Birth of the Village Bank

Grameen Bank ('Bank of the Villages', derived from the name 'gram' meaning 'village' or 'rural') is a community development bank founded in 1983 by Muhammad Yunus providing small loans, or microcredit (aka grameencredit), at low interest rate to poor people without requiring any guarantees to secure the loan (e.g. property).

The bank loans out money to the poor with a group overlooking their investment and providing guidance to avoid unnecesary waste - a concept known as 'solidarity lending'.

Field trip that changed his life

Encounter with Sufia Begum

In 1974, as head of the rural economics programme at the University of Chittagong, 34-year-old Dr Yunus led his students on a field trip to rural Bangladesh where a famine had killed thousands of people. They visited Jobra, a neighbouring poor village which stood between the highway and the university campus.

In 1958 when the then President of Pakistan, Field Marshall Ayub Khan, had taken power in a military coup, he feared being overthrown by the powerful and passionate student groups. To minimise their threat, he decreed that all new universities be situated away from urban centers For this reason the newly established Chittagong University was built in a hilly section of the rural Chittagong District, next to Jobra village.

The proximity of Jobra made it a perfect choice for my new course of study. I decided that I would become a student all over again, and the people of Jobra would be my professors. I vowed to learn as much as possible about the village. Traditional universities had created an enormous distance between their students and the reality of everyday life in Bangladesh. Instead of traditional book learning, I wanted to teach my university students how to understand the life of one single poor person. When you hold the world in your palm and inspect it only from a bird's eye view, you tend to become arrogant - you do not realise that things get blurred when seen from an enormous distance. I opted instead for "the worm's eye view". I hoped that if I studied poverty at close range, I would understand it more keenly.

Prof. Yunus wanted to learn practically from real people with real problems instead of just books

Dr Yunus noticed a young mother making bamboo stools. After the woman overcame her initial hesitation to speak to a male stranger, she introduced herself as Sufia Begum, a 21-year-old mother of three children. Dr Yunus came to know that Sufia was borrowing the equivalent of 15p from middlemen to buy raw bamboo for each stool made. These moneylenders were charging her interest rates as high as 10% a week. Once the products were made, Sufia would sell these items to the lenders to repay them. This left her with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.

This came as a thunderbolt to Dr Yunus. Here he was passionately teaching economic theories to his student, and yet the reality that existed literally on his doorstep was a far cry. There was something horribly wrong. He decided to become a student all over again - only this time the village would become his university.

I was shocked to discover a woman in the village, borrowing less than a dollar from the money-lender, on the condition that he would have the exclusive right to buy all she produces at the price he decides. This, to me, was a way of recruiting slave labor.

Dr Muhammad Yunus

Her children were condemned to live a life of penny, of hand-to-mouth survival, just as she had lived it before them, and as her parents did before her.

Prof. Yunus on Sufia Begum

Lends 856 taka ($27 or £17) to free 42 families from debt

Dr Yunus took matters into his own hands. He sent several of his students to investigate how many other villagers were in the same position as Sufia Begum and working under this type of arrangement. Among these students was Dipal Chandra Barua, a member of Bangladesh's tiny Buddhist minority, who was a resident of Jobra and who bicycled to class each day from his home.

The findings were alarming. Dipal and the students reported the same problem with the other villagers: a dependence on usurious loan. There were 42 basket weavers who barely made 5 taka (20 cents or 2 pennies) net profit and were collectively in debt for a total of 856 taka ($27 or £17)!! Some needed only 10 or 20 taka, and the greatest amount any one person needed was 65 taka Dr Yunus couldn't believe how 42 families life was being ruined for such a meagre amount. In an effort to remedy this ghastly exploitation, he lent Dipal 856 taka from his own pocket and told him to go and pay to lenders.

Dr Yunus discovered that such a tiny amount not only helped the poor to survive and make a disproportionate difference to their life but also uplifted the people tremendously. It created the spark of personal initiative and enterprise necessary to pull themselves out of poverty. The burden of poverty would no longer become an inheritance and a curse on the family. There will be light at the end of this life tunnel.

Fueled by the belief that credit is a fundamental human right, Dr Yunus decided to carry on paying these small loans or 'micro-loans' interest free.

I decided to make a list of the victims of this money-lending "business" in the village next door to our campus.

When my list was done, it had the names of 42 victims who borrowed a total amount of US $27. I offered US $27 from my own pocket to get these victims out of the clutches of those money-lenders. The excitement that was created among the people by this small action got me further involved in it.

If I could make so many people so happy with such a tiny amount of money, why not do more of it?

Dr Yunus

Sufia Begum's story made me sit up. I could not believe anybody could suffer a life of bonded labour because she could not find 20 US cents to carry on her business.

When I gave $27 as loans to 42 people, I could not believe one could produce so much happiness in so many people with so little money! There was no way I could leave this whole episode at that.