The man who started a poor people’s bank

BANKING

By THOMAS HUKAHU
LAST week, I told you about an institute in Ontario, Canada, which is attracting top theoretical physics lecturers and students from around the world to study and do cutting-edge research that could advance the world in a big way.
The Perimeter Institute of Theoretical Physics is funded mainly by Mike Lazaridis, the co-inventor of Blackberry, the smartphone. He has used his personal wealth in supporting scientific research.
This week, I want to share with you a fascinating story that I first heard when I was still a student in university. Later I realised the significance of what the main character in the story did. Let me start.
Poor people struggle to access banking services
As in Papua New Guinea, and elsewhere in the world, poor people and the illiterate will always struggle to access banking services because of the paperwork involved as well as the terms and conditions which commercial banks have that potential clients need to fulfil for accounts to be opened.
How then can such underprivileged people be helped? Will the government help them?
Will citizens with extra cash help them with loans of K50 to K100 so that they can buy materials to pay for stuff or material to produce items that they can sell?
Who will help such people?
When I was doing my third-year science degree back in the 1990s, one of my relatives who was studying business/economics told me a story of how a man in an Asian country started a poor people’s bank, a bank that helped poor people access funds to buy their materials which they in turn can make items or artefacts that they can sell.
The Nauruan finance experience
The story told me by my relative was buried somewhere in the recesses of my mind for all those years until I went to the Republic of Nauru to teach 14-year-olds mathematics in the government’s junior high school in 2008.
Nauru was at that time coming out of an economic crisis that saw their billion-dollar investments in Melbourne and elsewhere drying up. The crisis was blamed on bad management and corruption by their government.
Their national bank was declared bankrupt and there was nowhere a local could access funds or save what they earned as paid employees. In short, it was unbelievable that people could live there.
Most of what the Bank of Nauru did then was process the pay of government workers and help in transmitting funds offshore for those who need such services. Otherwise, the services of saving or borrowing money, as most commercial banks do everywhere else, were not available (at the time I was there).
I was told stories too of how landowners who received royalties amounting to millions of Australian dollars from the phosphate mining operations that were going on in the 1970s and 1980s had lost all their money when the Bank of Nauru became bankrupt.
A local pastor, based at Uaboe, on the north-western tip of the island, told me: “A relative has a slip of paper stating that he has more than a million dollars in the bank, however there is no money in the bank and that means he won’t be getting his money.”
Actually, the pastor who told me that said that in a funny way, as some Nauruans can do. When you get to know them, they can make fun of themselves.
It was in such an environment that I asked myself questions like: What are the possibilities of a firm setting up a bank in such a place, where there is no bank to allow locals to either save the little they have or borrow some amount of money for small projects that they may have in mind?
That was when my mind brought up that story, the story of one man who started a poor people’s bank. That man I found out in my research was Muhammad Yunus of Bangladesh.
I discovered that Yunus was the innovator who started what we know now as the micro-financing model that smaller banks are using to reach out to the masses who are not accessing banking services because they do not earn as much as working professionals who are graduates of colleges and universities.
It made the story more appealing to me since while I was in that Micronesian nation, I was also tutoring students mathematics at the local university campus after school hours. Applications of calculus or other topics in business or economics examples seemed very practical in a nation that was devastated because those in power did not properly manage the wealth of the nation hence causing the crisis.
How it all started for Yunus
Yusuf, the man who started the poor people’s bank, studied economics at Dhaka University in Bangladesh where he obtained his BA in 1960 and his MA in 1961.
Wikipedia states that in 1961, Yusuf was appointed lecturer in economics in Chittagong College after working as a research assistant at the Bureau of Economics. During those years, he set up a packaging factory and that was profitable.
In 1965, Yunus received a Fulbright scholarship to study in the United States. After completing his PhD in economics in the US and teaching at a university there, he returned to Bangladesh and worked at Chittagong University.
While there, in 1976, and during his visits to the poorer section of a village in Chittagong, Yunus noticed that the women were struggling to get loans to buy bamboo and other materials to make bamboo furniture, which they would then sell.
Banks did not want to lend them money because they were afraid that the possible clients may not be able to pay back what they borrowed, even though the amounts would be very small. Yunus believed that the poor could pay back the loans if the model used was varied – where the interest was greatly reduced and the term allowed for repayment of the loan was lengthened.
That was where Yunus started the microcredit model. He lent $US27 of his own money to 42 women in the village and made a profit of $US0.02 each on the loan. That was the birth of the concept of microcredit.
Wikipedia states that in December 1976, Yunus secured a loan from Janata Bank, which is government-owned, to lend to the poor in Jobra. The concept continued well and in 1982, it had 28,000 members.
In October 1983, the scheme became a full-fledged bank for poor people in Bangladesh and was named Grameen Bank (or Village Bank).
Grameen Bank inspires others
The new and very popular concept that was giving hope to the poor in Bangladesh interestingly had all sorts of opposition from people with all sorts of motives. Despite that, the bank, through Yunu’s leadership, continued its climb and by July 2007 it had lent US$6.38 billion to 7.4 million borrowers.
In 2017 though, the Bangladesh Government forced Yunus to resign from Grameen Bank, saying that at age 72, he was too old to run the firm.
The work of the bank has inspired many countries to start similar programmes, including a World Bank initiative.
The bank is also extending its services to wealthier countries and it now has 19 branches in 11 cities in the US. Nearly all of the 100,000 borrowers there are women.
Think about it
Think about the change that this Bangladeshi professor of economics has done.
Yunus saw a need and decided to do something about it and the model with which he used, though unbelievable, gathered momentum over the years and it is now used in many countries by various organisation and firms.
He wanted to help the poor and in the process he turned a small and effective concept to revolutionise the banking world, where lending services are now extended to those who never accessed such services before.
In 2006, Grameen Bank and its founder were jointly awarded the Nobel Peace Prize.
The world had recognised the outstanding achievements of Yunus and the concept he started in his country.
Next week: A literacy revolution in Cuba.

• Thomas Hukahu is a freelance writer.