Microcredit started in Bangladesh from the mind and practical effort of Dr Mohammad Yunus, an economics professor. After an original experiment Microcredit consolidated into the Grameen Bank which operates according commercial principles with regards to lending, charging interest, covering costs and offering a profit.

It all started when Dr Yunus found a woman, like so many in Bangladesh, that would work the whole day making straw baskets and chairs to give it all back at the end of the day to a money lender, retaining only a minor amount of the total effort and having to return the next day as an addicted person.

Dr Yunus observed her resourcefulness and offered her a loan from his own money in better terms which she was able to repay. Microcredit had started. Dr Yunus observed that the poor did not lack determination neither practical business ideas. They just lacked seed money. The Grameen Bank has today countless millions of customers, most of whom have risen above the poverty line of US$1 per day. The Grameen Bank has extended to areas such as housing, insurance, telephone communications and others.

Initially Dr Yunus tried to convince conventional banks to lend to the poor. He found only stupefactive bank managers who invariable asked him if he was for real. They told him that the poor, besides not having an income, also do not have collateral to provide to guarantee the loan. Moreover, the loan amounts Dr Yunus mentioned where ridiculously small. All this convinced Dr Yunus that he should start his own Microcredit bank.

Grameen Bank offers very small loans, less than US$300, and requires borrowers to aggregate in groups of five. Then, initially, only one group member is loaned money and when this starts to repay its loan, another is given one. Since the poor do not have collateral the resulting peer pressure does the same effect, being that each member of the group is responsible for the repayment of the loans given to them. This has been noted to work around the world and in all cultures being that the repayment rate for loans of the Grameen Bank is 98 per cent.

The discipline of weekly repayments is paramount to Grameen Bank. The borrowers are required to start repaying short after receiving the loan on a weekly basis. The repayment amounts are small but they are absolutely demanded. Dr Yunus believes that it's this discipline that makes the whole thing possible. Most borrowers feel overwhelmed when they receive their loan being that some have never held so much money before. Their major concern is to make the initial repayments but once they are through that they feel a lot more confident. After successful repayment of the loan, Grameen Bank customers can apply to another loan.

Grameen Bank, apart from its new modern office tower, does not hold branches as the other banks do. Instead it hires officers that visit each village where there are Grameen borrowers, find out about their difficulties, something about which officers both report and try to help, and collect monies and lend some more as needed. It must be noticed that Grameen just would not be up to the expense of building regional branches, so the travelling officers are ideal. On the other hand, it must be noticed that these officers earn local level salaries so that their cost is in line with revenues.

Other interesting aspects of the Grameen type of business are that they do not cross off any business idea. They just demand that it has some basis. Grameen basically trusts the business instincts of their customers. Examples of business by Grameen borrowers are: weaving, pottery, sewing, fattening animals, straw basket making, etc.

Grameen Bank only lends to women because they are more likely to use their proceeds around the family home while men might have other priorities. In experiments, though, in other cultures around the world loans were also made to men with success.

As resources you can read the book “Banker to the poor: the autobiography of Muhammad Yunus, founder of the Grameen Bank” by Muhammad Yunus, Aurum Press, 1998, ISBN: 1854105779 and consult the Grameen Bank website at this address: http://www.grameen-info.org/ and also the Grameen Foundation: http://www.grameenfoundation.org/. Checking these is a good start to set up a new Microcredit bank.

Finally, Dr Muhammad Yunus has been responsible for the life improvement of countless millions of people around the world and received in 2006 the Nobel Peace Prize “for their efforts to create economic and social development from below”.

Fernando Monteiro

Saturday, 5 July 2008