Bangladesh’s microcredit pioneer, Muhammad Yunus, and his Grameen Bank on Friday won the Nobel Peace Prize for “their efforts to create economic and social development from below”.
Yunus said he would donate his $1.4m prize money to causes such as an eye hospital and a drinking water project.
The Nobel Committee said: “Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means. Development from below also serves to advance democracy and human rights.”
Yunus said on Friday that eradicating poverty “can give you real peace. There is no self-respect and status when you are burdened with poverty.”
From modest beginnings three decades ago, Yunus (born 1940) has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.
The Nobel Committee said said that every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.
In 1974, Professor Muhammad Yunus, a Bangladeshi economist from Chittagong University, led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.
Realizing that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent the equivalent of £ 17 to 42 basket-weavers. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.
Against the advice of banks and government, Yunus carried on giving out 'micro-loans', and in 1983 formed the Grameen Bank, meaning 'village bank' founded on principles of trust and solidarity.
In Bangladesh today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages. On any working day Grameen collects an average of $1.5 million in weekly installments. Of the 6.5 million borrowers, 94% are women and over 98% of the loans are paid back, a recovery rate higher than any other banking system. Grameen methods are applied in projects in 58 countries, including the US, Canada, France, The Netherlands and Norway.
Unlike most banks, Grameen has a policy that its loan agreements contain no provisions for legal recovery in the event of default. It gives highest priority to women in rural areas and has inspired many imitators.
Christine Wallich, country director of the World Bank in Bangladesh, has said that microfinance had bettered the lives of about 70m Bangladeshis, especially women.
While many microfinance organisations have struggled to attain scale and profitability, Grameen’s business model is in good financial health.
The Financial Times says that its loan portfolio exceeds that of the entire microfinance sector in India by a factor of two and its return on equity last year reached 21 per cent, up from 9 per cent in 2004.