Banker to the Poor
In Banker to the Poor, author Muhammad Yunus recalls his early experiences fighting poverty in Bangladesh. He established a micro-credit system through the Grameen Bank, a bank which he began as a mechanism to provide small-scale loans to the villagers by requiring no collateral in terms of private property. Although the interest rate of loans is pegged at 20 percent, Yunus reveals that approximately 98% of those who requested for loans were able to pay their dues.
A more interesting fact to the lending approach of Yunus before he was able to establish Grameen Bank is that he did not demand the borrowers to repay their loans at a specific time, which altogether makes the high repayment rate more interesting. That eventually became the cornerstone of the belief of Yunus in the power of social connections in reversing poverty from the ground level.
The first chapter of the book narrates the early life of Yunus in one of the small yet busy areas in Bangladesh—Chittagong. Growing up under the watchful eyes of his father, Dula Mia, their soft-hearted father was nevertheless strict to his children when it comes to their education. Her mother Sofia Khatun, on the other hand, “was a strong and decisive woman” and the “disciplinarian of the family” (p. 5).
Yunus admits that “she was probably the strongest influence” on him as she was “full of compassion and kindness,” giving money to “any poor relatives who visited us from distant villages” (p.5). It was her who raised his interest in economics as well as in social reform, among others. Apparently, the book reveals how Yunus carried those attitudes for the rest of his life.
The succeeding chapter reveals the heightened sense of awareness and responsibility on the part of Yunus. Despite having been able to start businesses in the printing and packaging sectors while teaching economics at a local college, it appears that Yunus was still yearning for something more. Living in the United States, he begins to set-up an expatriate Bengali response in the face of the independence of Bangladesh. He stood as a leading figure in the organization and, after some time, he returned to his home country where his personal missions in life were about to be carried on.
From the third to the sixth chapters, the book gives further details into the struggles surpassed by Yunus along with other people in trying to lift the poor people in Jobra from the difficulties of survival aside from the troubles they face of paying loans to local lenders. Yunus observes that the poor people of Jobra were caught in an unending lending cycle—the moment these people begin to have their personal loans from local lenders known as paikars, they then live their lives paying back a measly sum that could have been paid-off easily had the people of Jobra been capable of selling their goods directly to the market.
The difficulty of the situation, Yunus notes, is the fact that the people at Jobra earned so little from what they make that they could hardly repay the loans they made from the paikars. Most of the income they get from their labor is spent for loan payments, especially as payment for the interest rates of such loans.
Yunus initially decides to help the residents of Jobra after realizing that the economics lessons he has been teaching in school is a distant representation of the thriving poverty in the local villages. Yunus and his students began doing surveys about the financial conditions of the people in the villages in order to determine the scale of poverty dealt with by the residents.
He began to provide small loans to the villagers with favorable interest rates, the payment of which depends on whether the people are already financially capable of repaying their loans. However, Yunus realizes that his lending capacity is very much limited as it became more difficult for him to lend to a growing number of poor residents.
Chapter Four of the book provides a clearer understanding of how Yunus approached the situation. In order to address the problem, Yunus decides to approach local banks and seek their financial help. However, his task apparently becomes a tough one to handle due to the conventional ways in which banks provided loans; the banking system, as Yunus observes, forces banks to provide loans to loan applicants for certain conditions, conditions which the poor residents at Jobra can hardly manage to meet.
For instance, banks require collateral as a form of security of payment to the loans and as a way to offset their financial losses when loans are not paid. To Yunus, the people at Jobra do not have many properties and other personal belongings which they can use as collateral for their loans, thereby making things more difficult for them to apply for loans from local banks.
Chapter Seven, aptly titled “A Bank for the Poor is Born”, recalls the creation of the backbone of the mission of Yunus. Out of the difficulties realized by Yunus came Grameen Bank, the foremost symbol of Yunus’s attempt to eradicate poverty in Bangladesh and—through the replication of the system in different countries—the world. The book chapter gives the readers a closer look at the challenges faced by Grameen Bank and Yunus himself at a time when the bank was still in its early stages. For instance, Yunus understood that the poor folks barely have anything to repay the loans within a specified time. Yet he also understood that collateral should not be repressive on the part of the poor folks.
Thus, he envisioned that the collateral should not be something valuable for the bank but something valuable to the people. The fact that the residents at Jobra and other poverty-stricken villages in Bangladesh barely have tangible properties suggests that Yunus should look for something else that can serve as the collateral.
Out of this observation, Yunus discovered that the best collateral that the people can give is their social connections and relations. In the book, Yunus explains that social connections thrive among the poor folks in Bangladesh and they value these connections high. He was then able to translate these social connections into a form that meets the collateral requirements of Grameen so that the bank will be able to continue providing loans to other poor residents.
Yunus developed a system which makes use of these social connections. Instead of single applications for loans, the bank’s representative will only accept applications from a group of five individuals. After the loan has been accepted by the bank, only one of the five members of the group will be given the loan applied for. Only when that member has been able to pay for the loans after a certain term will the next member be given his turn to receive a financial loan until all of the members of the group have successfully received their respective loans and paid for them according to their sequence. The process is then repeated after the last member has successfully paid for the standing loan. When the cycle is completed, a new cycle will begin although this time the loan given will be of a larger sum.
The implication of this lending scheme put forward by Grameen Bank is that the members of the group will somehow be compelled to use their social influence in order to at least nudge the person to pay for the loan so that the remaining members of the group can avail of their loans. This is perhaps the crux of the entire book—the use of social connections which the poor people had so much in order to end the cycle of poverty that has gripped their lives for a long time.
The book also provides information on the effects of the scheme the Grameen Bank applied in its banking transactions. For example, the fact that Grameen allowed women to transact with the bank in much the same way as males reduced the social inferiority of women to a certain degree. More interestingly, Yunus reveals that those who were most active in applying for loans and repaying their dues are women.
The book also deals with microfinance in some other parts of the world from chapter eight to chapter ten. Microfinance in other countries becomes another task of Grameen after maturing and reaching success on a local scale. In the ninth chapter, the book highlights how the scheme used by Grameen Bank has been applied to other developing countries such as the Philippines where there is rampant poverty. Interestingly, chapter ten also explains the application of the same scheme in wealthy countries such as the United States.
The contents of the chapter, “Applications in the United States and Other Wealthy Countries,” suggest that even wealthy nations have poverty existing in small and local scales. It parallels the individual poverties felt in obscure villages in Bangladesh and in urban slum areas of the United States, for instance.
The last four chapters of the book generally focus on the expansion of Grameen Bank not only Bangladesh but also in several other parts of the world. Part of the reason why Grameen has been able to progress beyond the boundaries of Bangladesh is the fact that the Bank has undergone several partnerships with international companies in furthering its missions. For instance, Ford and MacArthur Foundations as well as the World Bank have entered into several joint projects with Grameen such as Grameen Check which seeks to provide employment opportunities in the clothing industry to poor people.
The project eventually became a people-based textile industry that has been able to give jobs to the traditional weavers of Bangladesh, giving them the opportunity to earn by doing what they are good at. Another joint project entered b y Grameen Bank with other international agencies is Grameen Shakti, a program which focuses on rural-based renewable energy development.
In its entirety, Banker to the Poor exposes the life of Muhammad Yunus and his quest to eradicate poverty starting from his home country, Bangladesh. Grameen Bank stands as the foundation of all the pursuits that Yunus takes in order to reach his ultimate goal. Through the years of its existence, Grameen Bank has provided countless jobs and loans to the needy people in Banglades. Yunus’s approach to fighting poverty has also been applied to other countries where poor people are in dire need of financial assistance.
Yunus, M. (2003). Banker to the Poor: Micro-Lending and the Battle Against World Poverty
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