Nikkei Asia Prizes 2004

Originator of 'micro credit' hopes to end poverty

Winner for Regional Growth:
Muhammad Yunus
managing director of Grameen Bank, Bangladesh

Muhammad Yunus, who won the prize for regional growth, developed the concept of "micro credit" - a lending service targeting the poor and needy - and created Grameen Bank in Bangladesh to provide it.

As a young, spirited economist three decades ago, Yunus saw firsthand the suffering of the poor when a famine hit his country. It made him question the merits of an economic theory that could treat billions of dollars as a mere pittance, while doing little to help people struggling to earn a few cents just to buy food.

The young Yunus visited poor families in local villages, hoping to help them in some way. It was then that he met a group of women who earned their living by making bamboo craftwork. Hearing that this group was in dire need of money to purchase materials, he lent them the equivalent of $27 out of his own pocket. This was the beginning of his micro credit system, which requires no collateral.

For people denied loans by private banks because of their inability to provide collateral, Yunus acted as a guarantor, fully aware that he could lose money. He helped many at more than 100 villages in this way over two years, during which there was not a single default. As the number of loans grew, he began to think it might be better to create a bank for the poor rather than merely serving as their guarantor. In 1983, Yunus launched Grameen Bank.

The bank's lending system is vastly different from that of an ordinary bank. At Grameen, several borrowers form a group, within which each member's repayment plan is drawn up based on income level and type of business, typically mom-and-pop operations such as crafts makers and small farmers. Bank officials pay the groups regular visits to discuss repayment plans or collect on loans.

Grameen Bank boasts a repayment rate of more than 90% since the start of operations. It now lends $4.2 billion to 3.2 million borrowers, with a repayment rate of nearly 98%. Judging from the bank's own definition of poverty, based on residential and clothing conditions, among other factors, 46% of the borrowers can no longer be categorized as poor, Yunus said.

Not one for half-measures, Yunus says he is too fully engaged in all his activities to classify any as a hobby. His ultimate objective, which he hopes to accomplish using the micro credit system, is to halve the number of the world's poor by 2015.