The Economist

From tiny acorns

"Can we really create a poverty free world?" asks Muhammad at the end of his autobiography. Yes, he says, and he believes that he has the key; credit. According o Mr Yunus, the surest route out of destitution for the world’s poorest people lies not in aid, welfare payments or losns from development banks to governments, but in lending tiny amounts of money directly to the poor, This book the story of both Mr Yunus’s life and Grameen Bank, the institution he founded, is his account of how he has put his belief into practice.

In 1974 as a young economics professor at the University of Chttagong in his native Bangladesh, Mr Yunus was appalled at the poverty in the village next to the campus. The theories he was teching he felt, did nothing to explain this misery nor to suggest how it might be ended. He decided to find out for himself. His first in terviewee, a young woman made bamboo stools with raw materials bought wih borrowed money. The finished stools had to be sold back to the moneylenders leaving scarcely enough after repaying her loan with interest to feed her family. So to make her next batch of stools, she had to retun to the moneylenders. There seemed to be no escape from the usurers’ grip.

Who thought Mr Yunus, should banks not lend such women the money to buy their raw materials? Having sold her wares at a fair price on the open market, she should have enough left over to service her a debt feed her family and make a profit. To most banks this seemed and still seems a daft idea. People this poor have no collateral no business experience and are often unlettered. Surely there could be no worse credit risk?

Mr Yunus disagreed and set up his own bank at first under the wing of Banladesh’s agricultural bank and some commercial banks. The poor he argues have a much greater incentive than the rich to repay heir debts it is their only way out of destitution. He claims that Grameen Bank which was incorporated in its own right in 1982 has a default rate of less than 1% far lower than conventional banks can boast Morover most of the worls’s poorest people are women. To Grameen Bank. they are more reliable customers than men, and make up 94% of the banks borrowers. the banks unusual systam of making loans which relies on peer group pressure, also pays an important part in keeping defaults down prospective borowers form groups of five who learn the banks ways together. If one member of a group defaults the other cannot get a loan.

Apparently even incredibly it works. The bank employs 12000 people has 2.3m borrowers and lends $35m every month it also makes a profit. quite how to anyone steeped in conventional economics and banking is a puzzle why does Grameen succeed where ordinary banks fear to tread? Subsidised loans used to be part of the answer but Grameen nowborrows commercially. A more likely explanaton is that conventional banks cannot justify the costs of making the tiny loans often of a few dollars in which Grameen specialises. their streamlined lending systems also demand credit histories and so forth Grameen's more personal system dispenses with all that. Mr Yunus’s connections often the Bank progresses thanks to a chance meeting with an old friend are also convenient in a country governed so badly and often so coruptly.

Microlending has now spread beyond Bangladesh to America and Western Europe as well as developing countries. A summit in Washington, DC last year attracted 3,000 delegates Grameen has moved beyond banking, to fish farming textile manufacture and even telecommunications and the Internet. Is Mr Yunusright to think that microlending and other Grameen –type enterprises can go a long way to rid the world of poverty? Perhaps although in the course of his book he unwittingly points to a reason why it very likely will not. In Grameen Bank’s early days, his unwilling par\trowns in the commercial banks resisted the extension of his then tiny project. It would not work, they said because the success of the venture so far had depended on Mr. yunus’s energy, and there was only one of him.

This says the author, mode him angry his coworkers were just as capable and dedicated. twenty years on the growth of his ideas might seem to have proved him right. Nevertheless, microlending, for all its successes, has barely scratched the surface of the world’s poverty. To rid the globe of poverty through credit would require many, many more people with Mr Yunus’s energy and optimism. Are there really enough?