Book Review: Banker to the Poor

When J.D. announced that this week would be Book Week at GRS, I was excited about a set deadline for tackling a book from my ever-growing reading list. Since micro-finance and micro-credit have been of interest to me for the past four years or so, I decided to read Banker to the Poor: Micro-Lending and The Battle Against World Poverty by Muhammad Yunus. (J.D. reviewed the same book in 2007. Read his take here.)

Nobel Peace Prize winner Yunus is the founder of Grameen Bank, an organization that helps the world's poorest, especially women, escape poverty through micro-loans, which are small loans given to start a business.

Banker to the Poor chronicles Yunus' journey from a “bird's-eye-view economist, teaching elegant theories in a classroom, to a worm's-eye-view practitioner” and the creation of Grameen, a bank owned by its poor borrowers that boasts a loan recovery rate of 97.29%.

Meeting Sufiya Begum
In 1974, professor Yunus, then a Bangladeshi economist from Chittagong University, took his students on a field trip to a poor village. There they interviewed Sufiya Begum, a woman reluctant to talk to them due to the village's strictly-observed custom of purdah, meaning curtain or veil, that virtually secludes Muslim women from the outside world. Eventually Sufiya came to the doorway and told Yunus and his students about the economics behind the bamboo stools she made. To make one stool, she had to buy 22 cents worth of bamboo with a loan from local moneylenders, who charged her 10% per week. Her net profit was just two cents per stool.

Barely able to feed herself and her family on two cents per day, Sufiya was essentially enslaved to the lenders. She couldn't save money or invest in her business because she was barely able to eat. All for a lack of 22 cents.

Yunus was shocked to realize that if Sufiya just had access to a loan at a better rate, she could feed, clothe, and house her children and expand her business, raising her family above the poverty line.

The birth of Grameen
Yunus collected data on the village to find out how many borrowers were dependent on the moneylenders, finding that 42 people borrowed a little less than $27. He loaned them the money. Yunus writes:

It struck me that what I had done was drastically insufficient…My response had been ad hoc and emotional. Now I needed to create an institutional answer that these people could rely on. What was required was an institution that would lend to those who had nothing.

Yunus fought through red tape from banking institutions, governments, and local customs. With great tenacity, he found a way around numerous roadblocks with a passionate devotion to the people he was serving.

In 1983, Yunus formed the Grameen Bank. Grameen now has 2,564 branches, with 19,800 staff serving 8.29 million borrowers in 81,367 villages. Despite the warnings from traditional bankers, 97% of the loans are paid back. Yunus wasn't surprised by this, as he knew the poor, who had no cash cushion and no other options, would not blow their one chance to get out of poverty.

A focus on women
From the start, Yunus wanted to focus granting loans to women, with a goal of having 50% of the borrowers be female. It was an uphill battle to say the least. Yunus had to fight against customs, religious zealots, and banking institutions that effectively excluded women (they could make deposits, but couldn't get a loan without the presence of their husbands). From birth, these women are routinely told they are unwanted and should have been killed at birth or starved — that they are just another mouth to feed and dowry to pay.

Additionally, Yunus saw that starvation and poverty were more of a woman's issue than a man's. If one family member has to starve so that the others can eat, it's an unwritten rule that it must be the mother. A man also can throw his wife out at any time, simply by repeating “I divorce thee” three times, leaving her unwanted in her parents' home or begging on the streets. But when a woman is given the means to support herself, her success focuses on her children and household. Yunus writes:

Though they cannot read or write and have rarely been allowed to step out of their homes alone…they pay more attention, prepare their children to lead better lives, and are more consistent in their performance than men. When a destitute mother starts earning an income, her dreams of success invariably center around her children…When a destitute father earns extra income, he focuses more attention on himself. Thus money entering a household through a woman brings more benefits to the family as a whole.

It took six years to reach the goal of 50% female borrowers. Today women make up 97% of Grameen borrowers.

Grameen around the world
As Grameen and its methods expanded, Yunus would constantly hear that micro-lending wouldn't work in another village or country. But to Yunus, people who were poor — which he defined as not having access to shelter, clean water, and a constant supply of food — had a lot in common no matter the geography.

One of the most touching stories in Banker to the Poor was that of an impoverished 40-something woman who made quilts. Through an interpreter, she told Yunus she was initially afraid when a bank staff member came to see her. Her husband didn't like her talking to outsiders or leaving her home without him.

Though the staff member told her about the women in Bangladesh who were changing their lives, and she wanted to be like them, things where she lived “were so rough.” She didn't dare do this herself, saying, “My husband would kill me if I created trouble for him.” The staff member introduced her to other women in the neighborhood, and eventually they formed a group. (Group meetings were a requirement for a loan through the local micro-finance organization, which critics said made it too hard for the poor to borrow money.) The woman eventually took out a loan, quickly repaying it and applying for another. Her quilts are in such high demand, she can barely fill her orders.

This woman, who spoke only Spanish, lived in Chicago, Illinois.

She never thought she'd earn her own money, she told Yunus. In fact, she never thought she'd have any money at all, since her husband never gave her any. In the 15 years that she had lived in America, she didn't even have a friend until meeting the four women in her group, who she came to regard as sisters.

Today Grameen methods are applied in projects in 58 countries.

The politics of micro-lending
Grameen and micro-lending have been criticized by the Right and the Left, and it doesn't seem to side with either, despite Yunus' praise for Democratic politicians and criticisms of Republicans. Grameen supports smaller government and criticizes welfare programs that don't allow people to break out of the poverty cycle — yet it's committed to social objectives and social intervention in the form of policy packages (without government involvement).

No matter your politics, Banker to the Poor is an inspiring memoir that will give you a new understanding of poverty around the world, micro-lending, and socially-responsible enterprises.

Note: You can read more about Yunus at PBS The New Heroes, a series about 14 social entrepreneurs.

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Money Smarts Blog
Money Smarts Blog
9 years ago

Wow, what a great story.

This is a good example of “every little bit counts”.

Mike

Peggy K.
Peggy K.
9 years ago

An individual with passion is the only thing that has ever changed the world.

Yunus is doing so one loan at a time.

Thank you for posting this review. I knew of micro-lending, but I’d never heard this story.

DJ Wetzel
DJ Wetzel
9 years ago

That really is an exciting concept that I was not aware of. I have spent time in the bush villages of Malawi, Tanzania, and Mozambique and I can attest first hand to the huge benefit of these type programs. To think that a loan of less than $10 could literally jump-start someone’s business and allow them to support their family for years to come is mind boggling.

Shortermama
Shortermama
9 years ago

Thanks for the post! I used to work for an organization that did a lot of work in micro-finance. This was a great “refresher” for me. I think I’d like to read this book. Many thanks!

ditchtheboss
ditchtheboss
9 years ago

What an inspiring article. Someone taking action and doing something to help others. An example for all of us.

smirktastic
smirktastic
9 years ago

First thing I did (before even typing this comment) was to reserve a copy of this book at the library. Sounds like a great read. And what’s with the women being told they should’ve been killed or starved at birth? Have these villages somehow figured out a way to reproduce without them? DUH!!!

Barb
Barb
9 years ago

I loved the review! If it’s okay with JD, I’ll simply add that someone who might like to explore this kind of concept as a way of giving might like to look at Kiva.org. I gave 100 dollars years ago, and that money keeps going out as micro loans and being repaid, depending on who I choose as a recipient. Its literally one small gift that has kept on giving.

JOA
JOA
9 years ago

I will be reserving a copy at the library as well. Many studies have shown that giving money to women in these villages results in dramatic changes to the whole village. It is a shame that so many cultures believe that women are worthless when they are equally able to contribute to society and the economy. Many thanks to Yunus and his supporters for truly changing the world!

Elysia
Elysia
9 years ago

I’m sold on this… how can we contribute? Is http://www.Kiva.org the best way?

RAJESHTV
RAJESHTV
9 years ago

I am from India, and a regular reader of this website. In India, the banking system has not reached the millions and millions of people. So people are used to borrow from the traditional money lenders say around $20 who charge at 10% per day(~300% per month). Though the lenders carry the risk of losing their money, they use illegal ways to collect their money back. People buy goods (perishable) in the morning sell by night and pay the lenders and next day is fresh for them. Lots (millions) of people do this. Now, micro lending is happening but still… Read more »

Trini
Trini
9 years ago

Thanks for the review! I had heard of Kiva.org through a friend, but hadn’t really looked for more in-depth information on micro-lending. This is great, thanks.

Debbie M
Debbie M
9 years ago

Elysia, the way to contribute is to go to Greeman Bank (link at the beginning of the review). Kiva is a different micro-lending institution. I also like Accion International and Finca International. I like to donate to charities via JustGive.org. They do charge 3%, but this way you can do it anonymously. When you are anonymous, they have no one to send piles of literature to, thus saving them money, quite possibly much more than the 3% you have spent. It can also save your sanity. You won’t get their stuff, and if they sell your information, you won’t get… Read more »

Elysia
Elysia
9 years ago

Thanks, Debbie. I went to Greeman Bank and didn’t see anything that made me say, oh, I should CLICK HERE TO DONATE or whatever.
I like the idea of JustGive.org. The last thing I need is more paper.

Kevin M
Kevin M
9 years ago

Obviously a terrific story, but I’m wondering why anyone – right or left – would criticize this? Could you provide more detail, or is that in the book?

@Elysia – click http://www.grameenfoundation.org/, there is a Donate button at the top right.

ami | 40daystochange
ami | 40daystochange
9 years ago

I love this story. Thank-you April for sharing it. It shows us how much power we have when first we identify a need we want to serve, then look for the means to fulfill it.

BTW – I noticed the loan recovery rate was 97.29% – and the current proportion of female customers was 97%. Coincidence?

J.D. Roth
J.D. Roth
9 years ago

Like many others here, I’m a huge fan of Kiva, which allows average folks like you and me to make micro-loans to third-world entrepreneurs. I’ve been using Kiva for a couple of years now. You get no return on your money, but so what? For me, it’s like a charitable donation I get to make again and again: Once somebody pays me back, I can loan the money to somebody else.

Tyler Karaszewski
Tyler Karaszewski
9 years ago

Funny how we vilify debt amongst ourselves and regard it as “inspiring” in this context. Debt is obviously not so one-dimensional. Either that, or we don’t treat other cultures the same way we do ourselves.

Slackerjo
Slackerjo
9 years ago

What a great article. Christmas gifts to my family (who have everything they need, and more) is always a donation to a charity. I always try to find a charity that helps people become self sufficient.

Andrew
Andrew
9 years ago

Kiva.org is NOT a cost-effective way to help people. Your donation doesn’t actually go to the people profiled on the site, but to some partner organization that will use it to make a loan to someone else entirely.

There’s good information here on microfinance and what you can do if you really want to help:

http://www.givewell.org/international/economic-empowerment/microfinance

Flybigd
Flybigd
9 years ago

What a great review! I can’t wait to borrow this book and read it myself.

Kelley
Kelley
9 years ago

I also have a copy on reserve. One of the nice things about being debt-free is being able to give and it does wonders for my soul.

Brian
Brian
9 years ago

I’ve been a regular monthly donor to Grameen USA for several years now, and I’m very happy that I’ve done so. They’re a four-star charity at http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=7723, which is a great place to start before you donate money to anyone. Even when money got a bit tight for me, I figured I was still in a better position than most people in the world and I should keep my monthly contribution to Grameen alive. I’m glad I did! I saw my name in their last report as one of their top donors! At $50 a month (plus a few one-time… Read more »

chacha1
chacha1
9 years ago

@Tyler K., have to agree with April, a small-business loan such as Grameen Bank or Kiva supplies is a very different critter from a pile of credit card debt, a luxury-car loan, a no-money-down mortgage, or even student loans – which are the types of debt most of us here have been dealing with. I don’t think ANYONE has “vilified” small-business lending, at least not here at GRS! Although, hey, J.D. – maybe add that to the pipeline: a look at small-business lending in the U.S. and its relationship to PF? April, thanks for reminding me about Mr. Yunus. I’ve… Read more »

Sherry
Sherry
9 years ago

@andrew – my donation/loan to Kiva goes to the little company that financed the loan that I picked. I know my $25 didn’t go directly to that person. But it went to the company that directly financed the loan for that person. I am looking at the link, and others that link itself provides, and not really seeing how Kiva is a bad thing. I will keep reading, but I wonder if perhaps those on that link have more of a philosophical issue with the idea of microlending in general than the company itself.

Adrian
Adrian
9 years ago

Interesting concept. However (similar to Tyler K.) here is my take: While I admire the generous and passionate personality of the bank inventor, Mr Yunus, and I do not question his motives, I still feel that capital for a business should moreso be EARNED rather than LOANED, despite where you reside and in what condition you live. This way, there is much less risk for a family in poverty to fall further into debt if a business fails. (We see this all around the world) The same applies to post-secondary education for that matter: ganing the money for funding is… Read more »

CNM
CNM
9 years ago

Personally, I love the idea of micro-credit and I support it. I have not read this book but I am familiar with the topic of micro-credit and its central issues. The main criticism about it, though, is that micro-lending institutions are essentially charity. That is, unlike the traditional notion of a lending bank, they do not turn a profit or break even due to the high transaction cost of making the loans relative to the low interest received from these micro-loans. There is nothing inherently wrong with operating a charity. The criticism stems from the impression that this type of… Read more »

chacha1
chacha1
9 years ago

I can’t speak to every micro-lender, but according to everything I’ve read, Grameen Bank is most definitely NOT a charity. They are not GIVING money. They get repaid. Maybe people get confused because it’s a non-profit bank and here in the U.S. we can’t really get our heads around “non-profit” as being anything BUT a charity. Adrian – I completely respect your position, but you know, BECAUSE of the cultural aspects Mr. Yunus started Grameen to address, his customers are largely people who CANNOT earn enough to improve their lives without that small initial debt. Historically, cultural change follows economic… Read more »

Evelyn
Evelyn
9 years ago

Though I think this is a well written post about a well chosen book I wish it were more of a review instead of just a summary. I would have loved to know what you enjoyed and disliked about the book. How did the author succeed? Where did the author fall short?

CNM
CNM
9 years ago

@ chacha1: If you comment was directed at my post, you are right that these micro-lending institutions are not charities in as much as the loans are repaid. But, the argument goes, they are not self-sufficient either. That is, they do not make enough money from the interest earned on the loans themselves to keep their lending programs running. They rely on grants and outside funding.

almost there
almost there
9 years ago

I have been loaning money to MICROPLACE. I realize the interest doesn’t compound, but it is about making loans to third world poverty stricken individuals so that they may work their way out of poverty with self respect and dignity.

bon
bon
9 years ago

An interesting traditional micro-lending/savings concept that exists in Ghana is something called a “susu” scheme – where women lend to each-other. Here is an example of how it works: each week 10 women will contribute $5, and one of the 10 will receive all $50. Then the recipient rotates weekly. It is basically a forced savings account for people without access to banks, and the large cash infusion can make a big difference. The women are typically in tight communities so are always accountable to each-other. JD – how about a GRS Kiva team? I’m an avid listener of the… Read more »

Andrew
Andrew
9 years ago

@sherry

You might find this more recent blog post of theirs more helpful.

http://blog.givewell.org/2010/09/03/new-research-and-recommendations-for-microfinance/

April411
April411
9 years ago

bon,
My mom used to do that with my aunts, they called it “La Rifa” in spanish. They would each contribute something like $20 and then one of them would get a $100. I never really understood what she meant when she said she had to give Maria (or one of my other aunts) money for “la rifa” until now. Anyway, sounds like an interesting book. I plan to read it.

Anca
Anca
9 years ago

This is one of my favorite books.

Chrissy
Chrissy
9 years ago

“A man also can throw his wife out at any time, simply by repeating “I divorce thee” three times”….one second here! You cannot simply divorce a woman by repeating”I divorce thee” three times in Islam. Please double-check before writing nonsense. Even in Bangladesh, talak (divorce) is not that easy! The Quran requires a specific time period to pass between each “I divorce thee” and there is also an alimony payment involved! This is basic general knowledge and I am not a Muslim…

Rika Susan Healthy Juicing
Rika Susan Healthy Juicing
9 years ago

This is such an inspiring article! Exactly the sort of concept we need here in South Africa. To think that such a small start can help to turn someone’s life around completely, enabling him or her to become a contributing member of society and to provide for a family. We have so many folks who are without an income. What a difference this could make over here! Thanks!

achit
achit
9 years ago

@Chrissy you are mistaken.
An islamic man can divorce his wife at any time, he just have to repeat ‘Talaq, Talaq, Talaq’ i.e. ‘I divorce you’.
How do I know? I was born and grew up in UP, India. India has more muslims than any other country except Indonasia. UP has bulk of those muslims. I know men who used this method to divorce, I know women who were divorced this way.

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