I wanted to give you all some of the fundamentals of microfinance, which will hopefully suffice as an explanation for why I felt compelled to travel across the world to attend this conference after my experience as a Grameen Foundation intern. Microfinance began when Nobel peace prize laureate Professor Muhammad Yunus established the Grameen Bank in Bangladesh. Grameen Bank makes tiny loans for self-employment to some of the poorest people in Bangladesh. Thirty three years since its conception, nearly 8 million members of the Grameen Bank (when you include family members, 40 million) have escaped poverty. Grameen Bank has lent more than $8 million to the poor in Bangladesh.
When I first heard about Yunus and the revolution he began, I immediately began questioning how a person starts an enterprise such as microfinance, that reaches nearly 40 million people in one’s own country and touches the lives of tens of millions around the world? In 1974, while Professor Yunus was teaching as an economics professor at Chittagong University he found it difficult to teach his students how to make money while millions suffered from famine plaguing Bangladesh.
He went to the neighboring town of Jobra, where he met a stoolmaker who explained that she earned about two cents for each of her beautifully crafted stools. She was forced to borrow from a moneylender who demanded that she sell her stool back to him at a price so low that she only made a profit of two cents. Yunus could not believe the inescapable situation that the villagers faced.
Yunus asked one of his students to help him identify other villagers who were losing profit as the moneylender gained. He found 42 people who required a total of $27 (an average of 68 cents each) in order to pay off the moneylender; buy their raw materials and sell their wares to highest bidder. Yunus paid $27 out of his pocket and with her loan of less than $1, the stool maker’s profits went from two cents a day to $1.25 per day. And there you have it, with Yunu’s initial $27 loan, Grameen Bank had begun.
The answer to my question was simple- I observed that Yunus began doing the opposite of what every commercial bank‘s actions. For example, If the banks were lending large loans, he was providing small loans. He describes his search for new bank clients as process of “looking for the most timid.” If the bank required a credit check, Yunus did not. He and Grameen Bank believe that credit should be a human right. And the result, a 98% average repayment rate by Grameen Bank clients. Certainly better than the repayment rates of any student loan and credit card debts in the US!
Unlike commercial loans, no collateral is required for a micro-loan and is usually repaid within six months to a year. These funds are then recycled as other loans, keeping money working and in hands of borrowers. For example, a woman could borrow $50 to buy chickens so that she could sell their eggs. As the chickens reproduce, she can sell more eggs and eventually sell the chickens. As a borrower she receives support and advice from the microfinance institution (MFI) that issued her loan, and support from borrowers just like her.
Microfinance is client-focused and focuses mainly on women borrowers. Why women? Studies have illustrated that women use the profits from their businesses to send their children to school, improve family’s living conditions and expand their businesses. Their profits women make a greater impact on themselves, their families and their communities.
Overall, microfinance- the provision of small loans savings and insurance and other financial services to the unbanked globally- has proven to be a significant tool in alleviating poverty. The conference that I am attending is bringing together all the big players and political leaders from throughout the Middle East and Africa. The student delegation that I’m going with was put together by MFI Connect. (www.mficonnect.org). The MFI Connect experience at the conference includes field visits, panel sessions, workshops, meeting microfinance professionals, and the opportunity for students to meet and work together to support microfinance. On the second day of the conference, we have three 1 hour sessions with Muhammad Yunus, Fazel Abad, founder of BRAC and Ingrid Monro, founder of Jami Bora.
I’d like to spend the next few paragraphs filling you in on Ingrid Munro, one of the many leaders I will meet at the conference. Munro is a Swedish trained architect and urban planner, who started Jami Bora (which means good people), a Kenyan microfinance institution that has grown from lending money to 50 women beggars 10 years ago to over 200,000 members to date. Munro didn’t stop at providing micro credit to the poorest slum dwellers instead she decided to create a town to provide decent housing and business space for her entrepreneurs. “Every person’s dream is to move out of the slums, not patch up the slums.” Roughly 2,000 houses and 3,000 business premises are located in the town center. It has an access road from the main road, water and sewage treatment plant, and a landfill for garbage treatment. The creation of the Kaputei town was an extremely successful urban development project. Housing is a huge step in escaping poverty and at the same time it is a great tool to create more jobs.
Munro recognizes that not all members of Jami Bora are entrepreneurial. Some are very entrepreneurial and they create jobs so that that other people can employ those members. “The ones we call ‘slow climbers’ get employed by the ‘fast climbers’ because it’s logical for them to employ the people that they know.” Once again, the thought was provoked of where the capacity to innovate and surpass conventional wisdom in the microfinance industry stem from? Munro contributes her passion back to the moment that her and her husband adopted three street children. Her insights grew from the relationships that she formed with the mothers of her son’s friends in the streets. For her, that meant the beggar women had to begin the discipline of saving.
I believe many people living in the developed world easily lose track of the perspective that although impoverished, those attempting to escape poverty have the potential to be extremely capable with the correct environment. Imagine growing up in a slum environment, living in an hut made of mud in a country with severe rainy seasonal fluctuations, completely surrounded by sickly and impoverished people living on less than a dollar. If all the generations before you grew up in poverty, why would you feel you deserved more? Or more importantly, how would you possibly identify methods to escape your plight?
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