Grameen Bank Microcredit -> Grassroot Development = Nobel Peace Prize 2006

Muhammad Yunus and Grameen Bank (first time a financial institution awarded the Peace Prize) in Bangladesh have been awarded the Nobel Peace Prize for 2006.  This is a monumental acknowledgement that working from the roots up does and has made a difference in lives of so many in the impoverished parts of the world.  In the world of economic and social development of the so called, ‘third world countries’ or less pejoratively, developing nations of the world, the best or even only way many view that progress and poverty alleviation will occur is through grassroots development and locally inspired movements where the people themselves are involved in their own plight and hence success.  Often, the imposition (a segment of the study of anthropology namely, development anthropology, rests on this tenet) of a top down or ‘their’ view of what development or progress should be, comes from the outside – a remote international agency, or even urban government agencies, which are disconnected from the indigenous culture or societal norms of the region or people they claim to be helping.  

With Yunus and the Grameen Bank, providing small loans (microcredit) without collateral to the most impoverished on terms which were relevant to the people of those villages, made the initiative sustainable and a success.   Almost 97% of the loan recepients are women, which has positive development implications.  They used the funds to purchase egg-laying hens, cows or materials which they could sell for a return.  For many, their lives have turned around, as they are now able to sustain their small enterprizes.  Without the threat of predatory lending institutions, Grameen’s track record has been equally astonishing, with very high payback rates—over 98 percent. More than half of Grameen borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan, as measured by such standards as having all children of school age in school, all household members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and the ability to repay a 300 taka (Bangladeshi currency)-a-week (8 USD) loan. 

This pioneering banking method of providing microcredit to the rural poor has been replicated in over 43 countries and has yielded grassroots success.  In Pakistan, for example, the Kashf Foundation has similarly helped many rural communities and women in particular. 

Inspired by the success of the Grameen Bank, Kashf (meaning miracle or revelation i.e. a process of self-discovery) began in 1996 as an action research programme focusing, for the first two years, on understanding the key aspects of providing microfinance to poor women. By early 2001 Kashf had a network of five branches in Lahore and a client base of 5,088 customers located in 214 centres. PPAF, DFID and the Agha Khan Foundation provide core funding.
 As of September 2004 we have 30 branches and more than 65,000 clients. Kashf provides collateral-free loans and savings services designed to cater for the needs of poor women. These include two basic lending products, the general loan and the emergency loan, along with a flexible, open access savings product. In addition, for the facilitation of its clients, Kashf also provides the accidental and life insurance product. The Kashf concept relies heavily on building centres of 25 women through which training on leadership, gender and reproductive health are organized.

It was the first institution of its kind in Pakistan.  Since then the Pakistan Microfinance Network has emerged and has 17 member organizations.  In an estimated 5.6 million households in need of microfinance services, only a fraction (< 1%) have access.   As the Grameen Bank and it’s founder have shown, access to microcredit can lead to greater poverty alleviation and perhaps more sustainable development in the lives of the least priviledged of the developing world.

Back to the Nobel Peace Prize….the following is from NPR’s Morning Edition:

Muhammad Yunus Morning Edition, October 13, 2006 · Bangladeshi economist Muhammad Yunus and his Grameen Bank are awarded the Nobel Peace Prize for their pioneering use of microcredit — tiny loans — to spur development among the poor. Bangladesh is a poverty-stricken nation of about 141 million people. The Grameen microcredit model has been exported to poor nations around the world.

Through Yunus’s efforts and those of the bank he founded, poor people around the world, especially women, have been able to buy cows, a few chickens or the cell phone they desperately needed to get ahead.

The 65-year-old economist said he would use part of his share of the $1.4 million award money to create a company to make low-cost, high-nutrition food for the poor. The rest would go toward setting up an eye hospital for the poor in Bangladesh, he said.

The food company, to be known as Social Business Enterprise, will sell food for a nominal price, he said.

“Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty,” the Nobel Committee said in its citation. “Microcredit is one such means. Development from below also serves to advance democracy and human rights.”

Yunus is the first Nobel Prize winner from Bangladesh, a poverty-stricken nation of about 141 million people located on the Bay on Bengal.

“I am so, so happy, it’s really a great news for the whole nation,” Yunus told The Associated Press shortly after the prize was announced. He was reached by telephone at his home in the Bangladeshi capital Dhaka.

Grameen Bank was the first lender to hand out microcredit, giving very small loans to poor Bangladeshis who did not qualify for loans from conventional banks. No collateral is needed and repayment is based on an honor system.

Anyone can qualify for a loan – the average is about $200 – but recipients are put in groups of five. Once two members of the group have borrowed money, the other three must wait for the funds to be repaid before they get a loan.

Grameen, which means rural in the Bengali language, says the method encourages social responsibility. The results are hard to argue with – the bank says it has a 99 percent repayment rate.

Since Yunus gave out his first loans in 1974, microcredit schemes have spread throughout the developing world and are now considered a key to alleviating poverty and spurring development.

Muhammad Yunus and Grameen Bank share the 2006 Peace Prize. P. Rahman/Scanpix

How Microcredit Works

Microfinance, sometimes called “banking for the poor” usually means providing poor families with very small loans to help them start and grow businesses. The loans are typically less than 200 US dollars. Very poor people use these small loans along with support from local organizations called microfinance institutions. Grameen Bank of Bangladesh is an example of an MFI. Click to learn more.

“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.”

The Norwegian Nobel Committee

More From Muhammad Yunus

Listen to Yunus in a 1993 NPR interview.

The Associated Press contributed material to this report.

Grameen Bank’s website can be viewed here.

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2 Comments »

  1. What a great achievement by Muhammad Yunus. It really does make you proud to be a pakistani.

  2. retro said

    It’s a shame what happened to Bangladesh. I hope the world steps up and helps them.

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