Microloans Aid the Poor

by Abigail Knowles Wolfe (BPRW)

The name Muhammad Yunus may garner smiles and nods of avid approval in certain academic settings but often signifies nothing to the average American citizen. The 2006 Nobel Peace Prize winner is credited with founding the world’s microfinance industry over 30 years ago in the impoverished nation of Bangladesh. Bangladeshi economist Muhammad Yunus founded the Grameen Bank in the late 1970’s to aid some of the world’s poorest citizens in escaping the all encompassing spiral of predatory lending that so often kept them enslaved in a vicious cycle for generations.

Yunus distributed a total of $27 amongst 40 Bangladeshis in 1976, approximately seven years before the Grameen Bank “officially” opened. In other words, other economists told Yunus that lending small amounts of money to the poor was futile and that he would never be paid back for his troubles; his money was being given away. So on his own dime and without the backing of any existing financial institution, Muhammad Yunus began his great experiment. Supplying some of the poorest people in the world, mostly single mothers, with less than a $1 or around 68¢ each he watched as one by one these individuals started their own businesses and one by one turned around and paid him back with interest.

Today, the Grameen Bank lends to over 6 million borrowers in Bangladesh alone. These individuals borrow the equivalent of $500 million a year in loans that average around $100 each. Funded entirely by the borrowers’ deposits, the Grameen Bank recovers an impressive 98.85% of all money loaned. The poorest people in the world, exploited and used up, have been given a fresh opportunity under Muhammad Yunus’ microloan system as organizations all over the world have adopted microfinancing as the best means to uplift and champion the poor.

So why not just give these miniscule amounts of money away to the people who need it as needed? In an Op Ed article written by Muhammad Yunus himself in October of 2006 for the “Wall Street Journal,” the Nobel winner cites a sense of pride and self actualization in the poor and the perceived humiliation of receiving a hand out. He states that microloans would benefit Hurricane Katrina survivors as well third world people, stating that that the majority of financial donations are mismanaged and never really reach the very poor. This fact is particularly sad to Yunus as the poor require so little financially to drastically improve the quality of their lives.

According to the U.S. Census Bureau, American Community Survey for 2004, Louisiana was the second poorest state in the nation next to Mississippi making its citizens particularly vulnerable in case of natural disaster. Therefore, what, if anything can the United States learn from Bangladesh in rebuilding New Orleans after Katrina? When people are disenfranchised should we not build up a system to help them? The poorest citizens of New Orleans can regain their pride as well as their livelihood, yet perhaps we need to look outside of our American perceptions at the small often overlooked solutions to our biggest problems and take it upon ourselves to solve them.