A Summary of Muhammad Yunus’s Banker to The Poor: Micro-Lending and the Battle Against World Poverty
Banker to the Poor follows of the life of Muhammad Yunus, who was born in 1940 in East Pakistan to an upper middle-class family. A naturally gifted student, he was awarded a Fulbright scholarship to complete his PhD from Vanderbilt University in the United States. His stay in the United States coincided with the 1971 Bangladesh Liberation War, and he had his first involvement in politics when he issued a public statement in which he and some colleagues declared themselves citizens of the newly founded Bangladesh. He then returned to Bangladesh and joined Chittagong University as the Head of the Economics department. Having been unfulfilled by the theoretical aspect of his teaching, and not seeing its application in his local vicinity, he started experimenting with ways to alleviate poverty around his University.
He decided to opt for the “worms-eye approach” as opposed to the more traditional “birds-eye approach”. In doing so, he personally interviewed the local population to get an idea of the systematic issues that impoverished Bengalis were dealing with. He realized that many people were trapped in a perennial cycle of loan repayments, and that their children were doomed to live the same life. For instance, he recalls the story of Sufiya, a Bengali woman who was in debt the equivalent of 22 cents. Everyday, she would take a loan from a local moneylender and use it to buy raw materials. She used these materials to make bamboo stools, which she sold for a daily profit of two cents, which she would then use to feed herself and her children. He resisted the urge to just give her the 22 cents as he believes that “charity becomes a way to shrug off our responsibility” (p. 249).
After many more such encounters, he realized that the poor were unable to get loans because of credit checks and the need for collateral, so he decided to challenge these basic banking premises. He initially set out to extend loans to the poor out of his own personal assets, however quickly realized that this was not an efficient way to tackle the problem. It would be impossible to reach out to the millions of impoverished Bengalis this way, and he therefore wanted to address the problem with a more institutional approach (51). He knew that, given the small nature of the loans he was providing, policing would not be practical and that he would have to depend on the borrower’s honesty (70). He went on to set up Grameen Bank on the premise that credit is a human right, not a privilege for the rich. Poverty was particularly rampant in the rural villages, which inspired Yunus to name the bank Grameen, meaning “village” in Bengali.
Grameen has several unique characteristics, aside from being a bank for the poor. First of all, Grameen is built on the belief that all humans have an innate skill which Yunus terms the “survival skill”, which they may use in times of desperation to allow them to provide for themselves. For instance, some people can knit, some can farm, some can weave, etc. (135). In this sense, credit serves as a means to provide people with economic power to offset the initial costs that come with starting such initiatives.
Secondly, he was unique in his choice to focus on women, as he recognized that they had traditionally been neglected by Bengali banks. Banking in Bangladesh has been largely a masculine endeavor: it was a given that only men handled the money of the household. By challenging this, he quickly realized that women, unlike men, provided much more for their households with their income. Whereas Bengali men tend to spend discretionary income on themselves, women tended to spend it on their children’s nutrition, health, and education. Thus, money entering a household through a woman benefits the household more (72). He therefore initially set a target of 50% of his clients being women, but this target was exceeded and now women represent over 97% of borrowers (71).
Finally, in order to further ensure repayment, Yunus developed a system that that requires Grameen borrowers to form groups of five before they may take out loans (62). This ensures that borrowers have a support network, guarantors, and organization. Groups elect a chairperson that will serve as representatives to the bank. Grameen then extends a loan to two group members and awaits successful repayments for six straight weeks. At this point, the next two members may take a loan from Grameen. The chairperson of the group is usually the last group member to borrow. Loans last 50 weeks, and two percent of the total loan are paid weekly. Repayment on the loan begins one week after the loan is given and a 20% interest rate is charged on a declining balance method. This means that the borrowers only pay interest on the amount of the loan that hasn’t been repaid yet (236).
These various characteristics make Grameen uniquely adapted to serving the poor. Grameen bank has had much success in enabling the poor to pull themselves out of poverty and has also created social change that long transcends finance. For instance, many borrowers reported that they have become lifelong friends with the members of their Grameen groups of five. Grameen provided them with a way of meeting others who were going through the same struggles and to support each other. Also, Grameen families adopted family planning practices at twice the national rate, a strong indicator of upward social mobility (134). Furthermore, Yunus ensured that all adult Grameen borrowers were registered to vote, thus forcing would-be politicians to campaign for the unique needs of the poor in order to win (195).
As a result of his involvement with the Grameen Bank, Yunus was awarded many prizes and acquired much political power, particularly within Bangladesh. His ideas of social entrepreneurship and microcredit are now taught internationally and Grameen replicate projects have proliferated internationally. Yunus concludes his autobiography by discussing the potential of social entrepreneurship: a blend of for-profit business that prioritizes their social impact. He leaves the reader on an optimistic but realistic note by acknowledging that although “micro-credit cannot solve society’s every problem… it can help to support those who would otherwise fall through the cracks” (230).
Recommendation
I would recommend this book as it presents an opportunity for enthusiasts to learn about economics and for seasoned economics to question their dogmas. It also walks the reader through a contextualized account of the history of Bangladesh and Pakistan. It explains the rise of microlending and paints poverty through an alternative narrative, one where welfare is an enemy. Since microlending has been adopted successfully all over the world, people from all walks of life stand to benefit from the autobiography of its pioneer. However, in order to get a more balanced stance on the matter, I recommend reading my other article, where I’ve analyzed microfinance through an Islamic and economic lens and contextualized Yunus politically.
