Banker To The Poor Wins Nobel Peace Prize

Muhammad Yunus, the founder of the Grameen Bank, which makes microloans to the poor, is this year's Nobel Peace Laureate. Yunus founded the bank as a way to harness the fierce entrepreneurialism of the poor, who are held back by a lack of reasonably priced capital. It's not only good for the poor, but the bank now apparently makes a profit.

As I wrote in Reason back in 2000:

An authentic hero, Muhammad Yunus, the Founder and Director of the Grameen Bank in Bangladesh gave a keynote speech during lunch. Yunus was introduced as the person who has done "more than anyone in history to empower the poor." The Grameen Bank, founded by Yunus in the 1983, makes very small loans to very poor people in Bangladesh who use them to establish tiny businesses. Grameen has 2.4 million borrowers, 95 percent of whom are women. The bank concentrates on lending to women because bank research has shown that women tend to have a longer term planning horizon and spend more business profits on family members than do men. The example of Grameen has inspired a global microcredit movement that has spread to 65 developing countries and has reached 17 million borrowers around the globe. Grameen, organized like a credit union, is profitable. "It is not a charity; it is a business and its funds are recycled and continues to grow," underscored Yunus.

Yunus is also extremely excited about the potential of information technology to help the poor in developing countries, and he's not just being theoretical about it. Grameen Phone has distributed more than 2,000 mobile phones to "phone ladies" in 2,000 villages. The phone ladies sell phone service to villagers and thus pay for the phones while earning double the national average income. Yunus is also working with Hewlett Packard to bring internet kiosks to villages. The Grameen Digital Centers will be operated by touch screens and voice commands so that even illiterate villagers can use them.

In making the award, the Nobel Committee declared:

Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.

Hearty congratulations to Muhammad Yunus and his colleagues at the Grameen Bank.

Addendum: Yunus also won the World Food Prize in 1994. Awarded annually, the World Food Prize is the foremost international award recognizing the achievements of individuals who have advanced human development by improving the quality, quantity or availability of food in the world.

Comments

[Chris Grieb]

A Noble Peace Prize winner who has actually done something for peace. What a wonderful idea.

[db]

Seconded. It's nice to see a non-politicized winner for a change.

[also saying]

Second that. First decision of the peace-Nobel jury in long years that makes any sense whatever.

[Pro Libertate]

Bravo! This is the kind of thinking that will change the world for the better.

And to think, we have a Peace Prize recipient this time around who hasn't directly or indirectly killed anyone. Wow.

[Phileleutherus Lipsiensis]

I'd say that there have been quite a number of worthy recepients: http://nobelprize.org/nobel_prizes/peace/laureates/

[Warren]

The business model is fabulous. But it only goes as far as his client's property rights.

[Pro Libertate]

Phileleutherus Lipsiensis,

It's just a joke. Plenty of the recipients of the award have been peachy. However, more than a few have not.

[Karen]

As they say, couldn't happen to a nicer guy. Seriously, I can't imagine how anyone could criticize either Yunus or this award. Excellent news for a Friday.

[Michael M.]

What a shame Bush is still seeking to cut the budget of the Small Business Adminstration, which runs the U.S.'s domestic microloan program, over bi-partisan objections. Has Bush ever met a good idea he liked?

[AmyLou]

I am so pleased to hear this news.

I recall reading about "micro-lending" about 5 or 6 years ago, and the idea interested me. It is a pretty basic concept that is easy to grasp and execute. But it seems as though micro-lending only works in high poverty third world nations. Does anyone know of examples of micro-lending in the States?

I fear that somehow a business model that is so successful at both making a profit and have a lasting postive impact on the lives of its customers is, alas, something that would never thrive (or perhaps even be allowed to function) in the US. I appreciate any enlightenment you can offer.

[Ironchef]

Michael,

Why would the government need to subsidize (err, "support") that which Yunus runs profitably?

(not a defense of GWB)

[Pro Libertate]

I found out about this program when watching Michael Palin's Himalaya. Palin talks about it for a page or two in his on-line book accompanying the show. It looked and continues to look like a great idea. Push the solutions down to the people who need them, rather than hand money to their overlords.

[Wally the bird]

Better him then JIMMY CARTER or KOFFI ANNAN

[downstater]

i remember hearing about similar microloans in africa in the late 90's. very cool idea.

i also recall hearing this guy interviewed on npr not too long ago. what an interesting guy. congratulations.

the reason for no prevalance of microloan issuing institutions in the states is because, here, poor villagers qualify for a 300K A.R.M.

[Pro Libertate]

Reading the Palin diary on this, I noticed something about the loans being for 20% and being issued in a discriminatory manner to women over men. If you did that here, it would be predatory lending and a violation of the Equal Credit Opportunity Act.

Actually, to be fair, the rate for an unsecured loan here could be that high or higher, depending on your credit situation. For small loans, state consumer finance laws sometimes (depending on the state) allow much higher rates than that!

[tarran]

Jeffrey Tucker or mises.org has bad things to say about this guy in an analysis on mises.org. The conclusion:

"Agree or disagree with Grameen's femino-socio-financial engineering, there's no economic miracle worth copying in the Grameen model. At best, its operations are wasteful and Ponzi-like; at worst, they are parasitical, usurious, and communistic. This bank would not be viable apart from the government subsidies and financial trickery, facts which prove that its grandiose claims are false. The Grameen Bank's fame is a consequence of its far-leftist social agenda, not its economic successes."

[Pro Libertate]

tarran,

Tucker's evaluation seems a bit harsh to me. He seems pretty offended by the discrimination in favor of women and reads that as a leftist bias. I rather think it has more to do with the repayment history of women in the region. I've heard similar things in a different context about women versus men in Mexico, so the idea that there might be a general risk-based model favoring lending to women isn't entirely crazy. And to label it as leftist seems a bit odd, since it's the left that generally takes the stronger position on discrimination issues in the U.S.

I don't doubt that there are aspects of the Grameen operation that we'd find distasteful, both as Westerners and as libertarians. But even if Grameen is just another way of distributing government funds, it's certainly an order of magnitude better than handing the funds to the latest iteration of The Corrupt Leadership? in Bangladesh or similarly situated nations. I think the basic concept is worthy of praise, and if there are politics that we don't like associated with the program, well, we can note that we don't like those while applauding the basic idea. Libertopia, sadly, is far, far away, and we can't just sit on our hands and wait for it to arrive.

In effect, Grameen is on par with the finance company in the U.S. Though finance companies have occasionally been overreaching, for a very long time, they have gotten credit to people who couldn't possibly get it from banks. That's true today, too. The expansion of credit availability in the U.S. came largely from the expansion of nonbank lenders (i.e., finance companies, mortgage lenders, even pawn shops and payday lenders), which put pressure on banks, in turn, to loosen their credit standards. Sure, the rates and terms can be disturbing for people looking on from the prime side of life, but for people with low incomes and poor credit histories to boot, the availability of even relatively expensive credit is a godsend. That's not to suggest that these people don't ever get taken advantage of--the examples of Household Finance and the Associates show that they did get screwed at times--but the overall benefit of more freely available credit is a net good, in my opinion.

Just to make this posting ridiculously long (too late!), I have to note a related personal anecdote. Back in my Washington Mutual days, we had an old sign from the 1950s that had been liberated long before from one of our finance company's branches. It was a neon sign that said, "Loans to Ladies". Believe it or not, that was actually a progressive rather than discriminatory advertisement for the period, because most women at the time were homemakers or part-time employees at best (with an obvious and significant minority who were professionals, etc.) and had real trouble even getting through the door at banks. This was especially true for our finance company, which was located in rural and small-town locations.

[Ronald Bailey]

tarran: That knee-jerk reaction of requiring absolute ideological purity is why I rarely bother visiting mises.org. Sigh.

[Jennifer]

From Tucker's piece:

Borrowers must take vows to "keep our families small," to "build and use pit-latrines" and to "plant as many seedlings as possible during the planting seasons."

This sounds appalling at first, but in the context of Bangladesh is it really such a bad thing? He's trying to use these loans to help women escape desperate poverty and sickness, so he says "if you want to borrow money you can't have a baby every year, you can't go to the bathroom in your water supply and here in an agricultural society you have to plant something during the planting season."

I know that making people do things For Their Own Good goes against libertarianism, but if you're loaning money to people don't you have the right to attach some strings to it? And these strings sound like they are indeed for the borrowers' own good.

Even sending the kids to the Grameen schools--according to a quick Google search, the literacy rate in Bangladesh is 50 percent for adult males and 31 percent for adult females. Learning how to read and write pro-Grameen literature is better than not learning to read or write at all.

[Pro Libertate]

Jennifer,

And, there's this from the Palin piece I linked to above: "Grameen prefers to lend to women, as they're less likely to run off with the money." American discrimination policy aside, that's a sound business reason for favoring women. I've heard that the payment processing operations south of our border also tend to employ women, because they come back to work the next day more than men. There are cultural reasons for that (I guess there's some stigma attached to men working in clerical jobs in parts of Mexico, or at least, there once was), and I'm sure the same sort of issue exists in Bangladesh. Just like la mordida exists all over the Third World, in one form or another.

[ClubMedSux]

In response to Jennifer's assertion that "I know that making people do things For Their Own Good goes against libertarianism..." I think the government making people do things for their own good goes against libertarianism (at least my definition of it). However, nobody is forcing these people to take loans. If it's my money, I can use whatever conditions I want in determining who to lend it to. I would consider that perfectly consistent with my view of libertarianism. Besides, as a libertarian, why should you be beholden to others' definitions of what is or isn't libertarian? A good libertarian things for her/his self!

[Erik]

This man is the hot sauce. Congrats and Skal!

[highnumber (taking advantage o]

A good libertarian things for her/his self!

I thing a thong for everyone!

[highnumber (taking advantage o]

A good libertarian things for her/his self!

I thing a thong for everyone!

[Leah]

AmyLou,

There is (or at least was a few years ago when a friend interned there) a model like this in Chicago. It works in a very similar way, but lends women capital for buying socks/cds/other small things that they then sell in stalls at markets or even in their own stores. A fascinating book about the subject is here, but it looks like it may be out of print...

[Jennifer]

In response to Jennifer's assertion that "I know that making people do things For Their Own Good goes against libertarianism..." I think the government making people do things for their own good goes against libertarianism (at least my definition of it). However, nobody is forcing these people to take loans. If it's my money, I can use whatever conditions I want in determining who to lend it to.

Yes, that was exactly my point. Tucker is basically complaining because the Grameen Bank says "If you want to borrow money from us you must do X." Presumably, the Grameen Bank should just have to loan money to anybody whether they want to or not. Not a very libertarian argument, IMO. Shame on him. Pretty sad when I'm more of a purist than a guy from mises.org, no? 😉

Also, I recall reading that the bank's views on women make it very unpopular with Islamic fundies. Anyone the fundies hate due to views on women must be doing something right.

[kelley]

When "60 Minutes" profiled Yunus in 1990, my wife casually commented that he deserved the Nobel Peace Prize. Glad the honor finally came his way.

[highnumber (taking advantage o]

Also, I recall reading that the bank's views on women make it very unpopular with Islamic fundies.

Islam also prohibits paying or charging interest. I assume that the bank must charge interest if they are now turning a profit.

[Pro Libertate]

I just mentioned this "Jesus and Mo" cartoon that I ran across today in another thread, but, glancing through it, I ran across one directly on point: Jesus and Mo on Islamic Banking.

If "time value" is one of the workarounds, that's an utter fiction. We use similar terms to describe interest here. Of course, a modern economy is just about impossible without credit and interest, so it's no surprise that they evade such provisions of Islamic law.

[Michael M.]

Ironchef --

The government doesn't "need" to subsidize any microloan program. The SBA's microloan program, however, is working, at least in areas I've read about. By providing a framework for non-profit agencies to provide loans to small for-profit businesses and start-ups, it increases the pool of funds available to entrepreneurs who would have a harder time getting the funding from the private sector. Given the consolidation in the banking industry over the past few decades, private-sector loans are increasingly hard to come by, particularly if you're trying to start a business in a blighted neighborhood. The concept of "community banking" is pretty much a thing of the past, and the megabanks are less interested in making modest profits off 100 modest investments than they are in making big profits off 1 big investment. The SBA microloan program helps fill in the gap, and overall is less likely to suffer from the same bias against minority business people in minority neighborhoods that afflicts the private banks.

That's why I think the SBA program is a good idea. And I'm all for the government sponsoring good ideas where those ideas have been effective in raising people's standards of living, spurring employment, and reviving neighborhoods. There are all kinds of theoretical dangers (e.g., driving out private for-profit investment, a high rate of failure or waste) to a government program like this, but none of them are even remotely on the horizon. If and when they crop up, then the program should be looked at anew and adjusted, curtailed or abandoned as needed. The facts on the ground, however, point to it being a great success.

Sorry if I'm too much of a pragmatist to be a genuine card-carrying libertarian. I'll take effective, capitalist-oriented success over hard-core (government+program=always+bad) ideology 9.5 times out of ten.

[highnumber]

Pro Libertate,

There are lenders along Devon Ave in Chicago that offer Shariah compliant loans. A murabaha transaction involves a purchase and deferred payment resale. At the customer's direction the Bank acquires and then sells the property to the customer for a fixed price--the purchase price that the Bank pays plus a profit. This total price is then paid by the customer to the Bank in an initial down payment and in fixed installments over an agreed-upon period of time at no interest. A wide range of terms is available.. It is the Islamic Financing product most closely resembling a conventional fixed-rate mortgage.

I don't really get it. It sounds hypocritical.

[Pro Libertate]

highnumber,

It's a workaround to avoid violating the letter of the law. To be fair, usury isn't on the Christian list of things you should be doing, either.

[Fred]

Ron,

Thanks for highlighting people like Muhammad Yunus and Norman Borlaug. Real heros for humaity like them are so rare.

Fred

[Fred]

Ron,

Thanks for highlighting people like Muhammad Yunus and Norman Borlaug. Real heros for humaity like them are so rare.

Fred

[Syd]

I'm glad to see this prize. I remember a couple of years ago when Wangari Muta Maathai won this prize, and I was wondering why. Then I thought about it for a minute and realized that she'd done more for peace than a lot of the high-profile people who've won it.