Bangladesh visionary shows the value of lending to the poor

Muhammad Yunus, Bangladesh’s interim leader, tasked with stabilizing his country after the August 2024 popular uprising that toppled longtime leader Sheikh Hasina, left office on Feb. 16. At the age of 85, he has transitioned the country from a 15-year rule by a person who for years vilified and persecuted him to a newly elected government — a remarkable achievement by a remarkable person who has changed much of our thinking on how to empower the poorest in low-income countries, and lift them out of poverty. Yunus has also taught us that being a for-profit business and socially responsible can be complementary and not contradictory.

Meeting him in person, Yunus, who completed his Ph.D. in economics in the US, comes across as mild-mannered and humble, yet determined and self-assured. It is a combination that gave great power to two of his most significant contributions — alleviating poverty through microfinance and social enterprise. Both have in common the idea that businesses with strong social aims and a strong identity can succeed in helping people facing poverty more effectively than charities can. As the charities rely on donors and not self-generating wealth, and do not necessarily offer people the tools to stand on their own two feet in the longer term while also regaining their self-esteem.

In his biography, Yunus describes the dilemma he faced after finishing his doctoral studies. Hoping to apply his academic, theoretical knowledge to the harsh realities of his people in Bangladesh, he found that, with the right approach, the gap between the two could be bridged. In the early 1970s, Bangladesh was slowly emerging from a brutal war of independence that cost the lives of 3 million people, while its economy was in ruins. To make things worse, the conflict was followed in 1974 by famine, forcing Bangladeshis to rely on food aid for survival.

Faced with widespread suffering across the country, the question for an economist was to find a way to end dependency on handouts and enable low-income individuals to access credit to unleash their entrepreneurial inner selves and propel them toward economic independence. In 1972, Yunus launched Grameen Bank to lend money to those on low incomes, mainly women. The bank offered loans of $27 to 42 impoverished villagers, which sounds little but was life changing. It lifted many of the recipients out of poverty, and now the bank has almost 11 million customers, 97 percent of them women.

Behind this approach, which earned Yunus the 2006 Nobel Peace Prize, was the belief that the “income poor” were not necessarily poor in ability, ambition or entrepreneurial spirit but were falling victim to a lack of access to resources and to hostile social structures.

From where they stood, life looked like an inescapable cul-de-sac, in which the government and others in society had given up on them. Somebody had to defy these immoral and damaging conditions — and Yunus did, and in an unconventional way. One might argue with his assertion that “all human beings are born entrepreneurs. Some get a chance to unleash that capacity. Some never got the chance, never knew that he or she has that capacity,” if it is seen as the pure neoliberal approach of free market enterprise; it must also be seen in the spirit of all human beings having the potential to do well and succeed, and as a result lead a fulfilling life, an important aspect of which is to be free of poverty.

Muhammad Yunus managed to introduce a solution that is both evolutionary and revolutionary. 

Yossi Mekelberg

A symptom of the patronizing attitude toward people on low incomes was, and to an extent still is, the refusal by traditional financial services to lend them money, claiming that they will fail to repay their loans, let alone have any collateral to protect the banks in such an eventuality. This traditional way of looking at banking did not ring true before the introduction of microfinance and the Grameen Bank, and, given this model’s success, it now rings hollow. It required a paradigm shift in how the rest of society perceives, trusts, and empowers those who suffer the misfortune of low income, even the most impoverished, to escape this poverty trap and build a new social covenant with them.

The prevailing perception that people on low incomes cannot manage their own financial affairs proved spurious with the introduction of microfinance. Grameen’s record in Bangladesh since its inception shows that it has helped nearly 70 percent of its customers to lift themselves and their families out of poverty. Due to building a social system that supports village life and traditions, the repayment rate is currently 98.4 percent, higher than the rest of the banking system. Moreover, the bank has been profitable in all but three of the years since its founding and has proved successful outside Bangladesh, including in the US. Significantly, it launched what can be seen as a global social movement in microfinance, which is expected to grow to around $330 billion by the end of the current decade.

Microfinance cannot be understood solely in economic terms, but as a vehicle of social inclusion and empowerment. Consider the fact that the vast majority of those who have been lent money have helped decrease their dependency, have enabled their voices to be heard, and have found their rightful place in society — as such, no one should be surprised by the success of this project, only by the fact that no one thought of it before.

Every generation needs those who can look at the same phenomenon, in this case poverty, but see it very differently than others do, and also have the capacity and courage to challenge the conventional wisdom. This is the story of microfinance and Yunus. However, I think that with the perspective of five decades, he managed to introduce a solution that is both evolutionary and revolutionary at the same time, by utilizing the existing concept of borrowing money, but revolutionizing how it is done and who benefits from it, a solution which has become life-changing for many millions in their path out of poverty.

• Yossi Mekelberg is professor of international relations and an associate fellow of the MENA Program at Chatham House. X: @YMekelberg