Giving a hand up, not a handout

Muhammad Yunus is an unusual banker: famous but not rich. His celebrity derives from his clients, Bangladesh's poor. By Lending tiny amounts of money to the neediest people on the planet Professor Yunus gave birth to a global banking phenomena: micro-credit.

Grameen Bank, which Prof Yunus founded in the mid-seventies, has grown into an emblem of social capitalism, promoting the idea that with just a few dollars the poor would become entrepreneurs, pull themselves out of poverty and lift their poverty-stricken nation with them.

In making money lending a respectable concept in a poor, conservative Muslim country, Prof Yunus and Grameen Bank was awarded the Nobel peace prize this year.

Grameen now lends $1bn to 7 million poor people. Almost all are women from Bangladesh's 78,000 villages. The repayment rate is a staggering 99%, although many loans are refinanced rather than repaid. The bottom line, says Prof Yunus, is profits will top $20m this year.

The 67-year-old's cherubic face has graced front pages across the world for giving the poor, in his own words, a "hand up not a handout".

"I believe that all humans are entrepreneurs. It is a case of seeing what is entrepreneurship. Selling snacks on the roadside is entrepreneurship. Before that, all that was available was moneylenders [and we had] bonded labour. We now provide the money and have businesses. It is peaceful development."

Grameen, which means "village" in Bengali, began life three decades ago when Prof Yunus, then an economics lecturer, found women weaving bamboo stools but selling them for meagre profits because of usurious interest rates.

Credit

As an experiment, Prof Yunus lent a total of $27 to 42 women in the village. All of them repaid. "The women were credit-worthy. It was the lending that was not people-worthy," he says.

What is remarkable is how Grameen bank upended conventional thinking in lending. The bank seeks no guarantee or references and has no binding contracts.

It does chase bad debts but does not check or monitor how the money it lends is used. Grameen, Prof Yunus says, is about proving that the poor, especially women, can be trusted to repay.

"We have a non-professional way of looking at it. Basically a billion dollars goes out and a billion dollars come back. Something must have happened. Money is piling up in the savings account."

Prof Yunus' two much-repeated tenets are "credit is a fundamental human right" and "poverty will one day be found only in a museum".

To western eyes Bangladesh remains mired in poverty. On the streets of Dhaka, Bangladesh's capital, one sees SUVs plying through a sea of beggars. Cycle rickshaws propelled by bare-chested men clog roads.

But Prof Yunus says that Grameen is helping to eat into poverty rates and empower women. He says that fertility rates have halved and the family size has shrunk, surprising "because Bangladesh is a Muslim country". Grameen bank's own surveys show 58% of borrowers have crossed the poverty line.

The only problem is Bangladesh's "political turmoil", which threatens to derail the good work. "It is the big worry we have," he says hours before the army takes to the streets as thousands of protesters paralyse the capital. Although Prof Yunus has been urged to enter politics and "save the nation", he demurs, saying it is not his "professional calling".

Islamic groups in the country have criticised him, Grameen Bank and micro-credit for charging interest and making women work. Under some interpretations of the Qur'an both are forbidden.

"I tried to explain it is not all that bad. That the prophet Mohammed's own wife was a businesswoman whom Muslim women could emulate. It is the fanatic fringe of the religious right which have problems with us but they are a very small minority."

"It does not solve the problem. I think that rich countries have fallen into this trap with welfare systems where able bodied humans are paid to sit around and do nothing. This is a system that produces zombies. By giving money to beggars you have the same response. It is the system not your conscience that needs reforming."

Beggars

Instead, three years ago, Prof Yunus asked Grameen employees to recruit a beggars as customers and turn them into a sales force. It offers small interest-free loans of about $12 which beggars can use to purchase "cookies or toys" which can be sold while begging. The loan can be paid back at anytime.

"It is working. We have lent now to 84,000 beggars - four for every member of staff. More than 5,000 have quit begging. All we did was lend money."

His other ventures all bear the hallmark of caring capitalism. Grameen is supplying candle-lit Bangladeshi villages with solar power and it brought French football superstar Zinedine Zidane to promote a low-cost yoghurt venture with Danone.

GrameenPhone, Bangladesh's biggest mobile operator with more than 10 million subscribers, is 62% owned by Norwegian telecom group Telenor. The rest is owned by Grameen Telecom, a firm in the Grameen family of businesses.

The managing director of Grameen Bank has won many admirers: Hillary Clinton, wife of former US President Bill Clinton, said that Prof Yunus had helped the Clintons introduce micro-credit schemes to some of the poorest communities in Arkansas.

But fame has its pitfalls. On a recent trip to China Prof Yunus woke up to headlines screaming that he had criticised the ruling Communist party.

"I thought 'oh my god what will happen to me'. I was terrified. But China is in real trouble. Some parts of the country are zooming ahead and others are stuck. Their [anti-poverty] institutions are not working. The central bank has invited me to start a Grameen Bank. I'll be among the first foreign banks in China."

In numbers

$1bn The total amount lent to poor Bangladeshi people by Grameen Bank

7m The number of mainly women borrowers from villages in Bangladesh

99% The proportion of loans granted that are either refinanced or repaid in full

$450 The monthly salary of Professor Yunus