The man who invented Microfinance

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December 15, 2015
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December 15, 2015

The man who invented Microfinance

- Culled from Exceptional, January - June 2015

The best-known anecdote from the long and storied career of economist and social entrepreneur Muhammad Yunus is the one about the extremely modest beginnings of the microfinance movement he launched. The first loan was worth just US$27, split between 42 women in a single Bangladeshi village. What is less known is how close it came to never happening. Yunus, then aged 35 and a well- regarded university Economics professor, was investigating — “purely for my own knowledge,” he says — the operations of loan sharks in his native region of Bangladesh. “There was one specific woman who captured my attention,” he recalls. “She made small stools out of bamboo by hand, and she did so with borrowed money from a loan shark. There was a tremendous contrast between her poor, rundown shack and the nice stools she made, and I became curious. I wanted to know more about how she worked: How much money did she borrow? What were the terms? How much did she keep? How was the money used?”

But there was a big problem: the woman refused to discuss it with him. “As a woman and with no man at home, she couldn't talk to me; I approached her and she just ran away,” Yunus explains. “It took some time and effort to persuade her. I was with two students and we chatted in the local dialect, and all the while she remained in her small hut with us outside. Over time, we convinced her we meant no harm. Thankfully, she eventually relaxed and told us her story.” And her story was shocking: the woman, who was in her early 30s, bought the bamboo she needed for the stools with borrowed money and repaid it by giving the stools she made to the loan shark. He paid her just 10 cents a day for her efforts, about a fifth of what she estimated she'd earn if she sold the stools herself. “She spoke about it as if it was her job, but in reality, she was a slave laborer,” Yunus says. The setup trapped her, and many others like her, in an inescapable spiral of poverty and debt.

A shock wave that changed the world Yunus and his students began collecting similar information from other artisans in the village. After gathering the data, Yunus was stunned by what he discovered. Some 42 women in a single village were being held in abject poverty for an average debt of around 65 cents each. “We coined the term 'microcredit' for the solution we came up with, but we probably should have called it 'nanocredit,' because even 'micro' is too large,” Yunus says. He was amazed at how little it would cost to change the destiny of these women.
When the concept came to him, it was, he says, “like a shock wave.” It hit the world like a shock wave as well, though that part took several years.

The microfinance movement Yunus launched has helped improve the lot of at least 165 million people worldwide, and it happened with surprisingly little money when measured per capita.
Along the way, Yunus became an iconic figure as an author, lecturer, advocate and visionary. He won the Nobel Peace Prize 2006 and has also been awarded the US Congression al Gold Medal and the Presidential Medal of Freedom — the two highest civilian honors the US can bestow. In 2008, he was ranked second on Foreign Policy magazine's list of top global thinkers. He has counseled business leaders, heads of state and government, and even Pope Francis, who shares Yunus' worry about growing income inequality. That first meeting in Bangladesh took place nearly four decades ago, but Yunus' passion and enthusiasm remain as strong as ever. Even today, he leans forward in his seat and the rhythm of his speech quickens when he discusses the issues closest to his heart.

“It takes a dollar to catch a dollar,” he says, repeating one of his most quoted remarks. “An empty hand cannot catch it, and there are millions and millions of people in the world trying to do it with an empty hand. Nobody gives them a way to get started. That's where we come in.” As with most conversations with Yunus, the remarks eventually turn into a critique of capitalism. “In the capitalist system, nobody does anything unless it benefits that person,” he says. “At its worst, capitalism is a big sucking machine that takes juice from the bottom and cycles it to the top. At the top, life is good. But at the bottom, it is desperate and there is no margin for error. Sadly, those at the top don't act to help the ones at the bottom.”

The Bank of Villages

Yunus had firsthand experience of that phenomenon early on. Back in Bangladesh in the 1970s, his first steps into the world of microfinance quickly outgrew his ability to finance his project from his own resources. But established banks were hesitant to fill the gap. “At the start, it was easy because I didn't have to ask for permission from anyone,” he recalls. “Some people worried that I wouldn't get all the matter too much. I didn't keep detailed records. When someone paid me back, I just put the money in my pocket. But eventually, what we were doing spread from one village to another and to another, and soon I couldn't afford it. So I went to the loan manager at my local bank,” he continues. “He was not a stranger to me. I had my own account there, and he knew I was a professor at the university. I explained what I was doing and asked him to loan me money so I could help more people.” Read More


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