Winter 2008 • Vol. 35, No. 1
How Legal Steps Can Help to Pave the Way to Ending Poverty
by Muhammad Yunus
There is no better time for a serious discussion of how the law and lawyers can enable the poor to help themselves?throughout the world, and especially in the United States .Right now, highly regulated banks in the developed world (many of them in the United States ) are having trouble pricing and trading complex mortgage-backed securities. At the same time, how?ever, trust-based microfinance banks like Bangladesh ?s Grameen Bank continue to do well, unaffected by the financial uncertainty in the rest of the world.
How the Trust-Based Grameen Bank Works
The Grameen Bank issues loans using very simple trust-based financial arrangements; no legal documents are involved because, in part, Grameen?s borrowers are poor and have no collateral. So, Grameen relies on trust and the positive incentives of continued access to credit and other support to ensure repayments?and Grameen?s repayment rates have averaged better than 98 percent. Because Grameen?s loans are based on trust and positive incentives and no legal documents, Grameen has never used lawyers or courts to collect any of its loans. Grameen has about 7.5 million borrowers in Bangladesh , and has loaned approximately $7 billion since its inception, with an average loan size of about $150.
When a potential borrower wants a loan, she has to form a group of five or join such a group of borrowers from her neighborhood and agree to meet with that group once a week. Each loan is made to an individual in the group and is the responsibility of that one individual, but others in the group cannot get their next loans if any member of the group is late in her payments.
Grameen?s borrowers are also required to maintain a regular savings plan, and today its borrowers and their nonborrowing neighbors as a group have $150 in savings for every $100 in loans outstanding. Today, the Grameen Bank is funded by the savings deposits of the poor. It has been profitable for all but three of the last twenty-five years.
Grameen?s interest rates for loans and savings are clearly available to all at www.grameen.com. All loans are intended for income-producing activities, housing, or education, not for consumption. The basic interest rate for most business loans is 20 percent. In addition, Grameen has issued more than 600,000 housing loans at 8 percent and about 20,000 educational loans at 5 percent.
Grameen also has arranged loans for about 100,000 beggars, whom it calls ?struggling members.? These loans are interest-free and offered without time limits. The goal is to encourage these members to cease begging and to become regular savers and borrowers. To date, 10 percent of these borrowers have left begging behind completely.
The Grameen bank is 96 percent owned by the borrowers, 97 percent of whom are women. Nine of its twelve directors are women..
Its bankers, using bicycles or motorcycles, go to a borrower?s neighborhood for the weekly meetings. Typically, ten or so groups of five borrowers (sixty individual borrowers total) meet every week for about an hour to pay back existing loans, to receive new loans, and to exchange ideas in an open and transparent way in front of the whole group of fellow borrowers. The approach is practical also because Grameen?s borrowers typically cannot read financial statements.
|Prof. Muhammad Yunus & Grameen Bank Awarded The Nobel Peace Prize for 2006|| || |
The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights. Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries. Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus 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.
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.
Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions. Economic growth and political democracy can not achieve their full potential unless the female half of humanity participates on an equal footing with the male.
Yunus's long-term vision is to eliminate poverty in the world. That vision can not be realised by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part.