From beggar to businesswoman: banking for the poor (page 1 of 2)

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.