“Poverty does not belong in a civilized human society. Its proper place is in a museum,” writes Muhammad Yunus near the end of Banker to the Poor: Micro-Lending and the Battle Against World Poverty. “I want to see a world free from poverty.”

If anyone else made such a pronouncement, you might be justified in dismissing it as idle fantasy. But after reading 250 pages describing Yunus’ thirty-year micro-lending project, the reader knows that he is not dreaming — he’s deadly serious. What’s more, he just might achieve his goal.

Muhammad Yunus, who won the Nobel Peace Prize for 2006, is a Bangladeshi banker and economist. Born and raised in Chittagong, he came to the United States during the 1960s to study economics. He returned to Bangladesh to teach at Chittagong University in the early 1970s, but found the poverty around him at odds with the material he taught in class.

I used to feel a thrill at teaching my students the elegant economic theories that could supposedly cure societal problems of all types. But in 1974, I started to dread my own lectures. What good were all my complex theories when people were dying from starvation on the sidewalks and the porches across from my lecture hall?

It’s this delineation between economic theory and economic reality that makes Yunus’ story so compelling. Instead of ensconcing himself in an ivory tower, discussing economic policy based on ideas, he chose to put these ideas into practice, to see how they worked in the real world. There’s a big difference between fighting poverty in theory and fighting it in fact.

Yunus found that most of the poor people in the villages around his university didn’t lack initiative, but only lacked opportunity, opportunity that existing financial institutions were not prepared to grant. Yunus established the Grameen Bank to help the poor help themselves.

Commercial banks assume that every borrower is going to run away with their money, so they tie their clients up in legal knots. Lawyers pore over their precious documents, making certain that no borrower will escape the reach of the bank. In contrast, Grameen assumes that every borrower is honest. There are no legal instruments between the lenders and the borrowers. We were convinced that the bank should be built on human trust, not on meaningless paper contracts.

Grameen Bank offers small low-interest, collateral-free loans to the poor. These micro-loans — most of which are given to women — are used for entrepreneurship. One woman might make stools, another might weave baskets, another might own and operate the only cell phone in a village. In nearly every case, however, the loans allow the women to break free from the chains of poverty. This video offers a more comprehensive overview:

These micro-loans don’t just fight extreme poverty; they lead to deeper societal changes, as well. They help elevate the status of women, decrease the birth rate, lead to better education, and foster political activism.

The poor, once economically empowered, are the most determined fighters in the battle to solve the population problem, end illiteracy, and live healthier, better lives. When policy makers finally realize that the poor are their partners, rather than bystanders or enemies, we will progress much faster than we do today.

Banker to the Poor is a must-read for those interested in socially-responsible investments. It’s also good for those interested in charity, or in economics. Yunus has an agreeable style: he’s both humble and candid. I expected the book to be dry, the work of an economics professor. It is the work of an economics professor, but it’s anything but dry.

Last March in The New York Times, Nicholas Kristof wrote a piece entitled, “You, Too, Can Be a Banker to the Poor“. Kristof profiled Kiva, a web site that allows folks like you and me to make micro-loans to entrepreneurs hoping to escape from poverty. Here’s a PBS/Frontline clip about Kiva:

I love the concept of micro-lending. It combines community-based and community-centered finance — in essence, communism (or “communalism”, perhaps) — with good old-fashioned entrepreneurism and free enterprise — in essence, capitalism. It takes the best of both economic systems and binds them together. In doing so, it helps people in need.

Addendum: Thanks to GRS readers who are forwarding additional information. At Grameen’s official site, you can read about the 16 decisions, which loan recipients are required to affirm. Like Kiva, the Grameen Foundation (which is “inspired by” (though not affiliated with) Yunus’ Grameen Bank) offers people a chance to contribute to the microfinance projects around the world.

Thanks to Ramit Sethi of I Will Teach You to Be Rich, who mailed me this book several months ago. I’m glad he did.

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