By Joel Rubinstein
Imagine you are a poor woman in Bangladesh. You work hard almost every day weaving mats. In five days you can finish a mat that sells for less than a dollar. When your children get sick, there is no money for medicine. How much would it change your life, if you could borrow $65 to buy a sewing machine?
Joygon Begum was a poor mat weaver in Bangladesh. About five years ago, a worker from the Grameen Bank came to her village and explained that the Grameen Bank was looking for borrowers. The Grameen Bank inverts normal bank lending procedures: to qualify for a loan, you have to be poor. Joygon used her $65 loan to buy a second-hand sewing machine, and started a small business making clothes, which her husband sells in the village market. Before her first loan, Joygon and her family frequently went hungry, and never had money for family medical care. She could not afford even the very small education fees for her children. Now, the family eats three healthy meals a day, with a diet including vegetables, grains, and a small amount of meat and fish. Her children attend school, and she has money saved up for emergencies.
Joygon is just one of the millions of participants in a peaceful revolution of credit to the poor. In 1993 alone, the Grameen Bank lent to over 1.7 million borrowers. The borrowers, mostly women, are required to organize themselves into groups of five, and learn the rules of the bank before they can receive a loan. The members of the group support and encourage each other, and take individual responsibility for their own loans as well as collective responsibility for the group.
When the Grameen Bank approves the loans, usually the two poorest and neediest receive their loans first. Each week, the borrowers make their loan repayments. After five weeks, if the first two borrowers have kept on schedule with their repayments, the next two borrowers receive their loans, and after five more weeks, if the first four borrowers are on schedule, the fifth borrower receives her loan. The borrowers support each other, because the bank will make not make subsequent loans while anyone in the group is in default.
First loans average $30 and have occasionally been less than one dollar. Subsequent loans are larger, and the average loan size is about $100. 98% of the loans are repaid on schedule. The Grameen Bank has had explosive growth, roughly doubling the number of borrowers every two years. There are Grameen Bank branches in 34,000 villages, over half the villages in Bangladesh. Here is the story that Grameen Bank founder Muhammad Yunus tells about how the Grameen Bank goes to a new village and finds the first borrowers there.
When the first Grameen Bank workers come to the village, they announce that they are looking for poor women to lend to. Usually, several women will come and say "I am poor and I could use a loan." The bank workers listen politely, but they take no action. Usually these women go away after awhile, when it seems that nothing is happening. After a few weeks, a bank worker starts looking for the first borrowers. She looks for the women who were too timid to come forward. She finds a woman in her hut, and says that the Grameen Bank is looking for poor women to lend to. The woman usually responds that they must have meant to speak with her husband. "No, we meant to speak with you," the bank worker replies. The woman then often says that she doesn't need or want any money. Coming from a desperately poor woman, this is a strong sign that the bank has found a borrower. Almost everything in her life that started out looking like good news has turned out bad, and she's learned from bitter experience to avoid becoming hopeful.
The bank worker explains that many other women as poor as she have taken loans, started small businesses, and generated income to repay the loans and improve the quality of their lives. The prospective borrower finds the courage to seek out four others. They each decide what to do with the money, and learn the rules of the Grameen Bank. The Grameen Bank approves the loans. Soon comes the day that she will receive the money. The night before she gets her loan, she cannot sleep. She worries that her business will not succeed and she will not be able to repay. By morning, she has often decided to cancel her loan request. But the other four women encourage her to go through with it, and convince her that with their support, she will succeed. When she accepts the money, her hands are trembling. She's never seen $30 all in one place, let alone in her own hands. She takes the money and starts her business, and her life is changed forever.
This story may seem bizarre to us. Here in America, banks don't lend to people without education, collateral, and business experience. If a bank decided to do poverty lending, we might expect that they would wait for the most aggressive, dynamic personalities, who might have the best chance for a successful business. But the Grameen Bank has learned that almost anyone can succeed with a little encouragement.
Obviously, the Grameen Bank has succeeded in increasing the incomes of some of the world's poorest women. Are these increases in income sufficient to escape poverty? A Malaysian professor of economics took a leave of absence to study the Grameen Bank, and concluded that, of long term borrowers, 48% had crossed the poverty line and 27% more had moved close to the poverty line. The remaining 25% had made little progress, usually because long-term illness in the family had eaten into the savings. Not only do the borrowers support each other in groups of five, they also support political reform in their country. Traditionally, most of the poor in Bangladesh heeded the advice of the village elders in deciding how to cast their ballots. But in Grameen Bank villages, the borrowers organize to interview the candidates, and in some cases have run for office themselves, and been elected.
The Grameen Bank is the world's most successful microenterprise lending institution, but it is far from the only one. Similar banks operate in the Philippines, Indonesia, El Salvador, Mexico, and many other countries. There are poverty banks in the United States, most of which offer business training and support in addition to loans. East Bay microenterprise organizations include WISE, the Women's Initiative for Self-Employment (telephone 510-208-9473) [ed. note: Women's Initiative's telephone numbers are now 415-247-9473 (English) and 415-826-5090 (Spanish)] and the East Bay Small Business Development Center (telephone 510-893-5532). [ed. note: EBALDC's telephone number is now 510-287-5353.]
The economics of microenterprise make it a compelling anti-poverty strategy. With a loan of $100, in a poor country one can start a small business, repay the loan in a year, while still owning the productive assets. Over time, one can earn enough to escape from poverty. When the $100 is repaid, it can be lent to another borrower. The grassroots anti-hunger lobby RESULTS has pushed for microenterprise as a poverty eradication tool and promoted legislation to allocate a portion of U.S. foreign assistance to microenterprise lending programs. There was considerable White House and State Department resistance to this until they actually tried it. Agency for International Development (AID) officials now acknowledge that microenterprise are among the most successful anti-poverty programs, and AID Administrator J. Brian Atwood has committed to support expansion of microenterprise lending.