Banking on the poor (Grameen Bank, Bangladesh).

The Grameen bank is recognized as one of the most successful international development projects ever undertaken and its founder, Muhammad Yunus, is known worldwide. Yet the principal lesson it teaches has generally been ignored by development agencies.

The lesson is a simple one--give people the resources and the opportunity to do what they want to do, and development will take place.

Dr Yunus was teaching economics in the United States when his native Pakistan split in two. He went back to his new homeland, Bangladesh, with a desire to help put it on its feet. He was soon teaching economics in the university of Dhaka, the capital, but became increasingly uncomfortable with the vast gap between what he was teaching and the economic reality for most of his countrymen and women.

He found that most poor people, particularly the women, needed only a very small amount of capital (sometimes as little as 50 US cents or a dollar) to get them started in a remunerative business. He spoke to 42 poor women in one village and found that $27 would meet their credit needs.

The banks paid no attention when he tried to get them to lend money to the poor. `We can't do that. They have no collateral,' was the response.

Finally, after four years of battling red tape, Yunus was able to set up his own bank. The customers, chiefly women, can borrow for up to a year at 20 per cent interest. They borrow in teams of two to four so that although there is no collateral there is the peer pressure of wanting to make a go of it so as not to embarrass friends. The default rate is lower than that experienced by most commercial banks. Yunus called it the Grameen (meaning rural) Bank. Now that it has 35,000 branches, more than two million customers and a default rate of only two per cent, conventional bankers are beginning to take notice.

Other countries are beginning to apply the philosophy of the Grameen Bank. Similar banks now exist in 52 countries, including several in Canada and several hundred in the USA. Yunus restricted his to rural areas so it would not be taken over by urban interests, but he says the idea will work just as well among the urban poor. `Wherever there is a gap that is not being filled by the conventional financial institutions, there is an opportunity for such a bank,' he says.

The Grameen Bank has recently passed another milestone. Formerly banks would not buy the Grameen Bank bonds unless there was a government guarantee. Today no guarantee is required and investors are urging Yunus to go public so they can buy shares.

Dr Yunus's satisfaction, however, does not come from the success of his financial institution but from what it has done for the women of Bangladesh. Millions, formerly without status and with few human rights, are becoming entrepreneurs, shareholders in a bank, owners of their own homes, contributing to the growth of their country.

Women are far more likely than men to spend money on health care, education, food and clothing for the children, Yunus points out.

One of the biggest problems facing developing countries is their massive debt load. This accumulated when industrialized countries persuaded them to accept loans for development projects that could not generate enough income to repay the lender. Hundreds of millions of dollars in unpaid loans have been forgiven and much more will have to be written off before many countries can be free of the burden.

The lesson from the Grameen Bank experience appears to be that the industrialized world is lending to the wrong people.