A really unconventional lender

Microcredit pioneer helps world's poorest

(Wendy Maeda/Globe Staff)

Muhammad Yunus founded Grameen Bank in Bangladesh in 1983 to make small loans to the poor, a practice known as microcredit. Twenty-three years and millions of loans later, Yunus, an economist, was awarded the Nobel Peace Prize. Last month, he addressed graduating seniors at MIT's commencement. He spoke to Globe reporter Robert Gavin.

Could you give us a brief explanation of what microcredit is? Microcredit is lending money to the poorest people, particularly women, without collateral, without guarantees, without lawyers, for income-generating activities. Conventional banks don't lend money to people who don't have much, so we created a system where we can make loans to the poorest people, even beggars.

So how did you come up with the idea? Just accidentally. I was there in a village teaching. I saw the loan sharks in the village, so I decided to lend the money myself. That was the beginning.

Can you give us a sense of the impact of microcredit? The idea has spread all over the world. Lots of borrowers take loans and eventually improve their income. Then they send their children to school. Each borrower has also a savings account, so you build up savings, and that improves your conditions.

How many people do you think you've helped? At Grameen Bank, we have 7.5 million borrowers, 97 percent women, and globally about 130 million women have taken loans from Grameen-type programs.

As you mentioned, this goes against traditional lending. You're lending to poor people, with no collateral. Why does it work? If you don't pay back, the door gets closed. So you want to keep the door open, because the more loans you can take, the better you can move forward. So you work hard to make sure the door stays open.

I understand about 98 percent pay back loans. Does that say something about the human condition? Yes, indeed. We've built a whole system of banking based on lawyers, based on distrust, and we thought that's the only way you do business. Here we see a different system built on trust. It's worked out pretty good.

You said 97 percent of your customers are women. Why is that? Women are more careful about how they use their money. They want to get the best mileage out of the money. The benefits of their income goes directly to their children. In men, we don't see those features very clearly. They're used to spending the money on themselves.

Since you won the Nobel Prize, what has happened to you, the microcredit movement, and your efforts to eliminate poverty? The Nobel Peace Prize has given us lots of visibility, lots of attention to the work we do. People are more accepting. After the Nobel Prize, you kind of get a certification that it's good, it works.

You have a goal, at least a dream, to eliminate poverty. That's the whole idea of microcredit. People don't have to be poor.

What else is needed? Everything is needed. Education is needed, health is needed, housing is needed. Political empowerment is needed. You name it. But don't forget the microcredit part. This is also very useful.

You have a different view of how capitalism should work. How do you think capitalism should be reformed? Capitalism is very narrowly defined in the way we practice it. You ignore everything else but money making. And by ignoring the other parts of human beings - concern for other people, concern about the planet, willingness to make a difference in the world - we've created a distortion. So I'm suggesting there's not one type of business model, but two types. One takes care of making money, which can lead to happiness. The other happiness comes from the other type of business, which is to do good to other people. You cover your costs - it's not charity. Charity money has only one life - once you use it, it goes. Use the money in a social business, then it has an endless life. It's recycled. It never disappears.

When you got started on this, was that your idea to change the world? No, no. I was just trying to solve a local problem. People were suffering, somebody was drowning. All I was doing was helping the drowning person to keep from drowning.

Do you think that Americans fully understand the depth of poverty in the developing world? It's not a question of poverty in other countries, they don't pay attention to poverty in their own country. International poverty is a very small concern in the United States.

You spoke to MIT students. Is there one thing you want them to remember, to come away with? They can change the world. There are things that can be done. It's not, "I'm so small, what can I do in the world?" You, one person, can change the world.

What's next for you? I continue to draw attention to the fact that poverty is unnecessary, that poverty can be overcome. There's no reason why anyone should be poor anywhere in the world. Everyone has the capacity to take care of himself or herself. All you have to do is take out the barriers out that are stopping them.