On Friday, Oct. 15, I found myself smiling more than usual. Why? Because Muhammad Yunus won the Nobel Peace Price for 2006. (Details.)
Dr. Yunus, you see, built a breathtaking business known as Grameen -- one that we at The Motley Fool have supported in the past through our annual Foolanthropy charity drive. (Our drive for 2006 is getting in gear right now. Learn more about how to participate and help us perhaps discover tomorrow's Nobel Prize winners today.)
The sums we raised for Grameen* are rather impressive. Over several years, we directly raised several hundred thousand dollars, but perhaps more importantly, we also introduced many readers to Grameen. One couple offered Grameen a $500,000 matching grant. Add it all up, and we've very likely driven more than a million dollars to Grameen, where we know it's being put to excellent use.
I've written about Dr. Yunus and the Grameen movement many times before. Below is an adaptation of an article I wrote back in 1999, inspired by the terrific book, The Price of a Dream: The Story of the Grameen Bank, by David Bornstein. See if the story doesn't knock your socks off.
In a nutshell
The Grameen story can be traced to one man, Muhammad Yunus, who traveled from his native Bangladesh to the United States, earning a Ph.D. in economics at Vanderbilt University. He then returned to his homeland and took a teaching job at a university situated near some poor villages. Yunus began to notice that many poor people he'd meet, people with no land and incomes of $200 or $300 per year -- and those were the lucky ones -- often had mainly one thing keeping them from earning a decent livelihood: affordable credit.
Imagine a woman who buys some trinkets to sell. She borrows money to buy them from moneylenders in the village who charge exorbitant interest. Soon she's caught in a vicious cycle, earning very little and paying most of it to the moneylenders.
As Yunus was developing his early ideas about credit, he sent his students into a local village to find as many people as possible who could use a little credit to extricate themselves from what Yunus saw as bonded labor. They came back with a list of 42 people who needed a total of 856 "takas" (the Bengali currency). This was astonishing. Why? Well, because 856 takas amounted to $26. That's all. For all 42 people.
As Bornstein recounted, Yunus testified before the U.S. Congress later, recalling, "I felt extremely ashamed of myself being part of a society which could not provide $26 to 42 able, skilled human beings who were trying to make a living."
As the years progressed, Yunus would become ever more critical of many expensive and ineffective development programs. He would see academics and consultants come and go without really getting to know the people they were trying to help, without understanding how to create sustainable solutions.
The first loans
Yunus loaned the $26 to the 42 people, and it was all repaid. He was impressed. He began lobbying banks to lend money to the poor, but he was rebuffed. Larger loans tend to be more profitable than smaller ones. And loans of a few dollars, to people with no collateral? He was often laughed at. With much effort, he eventually got the somewhat reluctant cooperation of a bank and began opening small experimental branches. He named his project Grameen, from the word "gram," meaning "village."
The Grameen project succeeded and grew, becoming a full-fledged bank. Over the years, Yunus built up a sizable business with the Grameen Bank. Note the word "business." Although the bank was often loaning out money that had been donated by various aid agencies, the organization was run as a business. People were hired and trained. Systems were set in place. The bank was never just giving money away. All loans were expected to be paid back. No loans were forgiven. In times of trouble, such as after devastating cyclones, loan payments might be put on hold and some loans might be restructured, but the borrowers were always treated as customers, as clients -- not as beneficiaries of handouts.
The business grows
Over time, the bank fine-tuned its systems. To keep its repayment rates high, it lent money to groups of people (increasingly, women). Each entrepreneur had to join with four others, and they couldn't be part of the same family. Each group of five had to join with six or eight other such groups to form a "center." The borrowers met once a week at the center house, where they asked for loans and made their payments. A representative from the bank would always attend the meetings to collect money and troubleshoot.
The borrowers essentially vouched for each other. If one defaulted on a loan, the others wouldn't be able to borrow, so they kept an eye on each other and bailed each other out when necessary. Grameen expected them to be saving a little money for emergencies as well. At each meeting, the bank representative would share valuable information -- for example, warning them not to drink from certain wells after a storm.
Within two decades, the Grameen Bank had branches in tens of thousands of villages. It was lending out hundreds of millions of dollars a year, and after the money was repaid, relending it. A longtime branch manager commented on how the presence of the Grameen Bank in her region has made a difference:
The economic structure is gradually improving. At one time, not one member in each center would have a house with a tin roof. Now more than half do. Some have received house loans, but others have built houses on their own. They have a few chairs, better pots and crockery, their children are wearing better clothes. Eighty to 90 percent of my members now eat three times a day. And 25 of my 260 members have electricity. None had it two years ago. Now the Grameen Bank has to place even more stress on education, health and family planning.
Manjira's tale
In the book, you'll meet people like Manjira, who was destitute before she began borrowing from the Grameen Bank. Her husband had died and her son was sick. He asked for ice cream, but she could not afford the one taka that it cost. (Roughly a nickel.) The next day, he died. Her life began improving in other ways soon after this terrible low. With her first 2,000-taka loan (about $100), she bought a sewing machine. She paid it off and then borrowed more.
Over the next four years, her weekly earnings climbed from 50 takas to 250. She ended up hiring an assistant to help her. When the king of Belgium honored the Grameen Bank, Muhammad Yunus took a colleague and Manjira with him (as a representative borrower) to Brussels to accept the award. He first took her shopping for suitable clothes. They stayed at a posh hotel. Manjira recalled, "My room had five telephones. There was even a phone in the bathroom. In my whole life I had never received one telephone call."
The book details how this organization, this beautiful business, continued to grow. It's now beginning to offer health insurance to its borrowers (and to non-member villagers) after Yunus realized the degree to which health problems were keeping a significant percentage of borrowers from succeeding as they should. Yunus proposed that the bank spearhead the implementation of cellular phones throughout Bangladesh. With its 35,000-plus branches, it's a natural fit, and thus Grameen Telecom was born. (Now, longtime borrowers are taking out loans to purchase cell phones with which they can effectively become their village's phone booth.)
Muhammad Yunus has created a new and very effective way of bringing people out of poverty. His dreams and goals are epic: He wants one day for people to go to museums to see what poverty was like. He wants to eradicate all poverty from the face of the Earth.
Read the book to learn more. You'll even learn some valuable management lessons (how the bank dealt with the threat of a union, how it trained and retains employees), among many other things.
*Note that in our previous campaigns, we raised money for the Grameen Foundation USA, which though a separate organization from the now-self-sufficient Grameen Bank, is still affiliated with it. Dr. Yunus is a founding member of it and a current board member. The Foundation works to replicate the Grameen Bank phenomenon around the world.
(Want to share this article with a friend? Just click on the "Email this Page" link near the top or bottom of the page.)
This article is adapted from one that ran in December of 1999. It has been updated.
This year marks the 10th anniversary of The Motley Fool's Foolanthropy charity drive, which has its first partner this year in Hilton Family Hotels
Longtime Fool contributor Selena Maranjia n has been supporting Foolanthropy for a whole decade. She owns shares of no company mentioned in this article. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.
