From beggar to businesswoman: banking for the poor

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The idea came from watching a woman make a bamboo stall who was indebted to loan sharks.

He believed that by offering tiny loans to people, he could help those with nothing begin to make money, and avoid borrowing from loan sharks in the process.

After early attempts to get banks interested in helping the poor failed, he founded Grameen Bank in 1983 in Bangladesh.

Since then, Yunus and his bank have won the Nobel Peace Prize and micro-credit has spread as an idea around the world, including the Middle East.

In the Middle East micro credit programmes are setting up in countries such as Jordan, Yemen and Lebanon. In Bahrain, Grameen has joined forces with the government to set up Family Bank. But it is in Bangladesh where micro-credit has really taken off and is making a difference to the lives of those who borrow money.

Originally the bank tried to lend money to men and women on an equal basis so that they could start a small business, such as raising chickens or buying raw materials for making products. But he quickly realised that money going to women brought more benefit to the family than when it went to men.

Lend to women

Speaking at the International Islamic Finance Forum in Dubai this week, he explained: 'We started to doubt the 50:50 split. We thought that if the goal was to help the family then should we concentrate on women.'

Today it has 7.5 million borrowers, 97% of whom are female. The average loan is about $120, but some loans are in the thousands of dollars. The amount, says Yunus, is flexible as long as borrowers fulfil the bank's requirements.

Bankers doubted his business plan, but by having small weekly repayments and by going to the villages to collect the money, loan defaults are tiny. Around 98% of those that borrow repay the money plus 20% interest.

First time borrowers get small sums, but once they have repaid that, they can then borrow bigger chunks of money. And anyone that defaults is not chased through the legal system; they simply can't borrow any more until that original amount is repaid.

Although interest is high, it is on the sum borrowed and not based on the time it takes to repay the loan. So whether a borrower takes six months or two years to repay a loan, the final amount repayable remains the same.

Yunus says his approach to banking is to understand how conventional banks operate, and then do the opposite. Grameen uses a check list to ensure it lends to the poorest of the poor. 'If there is furniture in the house, then they should wait, because we're looking for people without furniture. If the roof is solid they should wait because we want the people with a leaky roof,' he said.

'Grameen Bank is doing almost all things in an opposite way [to conventional banks]. We say the less you have the higher priority you get.' And that also means borrowers don't need any collateral before they get a loan.

Yunus describes his business as a social business, not as CSR. But his approach has many CSR elements, just taken to a whole new level. Most of the women that borrow money are illiterate and often did not send their children to school. They couldn't afford to. So he started an education programme among borrowers.

School programme

They must send their children to school, but he funds it through the bank. Last year alone Yunus and Grameen awarded 50,000 scholarships. If those children then move onto higher education, again they are funded by the bank - currently it has 21,000 children in higher education. Some are doing PHDs.

For Yunus, it is not about offering charity, but giving people hope. By offering micro-credit, people can start small businesses that make a real difference to their lives.

By insisting their children are educated, he gives them the opportunity to never fall into the poverty trap once they reach adulthood. Among those that have graduated he counts lawyers and doctors.

His scheme has been criticised. A common accusation is that he only helps the entrepreneurial poor, a charge he dismisses. To prove his case, four years ago his bank started lending money to beggars.

It has lent money to over 100,000 beggars, who are subject to the same conditions of repayment. The idea is that by lending them money to start selling products as well as beg, they can slowly improve their circumstances. He says 11,000 people in that programme are no longer beggars and that repayment rates are high.

The Grameen business has branched out from banking. It has a joint venture with Danone to help feed the poor. The venture sells fortified yoghurt full of essential nutrients. It costs very little to buy, but two cups a week gives people the nutrients their body needs. Any profits are ploughed back into the business.

In March, Grameen joined forces with Veolia Water to provide clean drinking water to the poorest communities. Other businesses included Grameenphone, now the biggest mobile telephony company in Bangladesh with 18 million subscribers. It was designed to provide communications for the poor.

Mobile phones need power, so he started a solar company called Grameen Energy. The plan was to sell 100 solar kits a month. It sells around 5,000 a month - again using the bank principals of small loans repaid weekly.

Solar equipment needs maintenance, so he had women trained in up keeping the equipment. They are called Grameen Certified Solar Engineers and can earn a living servicing people's products. To date Yunus has 26 companies operating under the Grameen brand.

Yunus has set up his businesses to help the poor, but not to just give them money. His belief is that by loaning them money they help themselves and it has a stronger long-term benefit than if they were just given aid. 'It's another way of looking at the world. It is in the poor person to change their world.'