Posted in book review

A True Banker to the Poor

In the year 2006, an Economics professor was awarded the Nobel Peace Prize for his work on micro-credit. No theoretical model was formulated for which this prize was offered. Rather, the author successfully implemented the scheme of providing micro-credit to the poorest of the poor with almost 100% repayment of loans. That man’s name is Muhammad Yunus and the scheme he started is now the Grameen Bank with replication models in more than 57 countries, including some of the most developed ones. The book “Banker to the Poor” is a story of how a university professor actually took it upon himself to change the lives of some of the poorest in the entire world by providing them capital as a means to reinvent their lives.

The reader at this point may wonder, what is different about the things that this man has done. Surely the banks provide credit to the people, and at much lower interest rates, than that charged by the Grameen Bank? (Grameen Bank charges 20% interest on the principal). However, while the part about the interest rates is true, the Grameen Bank (GB from hereon) provides loans without the need of a collateral. And this is where the catch is. Commercial banks are not ready to provide loans to any person or organization without having sufficient guarantee that the person withdrawing can repay the loan.

Yunus studied the poor around his university and came to the conclusion that while they were talented and hard working, their inability to hold capital was what was holding them back, apart from being exploited by local money lenders.

After several futile attempts to convince banks to lend money to these people without collateral, the author, with a grant from the Ford Foundation, started lending money. He designed a system whereby only those who have no property are able to take loans. Women are specifically targeted as empowerment of a woman typically means empowerment of her entire family. Women can be eligible for loans only after they have formed a group with four other women who would all be responsible for each other. These women then have to pass a test whereby they must know and practice the Sixteen Principles of the bank which they are expected to follow. Chief among these rules is the fact that they will educate their children.

Once these women are able to take out loans, the peer pressure from the group ensures that the loan repayment is high. Also, since most of them are daily wage labourers and cannot go to the bank, the bank itself comes to them. Every week, a GB representative cycles to the villages and collects the weekly repayments.

The GB model has also been replicated in many developed countries including USA and Norway. While the above countries do not lack money, the initiative has freed people in the former country from the bondage of social security (a system which the author is critical of, since it does not allow people on welfare to break free and look for employment opportunities), and social integration in the latter country. In Norway, women on an isolated island were provided capital so that they could manufacture traditional items while the men were away working.

Apart from providing poor people with capital, the author also attacks the institutions providing aid (like the World Bank) by doubting their methods. The author argues that the very fact that these people are managing to survive without access to capital means that they have some skills. Rather than teach them new skills (which the aid programs try to do), their existing skills should be leveraged. Also, rather than viewing credit as a means to alleviate poverty, it should also be viewed as a means for social change and integration.

Muhammad Yunus through his work has inspired a generation of young men and women to help him in his mission to change the lives of around 2 million of GB members.  



I am a researcher by day and an avid reader at night. Interested in short stories, travelling and classical music.

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