Zachary M. Smith September 18, 2010
Mohammed Yunus While Mohammed Yunus is often credited with the discovery of microcredit, which is described by F.A.J. Bowman as "the provision of very small loans that are repaid within short periods of time, used by low income individuals and households who have few assets that can be used as collateral.â€? (Srinivas). Similar manifestations of microcredit lending institutions have been observed throughout the world in the form of savings clubs, burial societies, and perhaps most explicitly in the 18th century loan funds created by author and social theorist Jonathan Swift (Hollis & Sweetman). While these organizations certainly served valuable functions within their respective communities, microfinance was essentially an idea without a globally visible champion or unifying creed; in order to gain the acceptance of the mainstream, microfinance would have to wait for Mohammed Yunus. Mohammed Yunus was born June 28th, 1940 in the village of Bathua, located in present day Bangladesh. Yunusâ€™ father was a successful jeweler, and in 1944, he moved the family to the more central city of Chittagong in order to further develop his trade. Upon finishing high school, Yunus went on to receive a BA and MA in economics from Dhaka University in 1960 and 1961 respectively. After graduation, Yunus taught economics at Chittagong College until he was
offered the Fulbright Scholarship, allowing Yunus to further his education in the United States at Vanderbilt University, where he received his PHD in economics in 1969 (Biography).
After Bangladesh became an independent state in 1971, professor Yunus returned to Economics Department of University of Chittagong where he developed sensitivity to the issues facing the poor in Bangladesh, one of the worldâ€™s poorest countries. In a 2005 interview with PBS, Mohammed Yunus commented on the conditions that led to his involvement with microcredit: â€œI was teaching in one of the universities while the country was suffering from a severe famine. People were dying of hunger, and I felt very helpless. As an economist, I had no tool in my tool box to fix that kind of situation.â€? (NBR). Viewing the problem through the lens of economics, Yunus could see that the private sector had little incentive to serve the poor, rural Bangladeshis; they often lacked steady employment and sufficient collateral to borrow, and often the sums needed were so small as to make the costs of issuing and managing a loan an economically unviable proposition. Left with no other access to credit, the Bangladeshi poor had few options in times of need, and resorted to usurious village lenders who trapped them in a cycle of debt and subsistence (NBR). After visiting a village in rural Bangladesh, Yunus made a list of forty-two people who needed small amounts of money (totaling twenty-seven dollars in 1976), and whom Yunus felt could escape poverty with the help of a fair loan (Wiki). After testing the water with this initial out-of-pocket investment of twenty-seven dollars, Yunus went on to repeat his experiment in other villages across Bangladesh, loaning primarily to people involved in small scale production of household necessities and agricultural products, which often required a small capital investment to jump start. In spite of his success, private banks were still apprehensive to get
involved so in 1983, with the help of the government, Yunus started Grameen (village) bank with the explicit purpose of extending credit to Bangladesh’s underserved poor (Wiki). Under Mohammed Yunus’ leadership, Grameen bank developed the blueprint for largescale microcredit lending; pioneering developments in solidarity lending, whereby villagers take out loans collectively, thus reducing administration costs and default risk, social business principles, which emphasize the creation of businesses for the benefit of society (often in lieu of profit to investors), as well as lending on a scale befitting the giants in Jonathan Swift’s Gulliver’s Travels. Through these innovations, Grameen has been able to extend $6.38 billion dollars to 7.4 million Bangladeshis, and boasts a 98.35% recovery rate on the loans it makes. Part of this success is due in part to Yanus’ socially conscious, business minded strategy of serving primarily women, the most underserved segment of the poor population in terms of traditional private lending, thus benefitting a large, previously under-served demographic, and increasing the repayment rates due to the higher statistical likelihood of women repaying loans (Wiki). Mohammed Yunus’ success with microcredit has spawned interest in for-profit microfinance endeavors by financial titans such as Citibank, ABN Amro, and Deutsche Bank, thus legitimizing Yunus’ claims about the economic viability of micro lending, and taking Yunus’ work, for better or for worse, into the mainstream. Yunus’ place in the history of microfinance, and developmental economics was cemented in 2006 when he, along with Grameen bank, was awarded the Nobel Peace Prize (Biography).
While it is tempting to view Mohammed Yunus’ work and much lauded “invention” of microcredit as another manifestation of Stigler’s Law of Eponymy in its striking parallels to the system of microcredit developed by Jonathan Swift in the 18 th century, the sheer scope of Yunus’ vision, as well as the ideological marriage of Micro credit and the social business concept put Yunus’ contribution to economic development in a league of its own.
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