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Nobel Peace Prize Goes to Micro-Loan Pioneers

Stefan Lovgren
for National Geographic News
October 13, 2006
 
They call him the "banker of the poor." Now Muhammad Yunus can add Nobel
Peace Prize winner to his resume.

The Bangladeshi economist and his Grameen Bank won the 1.4-million-U.S.-dollar prize on Friday for pioneering a new category of banking known as micro-credit, which grants small loans to poor people who have no collateral and who do not qualify for conventional bank loans. (Related: Nobel winners in medicine, physics, and chemistry.)

The program has enabled millions of Bangladeshis, almost all women, to buy everything from cows to cell phones in order to start and run their own businesses.

Similar micro-credit projects have helped millions around the world lift themselves out of poverty.

In 1997 fewer than eight million families had been served by micro-credit worldwide, according to the 2005 State of the Microcredit Summit Campaign Report. By the end of 2004 some 3,200 micro-credit institutions reported reaching more than 92 million clients, according to the report.

"Muhammad Yunus is a revolutionary in the best sense of the word," said Sam Daley-Harris, director of the Microcredit Summit Campaign in Washington, D.C. "He has promoted independence, not dependence, among millions of poor people."

Seed Money

Yunus, 65, founded the Grameen Bank, which means "rural bank" in Bengali, in 1976.

The idea was kindled two years earlier, as the South Asian country was suffering from a famine. (Related photos: Bangladesh's deadly monsoons.)

Working as a young economics professor at Bangladesh's University of Chittagong, Yunus lent the equivalent of U.S. $27 from his own pocket to 42 women in the village of Jobra who had a small business making bamboo furniture (Bangladesh map).

Since then, the bank he founded has made an estimated 5.7 billion dollars in loans to more than six million people in Bangladesh, 96 percent of them women.

Anyone can qualify for the loans, which average about U.S. $200.

One of the bank's most notable success stories has been its so-called "village phone program."

Women obtain loans to acquire phone systems built from simple handsets and solar chargers, which function as pay phones in rural areas.

The concept of "village phone lady" is now known throughout Bangladesh and has spread to other parts of Asia and Africa.

Repayment is driven by social pressure. Loan recipients are placed in groups of five. Members can only apply for future loans once the group catches up on some of its outstanding debts.

That system encourages social responsibility and has a repayment rate in excess of 98 percent, the bank says.

"No one is more motivated than the poor to get out of poverty," said Alex Counts, who worked with Yunus in Bangladesh for six years and now heads the Grameen Foundation USA in Washington, D.C.

"A hundred dollars in capital may be the only thing that stands between them" and getting out of poverty, he said.

"You give them a fair deal—not a subsidized loan but a market-interest loan—and they're able to put their motivation, skills, and business savvy to work."

Preventing War

Yunus's strategy has been to do the opposite as conventional banks, says Daley-Harris of the Microcredit Summit Campaign.

According to Daley-Harris, Yunus "would say: 'If the banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate friendly. If you had to go to the bank, my bank went to the village."

The bank even runs a project called the Struggling Members Program, which works with up to 80,000 beggars in Bangladesh.

Many people had expected that the Nobel Peace Prize would be awarded to someone involved in peace negotiations.

However, in its citation, the Nobel Peace Prize committee, which is based in Oslo, Norway, said, "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty."

Daley-Harris agrees, saying achieving peace is about more than stopping war.

"A key part of preventing strife is that people have a stake in their communities and are empowered to care for their children," he said. "This is what micro-credit programs have been able to provide."

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