Banker to the Poor (6 page)

"Even when a person brings money and wants to put it in the bank, we ask him or her to write down how much she or he is putting in."

"Why?"

"What do you mean, 'Why?'"

"Well, why can't a bank just take money and issue a receipt saying, 'Received such and such amount of money from such and such a person?' Why can't the banker do it? Why must the depositors do it?"

"Well, how would you run a bank without people reading and writing?"

"Simple, the bank just issues a receipt for the amount of cash that the bank receives."

"What if the person wants to withdraw money?"

"I don't know. . .there must be a simple way. The borrower comes back with his or her deposit receipt, presents it to the cashier, and the cashier gives back the money. Whatever accounting the bank does is the bank's business."

The manager shook his head but did not answer this, as if he did not know where to begin.

"It seems to me your banking system is designed to be anti-illiterate," I countered.

Now the branch manager seemed irritated. "Professor, banking is not as simple as you think," he said.

"Maybe so, but I am also sure that banking is not as complicated as you make it out to be."

"Look, the simple truth is that a borrower at any other bank in any place in the world would have to fill out forms."

"Okay," I said, bowing to the obvious. "If I can get some of my student volunteers to fill out the forms for the villagers, that should not be a problem."

"But you don't understand, we simply cannot lend to the destitute," said the branch manager.

"Why not?" I was trying to be polite. Our conversation had something surreal about it. The branch manager had a smile on his face as if to say he understood that I was pulling his leg. This whole interview was humorous, absurd really.

"They don't have any collateral," said the branch manager, expecting that this would put an end to our discussion.

"Why do you need collateral as long as you get the money back? That is what you really want, isn't it?"

"Yes, we want our money back," explained the manager. "But at the same time we need collateral. That is our guarantee."

"To me, it doesn't make sense. The poorest of the poor work twelve hours a day. They need to sell and earn income to eat. They have every reason to pay you back, just to take another loan and live another day! That is the best security you can have—their life."

The manager shook his head. "You are an idealist, Professor. You live with books and theories."

"But if you are certain that the money will be repaid, why do you need collateral?"

"That is our bank rule."

"So only those who have collateral can borrow?"

"Yes."

"It's a silly rule. It means only the rich can borrow."

"I don't make the rules, the bank does."

"Well, I think the rules should be changed."

"Anyway, we do not lend out money here."

"You don't?"

"No, we only take deposits from the faculty members and from the university."

"But don't banks make money by extending loans?"

"Only the head office makes loans. We are here to collect deposits from the university and its employees. Our loan to your Three Share Farm was an exception approved by our head office."

"You mean to say that if I came here and asked to borrow money, you would not lend it to me?"

"That is right." He laughed. It was evident the manager had not had such an entertaining afternoon in a long time.

"So when we teach in our classes that banks make loans to borrowers, that is a lie?"

"Well, you would have to go through the head office for a loan, and I don't know what they would do."

"Sounds like I need to talk to officials higher up."

"Yes, that would be a good idea."

As I finished my tea and got ready to leave, the branch manager said, "I know you'll not give up. But from what I know about banking, I can tell you for sure that this plan of yours will never take off."

A couple of days later, I arranged a meeting with Mr. R. A. Howladar, the regional manager of the Janata Bank, in his office in Chittagong. We had very much a repeat of the conversation I had with the Jobra branch manager, but Howladar did bring up the idea of a guarantor, a well-to-do person in the village who would be willing to act on behalf of the borrower. With the backing of a guarantor, the bank might consider granting a loan without collateral.

I considered the idea. It had obvious merit, but the drawbacks seemed insurmountable.

"I can't do that," I explained to Howladar. "What would prevent the guarantor from taking advantage of the person whose loan he was guaranteeing? He could end up a tyrant. He could end up treating that borrower as a slave."

There was a silence. It had become clear from my discussions with bankers in the past few days that I was not up against the Janata Bank per se but against the banking system in general.

"Why don't I become guarantor?" I asked.

"You?"

"Yes, can you accept me as guarantor for all the loans?"

The regional manager smiled. "How much money are you talking about?"

To give myself a margin of error and room to expand, I answered, "Altogether probably 10,000 taka ($300), not more than that."

"Well," he fingered the papers on his desk. Behind him I could see a dusty stack of folders in old bindings. Lining the walls were piles of similar pale blue binders, rising in teetering stacks to the windows. The overhead fan created a breeze that played with the files. On his desk, the papers were in a state of permanent fluttering, awaiting his decision.

"Well," he said. "I would say we would be willing to accept you as guarantor up to that amount, but don't ask for more money."

"It's a deal."

We shook hands. Then something occurred to me. "But if one of the borrowers does not repay, I will not step in to honor the defaulted loan."

The regional manager looked up at me uneasily, not certain why I was being so difficult.

"As guarantor, we could force you to pay."

"What would you do?"

"We could start legal proceedings against you."

"Fine. I would like that."

He looked at me as if I were crazy. That was just what I wanted. I felt angry. I wanted to cause some panic in this unjust, archaic system. I wanted to be the stick in the wheels that would finally stop this infernal machine. I was a guarantor, maybe, but I would not guarantee.

"Professor Yunus, you know very well we would never sue a department head who has personally guaranteed the loan of a beggar. The bad publicity alone would offset any money we might recover from you. Anyway, the loan is such a pittance it would not even pay for the legal fees, much less our administrative costs of recovering the money."

"Well, you are a bank, you must do your own cost-benefit analysis. But I will not pay if there is any default."

"You are making things difficult for me, Professor Yunus."

"I am sorry, but the bank is making things difficult for a lot of people—especially those who have nothing."

"I am trying to help, Professor."

"I understand. It is not you but banking rules I have a quarrel with."

After more such back and forth, Howladar concluded, "I will recommend your loan to the head office in Dhaka, and we will see what they say."

"But I thought you as regional officer had the authority to conclude this matter?"

"Yes, but this is far too unorthodox for me to approve. Authorization will have to come from the top."

It took six months of writing back and forth to get the loan formalized. Finally, in December 1976, I succeeded in taking out a loan from the Janata Bank and giving it to the poor of Jobra. All through 1977, I had to sign each and every loan request. Even when I was on a trip in Europe or the United States, the bank would cable or write to me for a signature rather than deal with any of the real borrowers in the village. I was the guarantor and as far as the bank officials were concerned I was the only one that counted. They did not want to deal with the poor who used their capital. And I made sure that the real borrowers, the ones I call the "banking untouchables," never had to suffer the indignity and demeaning harassment of actually going to a bank.

That was the beginning of it all. I never intended to become a moneylender. I had no intention of lending money to anyone. All I really wanted was to solve an immediate problem. Out of sheer frustration, I had questioned the most basic banking premise of collateral. I did not know if I was right. I had no idea what I was getting myself into. I was walking blind and learning as I went along. My work became a struggle to show that the financial untouchables are actually touchable, even huggable. To my great surprise, the repayment of loans by people who borrow without collateral has proven to be much better than those whose borrowings are secured by assets. Indeed, more than 98 percent of our loans are repaid. The poor know that this credit is their only opportunity to break out of poverty. They do not have any cushion whatsoever to fall back on. If they fall afoul of this one loan, they will have lost their one and only chance to get out of the rut.

I did not know anything about how to run a bank for the poor, so I had to learn from scratch. In January 1977, when Grameen started, I studied how others ran their loan operations and I learned from their mistakes. Conventional banks and credit cooperatives usually demand lump sum payments. Parting with a large amount of cash at the end of a loan period is often psychologically trying for borrowers. They try to delay the repayment as long as they can and in the process they make the loan grow bigger and bigger. In the end, they decide not to pay back the loan at all. Such long-term lump sum payments also prompt both borrowers and lenders to ignore difficulties that come up early on; rather than tackle problems as they appear, they hope that the problems will go away by the time the loan is due.

In structuring our credit program, I decided to do exactly the opposite of traditional banks. To overcome the psychological barrier of parting with large sums, I decided to institute a daily payment program. I made the loan payments so small that borrowers would barely miss the money. And for ease in accounting, I decided to ask that the loans be paid back fully in one year. Thus, a 365 taka loan could be paid at the rate of 1 taka a day over the course of one year.

To most of those who will read this book, a taka a day may seem like a laughable sum, but it does produce steady incremental gains. The power of the daily taka reminds me of the clever prisoner who was condemned to death. Brought before the king on his execution day, the prisoner was granted one last wish. He pointed to the chessboard at the right of the king's throne and said, "I wish only for a single grain of rice on one square of the chessboard and that that grain be doubled for each succeeding square."

"Granted," said the king, who could not fathom the power of geometrical progression. Soon the prisoner reigned over the entire kingdom.

Slowly my colleagues and I developed our own delivery-recovery mechanism and, of course, we made many mistakes along the way. We adapted our ideas and changed our procedures as we grew. For example, when we discovered that support groups were crucial to the success of our operations, we required that each applicant join a group of like-minded people living in similar economic and social conditions. Convinced that solidarity would be stronger if the groups came into being by themselves, we refrained from managing them, but we did create incentives that encouraged the borrowers to help one another succeed in their businesses. Group membership not only creates support and protection but also smoothes out the erratic behavior patterns of individual members, making each borrower more reliable in the process. Subtle and at times not-so-subtle peer pressure keeps each group member in line with the broader objectives of the credit program. A sense of intergroup and intragroup competition also encourages each member to be an achiever. Shifting the task of initial supervision to the group not only reduces the work of the bank but also increases the self-reliance of the individual borrowers. Because the group approves the loan request of each member, the group assumes moral responsibility for the loan. If any member of the group gets into trouble, the group usually comes forward to help.

In Jobra, we discovered that it is not always easy for borrowers to organize themselves into groups. A prospective borrower first has to take the initiative and explain how the bank works to a second person. This can be particularly difficult for a village woman. She often has a difficult time convincing her friends—who are likely to be terrified, skeptical, or forbidden by their husbands to deal with money—but eventually a second person, impressed by what Grameen has done for another household, will take the leap of joining the group. Then the two will go out and seek out a third member, then a fourth, and a fifth. Once the group of five is formed, we extend loans to two members of the group. If these two repay regularly for the next six weeks, two more members may request loans. The chairperson of the group is normally the last borrower of the five. But often, just when the group is ready, one of the five members changes her mind, saying, "No, my husband won't agree. He doesn't want me to join the bank." So the group falls back to four, or three, or sometimes back to one. And that one has to start all over again.

It can take anywhere from a few days to several months for a group to be recognized or certified by Grameen Bank. To gain recognition, all the members of a group of five prospective borrowers have to present themselves to the bank, undergo at least seven days of training on our policies, and demonstrate their understanding of those policies in an oral examination administered by a senior bank official. Each of the members must be individually tested. The night before her test, a borrower often gets so nervous that she lights a candle in a saint's shrine and prays to Allah for help. She knows that if she fails she will let down not only herself but also the others in her group. Though she has studied, she worries that she will not be able to answer the questions about the duties and responsibilities of a Grameen Bank member. What if she forgets? The bank worker will send the group away, telling all the members to study some more, and the others in the group will chastise her, saying, "For God's sake, even this you can't do right! You have ruined not only yourself but us as well."

Some critics argue that our rural clients are too submissive and that we can intimidate them into joining Grameen. Perhaps this is why we make our initiation process so challenging. The pressure provided by the group and the exam helps ensure that only those who are truly needy and serious about joining Grameen will actually become members. Those who are better off usually do not find it worthwhile. And even if they do, they will fail our means test and be forced to leave the group anyway. We want only courageous, ambitious pioneers in our micro-credit program. Those are the ones who will succeed.

Once all members pass the exam, the day finally comes when one of them asks for a first loan, usually about twenty-five dollars, in the eighties. How does she feel? Terrified. She cannot sleep at night. She struggles with the fear of failure, the fear of the unknown. The morning she is to receive her loan, she almost quits. Twenty-five dollars is simply too much responsibility for her. How will she ever be able to repay it? No woman in her extended family has ever had so much money. Her friends come around to reassure her, saying, "Look, we all have to go through it. We will support you. We are here for just that. Don't be scared. We will all be with you."

When she finally receives the twenty-five dollars, she is trembling. The money burns her fingers. Tears roll down her face. She has never seen so much money in her life. She never imagined it in her hands. She carries the bills as she would a delicate bird or a rabbit, until someone advises her to put the money away in a safe place lest it be stolen.

This is the beginning for almost every Grameen borrower. All her life she has been told that she is no good, that she brings only misery to her family, and that they cannot afford to pay her dowry. Many times she hears her mother or her father tell her she should have been killed at birth, aborted, or starved. To her family she has been nothing but another mouth to feed, another dowry to pay. But today, for the first time in her life, an institution has trusted her with a great sum of money. She promises that she will never let down the institution or herself. She will struggle to make sure that every penny is paid back.

Early on, we encouraged our borrowers to build up savings that they could fall back on in hard times or use for additional income-generating opportunities. We required all borrowers to deposit 5 percent of each loan in a group fund. They understood this tactic as being similar to the Bengali custom of
mushti chal
("handful of rice"), where a housewife puts away small amounts of rice every day to slowly build up a substantial reserve. Any borrower can take an interest-free loan from the group fund,
*
provided that all the other members of the group approve of the amount and its usage and that the loan does not exceed half of the fund's total. In thousands of cases each year, loans made to our members from their group funds stave off seasonal malnutrition, pay for medical treatments, purchase school supplies, recapitalize businesses affected by natural disasters, and finance modest but dignified family burials. As of 1998, the total amount in all the group funds exceeded $100 million—more than the net worth of all but a handful of Bangladeshi companies.

If an individual is unable or unwilling to pay back her loan, her group may become ineligible for larger loans in subsequent years until the repayment problem is brought under control. This creates a powerful incentive for borrowers to help each other solve problems and—even more important—to
prevent
problems. Groups can also request help from other groups in their "center," a federation of up to eight groups in a village that meets weekly with a bank worker at a predetermined place and time. A center chief, a group chairperson who is elected by all members to manage the center's affairs, helps solve any problems that a group is unable to handle on its own and works closely with the bank worker assigned to the center. The chief also plays an active role in screening loan requests. When a member makes a formal loan request during a meeting, the bank worker will normally ask the group chairperson and the center chief whether they support the loan proposal—both the amount and its purpose.

From the very beginning, we decided that all business conducted during center meetings should be done out in the open. This reduced the danger of corruption, mismanagement, and misunderstandings and it kept the leaders and the bank workers directly accountable to the borrowers. Often borrowers would invite their children to join the meetings before school, so that these young ones could read them the notations in their passbooks and make sure that everything was being done correctly.

I still find it exciting to travel out to Grameen villages and meet with centers. With each passing year the borrowers assume more responsibilities for the management of their own affairs. They come up with more innovative approaches to preventing and solving problems and find new ways to ensure that each member rises above the poverty line as quickly as possible. I always return from the villages more convinced that providing credit is a powerful means to create profound change in people's lives. It has been that way since I started visiting centers in 1977 and continues to this day. When I visit center meetings, not only in Bangladesh but all over the world, in countries as diverse as Malaysia, the Philippines, South Africa, and the United States, I realize how resilient and creative human beings can be when given the chance.

One example of resilience is Mufia Khatoon, a Grameen borrower from Mirsharai District, north of Chittagong. Mufia joined Grameen in late 1979. Her life had been filled with sorrow until that point. In 1963, at the age of thirteen, she was married by her father, a kind-hearted farmer and fisherman, to a man named Jamiruddin of Dom Khali village in Mirsharai. During her husband's long absences at sea on a fishing boat, Mufia's mother-in-law verbally abused her and made sure she received little if any food even after doing all the cooking. Mufia lived a half-starved existence for years. When her husband returned home, he often beat Mufia. Occasionally her father, who lived a few miles away, tried to protect her, but his efforts made no lasting impact on how she was treated.

Mufia became pregnant three times during these years, but one child died shortly after birth, and she was unable to carry the other two to term. Suffering from malnutrition and anemia, she finally gave birth to a son who survived, but it left her in a precarious state of health. Somehow she recovered, but the beatings and the life of semistarvation continued.

In 1974, a village leader intervened and arranged for a divorce. Mufia was then free from her husband's beatings, but starvation followed her into her new life. She began begging. She begged in the rich neighborhoods of Khaiachara and Mithachara villages. An entire day's begging would yield a few ounces of rice, hardly enough for her and her three children (after her son, she had two daughters, and she also looked after a nephew who was an orphan). One day she was begging from a woman who had a home-based business making baskets, mats, and other items from bamboo. She asked Mufia if she would want to borrow fifteen taka from her to buy some bamboo and sell it in the market. Mufia agreed, made a ten taka profit, and repaid the loan. With the ten taka, she bought some food for her family. This was repeated a few times over the next few years, but after a while the woman stopped giving Mufia loans and she was forced to become a full-time beggar again.

Mufia starved through the famine of 1974 and her makeshift house was destroyed in a storm in 1978. But in 1979, she joined the Grameen Bank and borrowed 500 taka to restart her bamboo business. When she paid back her first loan, she felt like a new person. Her second loan, received on December 25, 1980, was for 1,500 taka. Although she sometimes missed installments during the lean season when demand for bamboo products was low, she always caught up when the economy improved after the rice harvest.

During her first eighteen months as a Grameen Bank member, Mufia was able to buy 330 taka worth of clothing for herself and her children and cookware for 105 taka. These were luxuries that she had not had since she was divorced from her husband fifteen years earlier. She and her children were also eating more regularly and more nutritious food. Meat was never an option, but vegetables were more common, and occasionally she bought dried fish in the market as a treat.

Mufia is one of thousands of former beggars who are now living a dignified life because they were able to access loans from Grameen Bank. To help inexperienced borrowers like Mufia, we have always tried to simplify our lending operations. Today we have distilled our repayment mechanism to the following formula:

 

• Loans last one year.
  
 

• Installments are paid weekly.
  
 

• Repayment starts one week after the loan.
  
 

• The interest rate is 20 percent.
  
 

• Repayment amounts to 2 percent of the loan amount per week for fifty weeks.
  
 

• Interest payments amount to 2 taka per week for every 1,000 taka of the loan amount.