Micro-credit Pioneer Gets Nobel for Peace

NEW DELHI The Nobel Peace Prize was awarded Friday to the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, for pioneering work in pulling millions of women out of poverty through small loans.

The prize lends heft to an idea already gaining ground in antipoverty circles: that capitalist methods can be more effective in curbing poverty than traditional grant-giving by governments and bodies like the World Bank.

The award "is fitting acknowledgment that the ways of the market are not necessarily evil, that markets can be harnessed as forces of good if done properly," said Nachiket Mor, executive director of Icici Bank, India's largest private-sector lender. Mor manages about $550 million in microcredit, the small loans modeled on the Grameen model.

The Norwegian Nobel Committee cited Yunus and Grameen for their "efforts to create economic and social development from below.

"Loans to poor people without any financial security had appeared to be an impossible idea," the citation read. "From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed microcredit into an ever more important instrument in the struggle against poverty."

Since its creation in 1983, Grameen has issued small loans worth $5.72 billion. It turned a profit in all but three years. Last year, it earned $15 million.

Yunus is credited by experts with a simple but revolutionary idea: that the poor can be as reliable as borrowers as the rich, but only if the rules of lending are rewritten to replace traditional risk management with the power of trust.

Until the onset of microcredit, banks in the developing world typically refused to lend to the poor. Aid workers say lack of access to loans traps farmers in a cycle of underinvestment, antiquated methods and low yields. It also deprives developing economies of viable small businesses.

The inspiration for Grameen Bank came to Yunus during a trip to Jobra, a village in Bangladesh, during the devastating famine of 1976. There he met a woman who was struggling to make ends meet weaving bamboo stools. Because she had no assets, she was unable to borrow from the conventional banks and had to turn to local moneylenders. The extortionate interest left her with virtually no earnings.

Yunus, then a professor of rural economics at Chittagong University, lent $27 of his own money to her and several other villagers, enabling them buy raw materials for their work. He was surprised to discover that the borrowers, mainly women, paid back their loans in full and on time.

Determined to prove that lending to the poor was not an "impossible proposition," Yunus went from village to village that year offering more tiny loans.

In 1983, Yunus formalized his loan portfolio as Grameen Bank, which experts say employs a fundamental innovation in credit: Instead of managing risk by taking collateral, Grameen made borrowers, almost always women, take out loans in groups of five. Each would thus be guaranteeing the other women's dependability; the threat of being shamed by their peers was often enough to deter those considering a default.

"We have no guarantee, no references, no legal instrument, and still it works," Yunus told Fortune magazine. "It defies all the conventional wisdom."

The bank now reports having 6.61 million borrowers, 97 percent of whom are women. Its loan recovery rate is a near- flawless 98.5 percent. Conventional banks in Bangladesh, which lend mainly to affluent families with collateral, have recovery rates of just 45 percent to 50 percent, according to Mustafizur Rahman, the research director at the Center for Policy Dialogue in Dhaka.

Grameen Bank has also helped transform attitudes toward women in Bangladesh, an overwhelmingly Muslim country, by giving them access to credit and better health and education, Rahman said. The Nobel citation described microcredit as a "liberating force in societies where women in particular have to struggle against repressive social and economic conditions."

The son of a wealthy goldsmith, Yunus has stressed that it was his mother's charitable nature that instilled in him a sense of duty to the poor .

M. Morshed Khan, Bangladesh's foreign minister, called the recognition an great honor for the entire country.

"Grameen will remain as a landmark," he said by telephone, adding that he and Yunus had known each other as children.

"I could feel from that time he was a great achiever, and that one day he would do something important," Khan said, noting that it was the first time a Bangladeshi had received a Nobel Prize,

As for Yunus, the prestige of the Nobel and the $1.4 million prize money, shared equally between him and his bank, will propel him one short step closer to a distant goal. "One day," he has often said, "our grandchildren will go to museums to see what poverty was like."