Muhammad Yunus: Banker to the Poor (Part I)

Excerpted from Dr. Denise Ames’ forthcoming book: Human Rights: Towards a Global Values System.

My greatest challenge has been to change the mindset of people. Mindsets play strange tricks on us. We see things the way our minds have instructed our eyes to see.” -Muhammad Yunus

01 Muhammad Yunus

Muhammad Yunus

Defending human rights takes many forms. Muhammad Yunus took the path of defending the human rights of some of the poorest women in the world through economic empowerment. His strategy of lending money to poor women and requiring them to pay it back with interest enhanced not only their own lives, but that of their families’ as well.

Muhammad Yunus was born June 28, 1940 in one of the poorest and most densely populated places on earth, what is now the country of Bangladesh. An avid boy scout, he attributed the experience “to teaching him to be compassionate, to develop an inner spirituality, and to cherish my fellow human beings.” He had many talents; painting, graphic design, photography, and he won awards for drama acting. After earning his college credentials and teaching, he was offered a Fulbright scholarship to get a Ph.D. in the United States, and jumped at the chance.

Yunus at Chittagong University

Yunus at Chittagong University

With Ph.D. in tow, Yunus returned to Bangladesh in 1972 to a position as a professor of economics and head of the department at his alma mater, Chittagong University. However, one of the many things that bothered him as a professor was the gap between the economic theory taught in universities and the wretched poverty around him. He became more curious about the villagers whom he could see from the “ivory tower” of his college office. In thinking about the problem he said, “Analyses of the causes of poverty focus largely on why some countries are poor rather than on why certain segments of the population live below the poverty line. Most economists believe that poverty and hunger will cease when economic prosperity increases.” He found that “economists spend all their talents detailing the processes of development and prosperity, but rarely reflect on the origin and development of poverty and hunger. As a result, poverty continues.”

In 1976, he started to visit the poorest households near his university. Since there were Muslim, Hindu and Buddhist sections, he visited them all. One day as he and a female colleague were making the rounds, they stopped at a run-down house with crumbling mud walls and a low thatched roof pocked with holes. As he made his way through the scavenging chickens, beds of vegetables, and children running naked in the yard, he saw a woman squatted on a dirt floor of the porch weaving a half-finished bamboo stool. She was totally absorbed in her work.

woman in Bangladesh

woman in Bangladesh

Since traditions did not allow women to talk to men face-to-face when another male was not at home, his female colleague began to ask her some questions. Her name was Sufiya and she was 21 years old with 3 children. Since Sufiya did not have enough money to buy bamboo to make the stool, she bought the bamboo from a middleman for 5 taka (about 22 cents at the time). She then sold the finished stool back to the middleman for a profit of about 2 cents. Yunus, through his colleague, asked her if it would be cheaper to borrow the cash from a moneylender to buy her own raw materials. She replied “Yes, but the moneylender would demand a lot. People who deal with them only get poorer.” Sufiya said that the moneylender charged 10 percent interest a week, and sometimes 10 percent per day! Yunus wondered how Sufiya and her children would ever break the cycle of poverty. She earned barely enough to feed herself, let alone feed or provide shelter for her children. Yunus felt that millions of situations like Sufiya’s were hopeless. He was angry that Sufiya only earned 2 cents a day, yet university economic courses theorized about sums in the millions. He asked, “Why did my university courses not reflect the reality of Sufiya’s life and millions of other women just like her?” He decided this was a problem he wanted to tackle, and he did.

Yunus decided that he would ask the local bank to make loans to the poor villagers. The bank manager laughed at his request, replying that the poor do not have collateral or cannot read and write or fill out loan forms. It simply cannot be done. Yunus stubbornly refused to give up, but he did recognize that the poor remained poor because they had no access to capital, no collateral for loans, and their borrowing requirements were so modest that it was not cost-effective for large banks to lend them money. Finally he decided to secure a $300 loan for himself. He would be the banker to the poor!

Yunus studied all the details of his new banking venture. In structuring the credit program for the poor, he decided to do things differently from the traditional banks. For one, he decided that conventional banks usually demanded repayment in one lump sum, which is often a psychological barrier for borrowers since they have to come up with a large amount all at once. Instead, he decided that under his program borrowers would make daily repayment of the total loan amount. The sum repaid would be so small that borrowers would barely miss the money. He would require that the loans be fully repaid in one year.

Yunus and his team started experimenting with small collateral-free loans to landless rural peasants and impoverished women. The loans would be for a wide variety of projects ranging from buying a cow or chicken and selling milk and eggs, to buying raw materials such as willow for making baskets for sale in the marketplace, or buying a cell phone for communication. In developing their program, the new bankers discovered that support groups were crucial to the success of the operation. Thus, they required each applicant to join a group of like-minded people living in similar economic and social conditions.

women in Bangladesh

women in Bangladesh

Each client who wanted to borrow a sum of money had to find four friends who also wanted to borrow money. If any of the five group members defaulted on their loan, the bankers held all accountable. This group support would build commitment and provide community support. The bankers were convinced that solidarity would be stronger if the groups self-organized, and they refrained from micro-managing them. Group membership created support and protection but also smoothed out erratic behavior and made each borrower more reliable. Shifting supervision to the group reduced the work of the bank and also increased the borrower’s self-reliance. Because the group approved each member’s loan request, they assumed moral responsibility for the loan. If any member got in trouble, the group usually helped out.

Initially, Yunus wanted half of the borrowers to be women. This was a challenge since, at first, women were reluctant to accept loans. Yunus wanted to loan money to women because their first priority was their children. They wanted their children to have better lives. A woman’s second priority was the household. She wanted to buy utensils, build a stronger roof, or find a bed for herself and her family. Men had an entirely different set of priorities, and they were looser with money. They wanted to enjoy it right away, not wait for tomorrow. Women suffer more from poverty than men; perhaps that is why they are more motivated to escape it. The bankers decided to make a determined effort to attract women clients because they got better results from the same amount of money.

This is a story of a typical woman getting a loan as told by Mohamad Yunus:

woman in Bangladesh

woman in Bangladesh

“A typical initial loan is around $35. The night before a woman is going to accept the money from the bank she will be tossing and turning to decide whether she is really ready for it. She is scared that maybe something terrible will happen to her. And finally in the morning her friends will come over and they will try to persuade her. Let’s go through with it. If you don’t go, we can’t. We can’t always worry. It was not easy coming to this point. And finally, with their encouragement, she will come to the bank. 

When she holds that money, it is such a huge amount in her hands, it is like holding the hope and treasure that she never dreamt she would achieve. She will tremble, tears will roll down her cheeks, and she won’t believe we would trust her with such a large sun. And she promises that she will pay back this money, because the money is the symbol of the trust put in her and she does not want to betray that trust.

And then she struggles to pay that first loan, that first installment, which is due the following week, and the second installment, which is payable the following week, and this goes on for 50 weeks, and every time that she repays another installment she is braver! And when she finishes her 50th installment, the last one, and she has now paid in full, she wants to celebrate. It is not just a monetary transaction that has been completed; it is nothing less than a transformation of that person. Now she is a woman who feels like she is somebody. She finds self-worth, self-esteem. Proving that she can take care of herself.”[i]

Part II of Muhamad Yunus and Grameen Bank in two weeks.



  1. What obstacles did women face in escaping the cycle of poverty in Bangladesh (and many other poor countries)?
  2. How did the way Yunus  that structured the bank and loan program help women?

[i] In Kerry Kennedy, Speak Truth to Power, Human Rights Defenders Who are Changing Our World. New York: Umbrage Editions, 26-27.

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