time when we can all put our money in microfinance institutions like the Grameen bank and get fair returns on it, knowing that the money is being lent to individuals, not to developers overbuilding condos on the Gulf Coast….
Microcredit is particularily efficacious for women, and their children are the major beneficiaries, by their improved standard of living and education.
Kiva.org is a great site that makes it dead simple to offer micro-loans. It is done in $25 increments and you can do this easily through a credit card or PayPal. I am happy to report that a loan that I helped finance was disbursed today! It is a great feeling to help someone out. I will continue using Kiva.org and keep re-investing in other folks in need. I am on my way to check out grameenfoundation.org right now. Thanks for the post J.D.
I keep hearing more and more about this. The idea of micro-credit is fascinating.
Kiva is also cool, but I wish they would present themselves as more of a charity. From what I can tell you don’t actually get a return on money that you invest. It’s more like lending at 0% interest.
Still, all around the micro-credit meme seems to be taking hold. I’d like to see expansion of the same idea into depressed regions of the U.S.
I’m going to have to buy that book now…
I saw this book at the Vanderbilt University bookstore last week while on vacation! I’m fascinated by micro-lending and have looked into giving back in this way instead of to charities such as the Red Cross. Thanks for the post!
Minimum Wage, I don’t understand your question. I don’t think anyone said that microlending makes the poor in developed countries worse off. Is this what you’re saying? It’s an interesting notion, but I’ve seen nothing on the subject. Banker to the Poor briefly mentions microlending pilot programs in the U.S., and implies that they’ve met with some success, too. I’d love to know more about it. But, really, I don’t understand your question…
Great post on a great topic. Microfinance is the proper intersection of capitalism and socialism.
I think we often take for granted how important financial markets are for creating wealth. Money that sits in mattress does no good.
Microfinance is a wonderful hybrid of socialism and capitalism, as you point out, JD. Women receive loans in groups and have regular meetings. If one of the women is short for her repayment, others help her, and in general they learn together, and provide support for one another. But of course each is an individual entrepreneur, selling her wares and running her business. Often as a result, the participants see how literacy would improve their skills and they learn to read, too!
When I heard about Kiva on the Oprah show, I was struck by the concept of micro-lending as a form of empowerment. The lender can participate with just $25 and the Kiva website makes it super easy. All of your money goes directly to an entrepreneur of your choosing. The entrepreneur’s success lifts his or her family as well as their community. The lender gets paid back– and can reloan those funds once again, over and over and over again. Brilliant!
I was so inspired by the concept that I decided right then to use my blog’s revenue for microloans. When I announced my decision to my readers, a few folks “paid it forward” by making microloans, too. I love the ripple effect!
Thanks for sharing your review of the book, JD. It’ll be next on my reading list.
I love the opportunity here for reloaning! Making a difference over and over again using the same money. I plan to add money, but isn’t it great that the same money can give and give, so that we start out by putting in, say $25 a month and we’re eventually giving $600 or more.
Probably a lot of your readers are familiar with The Heifer Fund, where you contribution is a gift of livestock. this is a form of microfinancing, too. Just more ancient – animals instead of capital.
Two points about Kiva: as another commenter pointed out, you are making a 0% loan. So instead of donating say, $100, you are really donating the % you would make on it for a year, maybe around 5% unless you’re an investment wiz. By loaning, the recipient gets to use the whole $100, and all you are giving up is the $5. You get the $100 back. It really leverages your impact, provided you can get along without the $100 for the 18 month kiva term. I just got my first Kiva loan paid off – ahead of schedule!
2. Even though in the microfinance world the vast majority – over 90% I believe – are women, men and women are there in numbers equal on the Kiva site. I heard this is because many women are uncomfortable having their pictures and bios on line, though I don’t recall if I actually heard that from Kiva.
Thank you for this post. I have been looking at kiva for a long time now and I think I may finally have some money to start lending (I am just a college student). I am really interested in the stories these people have to offer, and would love to be part of an amazing business venture that helps out many people. Thanks for using your blog presence to give the website some more attention.
Great post JD. Grameen announced the launch earlier this year of Grameen America, starting in NYC. (See http://www.paymentsnews.com/2007/03/grameen_america.html and http://defeatpoverty.com/2007/02/grameen-comes-to-usa.html). The Grameen Foundation of course already did fundraising work in the US, but this is going to be a microlending arm for low-income folks here in the US using the best of the Grameen model. I can’t wait to hear more about it.
I made my first $25 loan with Kiva a few weeks ago. It’s a really rewarding experience — and probably the future of charity.
Sorry, I had a cynical moment there…I was thinking of payday loans.
Hey, how come copy-and-paste doesn’t work here?
Actually, copy-and-paste does work on this website in Firefox, but WordPress won’t let me post in Firefox. I can post to this blog in IE, but the copy-and-paste doesn’t work.
What’s up with that?
Probably a lot of your readers are familiar with The Heifer Fund, where you contribution is a gift of livestock. this is a form of microfinancing, too.
Probably a lot of your readers are familiar with The Heifer Fund, where you contribution is a gift of livestock. this is a form of microfinancing, too.
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Hey, looks like JD fixed something (ditched WordPress is my guess), turns out now I actually CAN post here in Firefox.
As I was trying to say…
So instead if giving a man a fish (thereby feeding him for a day), you’re giving him an ox, or a cow, of some other sort of livestock.
(Hey Bart, it’s ok to have a cow!)
Thanks for reviewing this book J.D. I’m a big fan of microfinance, so I definitely need to read it! The discussion has been great too – I wasn’t aware of all of these resources, so good to know.
I haven’t had the chance to read this book yet, and I don’t know enough about economic theory to have a firm opinion. That said, it should be noted that there have rercently been some major criticisms of Yunus. There have been accusations that Grameen Bank has drastically misstated its default rate. Also, there is a line of reasoning that argues that these microfinance loans are getting recipients in over their head and trapped in a debt cycle.
Inspiring book written in simple language. Knowledge in economics not a prerequisite to read and enjoy this book!