Credit where credit is due: The banker who changed the world

Muhammad Yunus had a dream: to lend money to the poor and destitute. To begin with, no one would listen to the Bangladeshi professor of economics. But today, his concept of microcredit has swept the world and more than 100 million people have benefited. Now he's earned the ultimate reward: the Nobel Peace Prize. Justin Huggler reports from Delhi
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The chances are, that when the name of this year's Nobel Peace Prize winner was announced yesterday, a lot of people in the West had never even heard of him. Muhammad Yunus is not a statesman or world leader. He is not fêted everywhere he goes. He is an economics professor who lies in a small apartment in Bangladesh. But he has probably improved the lives of millions more people than most statesmen could aspire to.

And he has not done it from the comfort of some ivory tower. As The Independent put it when Dr Yunus visited London two years ago: "He lends to beggars."

"Give a man a fish, and you feed him for a day," the old adage runs. "Teach him to fish, and you feed him for a lifetime." Dr Yunus is the man who realised you can teach someone as much about fishing as you like, but if they can't afford a boat or a net, they'll still go hungry.

He pretty much invented microcredit, the idea that you can lend money to the poor and the destitute, to people who have no collateral to guarantee the loan, and that they will pay it back by earning a profit with their own skill and hard work. People laughed when Dr Yunus first told them his idea. The bankers he went to see to try to sell them the scheme showed him the door, barely repressing a smirk of amusement at the mad professor with his well meaning and utterly unworkable scheme.

They're not laughing any more. In 1976, he started by lending the cash he had in his pocket, the equivalent of £14, to a group of 42 women in a Bangladeshi village. That worked out at 34p each. With the money, they bought the materials to start a business, some making chairs, others pots. They paid him back in full.

Today, Dr Yunus' Grameen Bank has lent more than £2.9bn. His methods have been copied in more than 50 countries, and simialr loans are believed to have reached more than 100 million of the poorest people worldwide. The rate of loans which are paid back to the Grameen Bank is a staggering 98.45 per cent - a recovery rate most commercial banks would love to be able to emulate. And this is in a bank that is 94 per cent owned by its borrowers, is still run on an entirely philanthropic basis but is completely self-funding.

If you visit Bangladesh, you're likely to find the name Grameen pop up on your mobile phone screen. The Grameen Bank now runs the largest mobile network in the country. Last year, Grameen opened a mutual fund. Together, the bank and its constituents are worth more than £3.8bn. Not bad for a starry-eyed professor who wanted to save the world. His ideas have been imitated not only in developing countries from Africa to Latin America, but even in the US, where microcredit organisations have lent money to the poorest of Americans. "One day," Dr Yunus told The Independent in an interview in 1996, "our grandchildren will go to museums to see what poverty was like."

Dr Yunus was born in 1940 in the last years of what was British-ruled India. In his autobiography, Banker to the Poor, he admits that he was no saint as a child. When a children's magazine ran a competition with free subscriptions as a prize, he was dismayed not to win. But he found his own way to get round the rules, writing in under the name of one of the published winners to inform them of a "change of address" so the free magazines were delivered to him.

He also admits to stealing loose change from his father's shop, where he worked as a child. He won a Fulbright scholarship to the US, where he did a PhD at Vanderbilt University in Nashville, Tennessee, returning to Bangladesh to teach economics at Chittagong University.

But it was in 1974 that Dr Yunus' story really began, amid the catastrophic famine of that year, when as many as 1.5 million Bangladeshis are believed to have died. "While people were dying of hunger on the streets, I was teaching elegant theories of economics," he said in 1996. "I started hating myself for the arrogance of pretending I had answers. We university professors were all so intelligent, but we knew absolutely nothing about the poverty surrounding us."

He started making field trips to the village of Jobra, near the university campus. It was in Jobra that he had his moment of insight. He was interviewing a local woman who made bamboo stools. She had no savings or capital, and she had to borrow the equivalent of 15p to buy bamboo for each stool. But after she had repaid the exorbitant interest rates demanded by the money men, she only made 1p proft on each stool: she was trapped in poverty.

But Dr Yunus believed sufficient funds to invest were all they needed to break out of the vicious circle. So he found 41 other workers in a similar predicament, and lent them the cash in his pocket as an experiment. They proved him right, paying him back and flourishing.

"The fact that the poor are alive is proof of their ability," he said. "We do not need to teach them how to survive: they know this already. Giving the poor credit allows them to put into practice the skills they already know. And the cash they earn is then a tool, a key that unlocks a host of other problems." So he took his ideas to the commercial banks, who laughed him out of the room, saying the poor were not "creditworthy". He replied: "How do you know they are not creditworthy, if you've never tried? Perhaps it is the banks that are not peopleworthy" And he decided to do it himself. He started Grameen Bank as a research project at Chittagong University. In three years, he lent to 500 poor borrowers, and kept lobbying the Central Bank of Bangladesh. In 1979 the Central Bank relented and allowed the Grameen Project to be run from the branches of seven state-run banks.

Dr Yunus still dreamed of making it an independent institution, but the government was against it. Then, in 1982, fate stepped in. Dr Yunus was at a meeting of the Rural Development Academy to present a paper on the Grameen project. Before he could make his speech, there was a coup, and General Hossein Mohammed Ershad seized power. There was a travel curfew and the delegates were trapped in the cafeteria. Dr Yunus passed the time explaining his dream to his friend AMA Muhith. And then his friend was unexpectedly appointed Finance Minister.

Together, they persuaded General Ershad, and the Grameen Bank was born. At first the government held a 60 per cent stake, and only 40 per cent was owned by the borrowers. But as the years have passed, Dr Yunus has whittled away at that until today only six per cent is owned by the government.

In spite of his unexpected emergence as a major player in the banking world, Dr Yunus has remained a modest man. When he wasd interviewed by The Independent in 1996, he had only recently got his first credit card, after considerable persuasion from colleagues, to use for hotel bookings. But he still hadn't actually used it.

His methods today remain largely what they were when he began on such a small scale. Grameen Bank lends money only to the poor and destitute. It lends to individuals in small groups, on the strict understanding that if one member of the group defaults, the others will be liable to repay their debt. Loans are often very small - as little as £20.

The bank demands repayments very quickly but in tiny instalments. That way, the group quickly realises if one member is falling behind.

And 96 per cent of the borrowers are women. That is because Dr Yunus has found that women make better investments, at least in the developing economy of Bangladesh. They are far more likely than men to spend profits on their children, and are more careful about their debts.

But this focus on women has had a dramatic effect on Bangladeshi society, where before Dr Yunus and his loans came along, most women were treated as financial burdens by their fathers and husbands.

There is more to it than just a loan. Borrowers have to agree certain commitments about their lives with the bank and pledge to abide by the so-called "16 decisions", a set of slogans which include "We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughters' weddings", "If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline" and "We shall take part in all social activities collectively".

This aspect of Grameen Bank's policy has been criticised as overly paternalistic. Dr Yunus has also been criticised for the high interest rates he has charged, but replies simply that if anyone can finance a similar scheme charging less, he'd welcome it. He is vehement about the scheme being self-financing: he is deeply distrustful of reliance on donors.

"It is like telling a patient that he can breathe by himself for 23 hours a day, and the balance of the time the government will provide the oxygen," he said. "That means you are at their mercy. Any time a politician changes his mind, or a bureaucrat forgets, you die."

His ideas have been copied all over the world. The Bill and Melinda Gates Foundation is funding similar schemes in Latin America. There are similar schemes in post-war Afghanistan. Even in the US, microcredit schemes based on the Grameen Bank have helped people escape the cycle of poverty and drugs in the inner cities, and other rebuild their lives after hurricanes. And microcredit has proved so profitable that even big commercial banks like Citigroup, Deutsche Bank, and HSBC are now showing interest in the sector.

There have been stumbles along the way. Grameen Bank was hit hard in 1995 by a repayment boycott organised by religious parties unhappy with its emphasis on improving the status of women. And last year its branches became targets in the Islamic militant bombing campaign that has been plaguing Bangladesh.

But the revolutionary idea Dr Yunus came up with in the Seventies is going from strength to strength.

His admirers have been lobbying for years for him to receive the Nobel Economics Prize. In the end, for a man who preferred the hard world of practical economics to the theories of academe, the Peace Prize may be a more enduring recognition.