Economist and microfinancier
Born June 28, 1940, in Chittagong, Bangladesh; son of Hazi Dula Mia Shoudagar (a jeweler) and Sufia Khatun Yunus; married Vera Forostenko (divorced); married Afrozi (a physics professor); children: Monica (with Forostenko). Education: Attended Chittagong College, mid-1950s; Dhaka University, B.A., 1960, M.A., 1961; Vanderbilt University, Ph.D., 1969.
Addresses: Office —Grameen Foundation, 236 Massachusetts Ave. NE, Ste. 300, Dept. P, Washington, DC 20002.
Research assistant for West Pakistan Bureau of Economics, early 1960s; lecturer in economics, Chittagong College; assistant professor of economics, Middle Tennessee State University, 1969–72; Chittagong University, professor of economics after 1972; founder and managing director, Grameen Bank, 1983–.
Awards: Nobel Peace Prize, Norwegian Nobel Committee, 2006 (with Grameen Bank).
Muhammad Yunus, an economist from one of the world's poorest nations, won the Nobel Peace Prize in October of 2006 along with the institution he founded, Grameen Bank. Yunus established this "Bank of the Villages" in 1983 to provide what are known as microloans to those who otherwise had no access to credit or capital. "Poverty is not created by the poor," he explained to John Carlin, a writer for the London Observer . "So I don't take the crass conventional view that they are lazy, don't have the skills, don't have the drive. It is not their fault. They are not the creators of poverty. Poverty is created by the system that we built. The poor have as much energy, as much creativity as any human being on this planet."
Yunus was born in 1940 in Chittagong, a seaport city on the Karnaphuli River near the Bay of Bengal. At the time of his birth, the city and surrounding Chittagong District were part of India, which was still under British rule. Yunus spent his earliest years in a village called Bathua, and his family eventually moved to Chittagong proper, where his father had a jewelry business. As a youth, he was active in the Boy Scouts organization, and even traveled to Canada for the 1955 World Scouts Jamboree. Back home at Chittagong Collegiate School, he was a top student, and went on to Chittagong College and then Dhaka University, which took its name from the city of the same name that would later become the capital of Bangladesh.
Yunus earned his undergraduate degree in economics in 1960, and his master's degree a year later from Dhaka University. He took a government job as a research assistant with the country's Bureau of Economics before moving to the United States to pursue a doctorate in his field from Vanderbilt University in Nashville, Tennessee. While there, he married a fellow student, and they had a daughter together. Between 1969 and 1972 he taught economic courses at Middle Tennessee State University in Murfreesboro.
Ethnic and religious tensions had simmered in southwest Asia since the end of British colonial rule in 1947. The Chittagong area became part of what was known as East Pakistan, one of two separate territories that divided the once-powerful kingdom of Bengal along religious lines. Disagreements between all sides continued, and a 1971 civil war ended with independence for East Pakistan, which renamed itself Bangladesh, a word that meant "Country of Bengal." Sensing a new era for his homeland, Yunus was eager to return, but his wife objected to moving there with a young child, and the pair divorced.
Back in Bangladesh, Yunus took a job as a professor of economics at Chittagong University. The tiny country had a shaky economic foundation, and was prone to natural disasters like a 1970 cyclone that devastated the coastal region. It became known as one of the world's poorest nations, and a 1974 famine proved even more ruinous to Bangladesh's poor. Yunus explained his frustration at his country's circumstances in an interview with the UNESCO Courier many years later. "While I was teaching beautiful economic theories, people were dying," he said. "This was very hard to accept, and I started thinking about what I could do to help the poor to rise out of poverty."
A field trip to a village with his students yielded some insight into this quandary for Yunus: There, they met a woman who made bamboo stools, but she earned just two cents for each. She told Yunus and the class that if she could save 20 cents to buy her own supply of bamboo, she would not have to borrow from the dealer who sold it to her; because she owed him money, he was allowed to dictate the price of each stool she sold. This story spurred Yunus to devise a project that would loan money to such struggling entrepreneurs, and then track their success rate. He and two researchers found 42 other villagers who needed a small bit of capital to start a more independent economic life. All had met certain requirements, and the total amount needed to seed their initiatives was just $27.
Yunus took his idea to banks in Chittagong and Dhaka, proposing that they would provide the $27 directly to the entrepreneurs. But instead the doctoral-degreed professor was forced to listen to "long lectures on banking" and how the poor people were the worst credit risks for bankers, he told the UNESCO Courier . "I wasn't convinced. I said that the poor were the people who most needed money, and that it was to them that money should go. They wanted to give money to the rich. I told them I thought that was a strange idea."
Yunus decided to guarantee the loans himself. Each of the entrepreneurs paid him back, and on time, and so he returned to the banks with the results of his project. He thought that the banks might now agree to expand the project to other villages, but they turned him down once more. Again, Yunus co-signed for a loan, and disbursed the funds himself to the next village, and the others that followed. Most of his loan applicants were crafts artisans who made useful household items, or those who hoped to buy a farm animal so that they could sell its milk or eggs. With the banks still reluctant to get involved, Yunus decided to start his own bank, but it took him two years to win government approval for Grameen Bank, or "Bank of the Villages" in the Bengal language.
Bangladesh was a Muslim country, where polygamy was practiced and large families were the result. Women were considered less than secondary citizens, and often the target of physical abuse. Yunus' initial idea had been to dole out the loans equally by gender, but there were many barriers for female entrepreneurs, including their own limited self-confidence about financial matters. He came up with a plan for a community of applicants instead: There would be five members in a village, who then joined with other sets of five to create a "family"; five families would constitute a group, and ten of those would be a center. The centers would function as the local bank branch. The group was required to meet regularly, and all members in it were responsible for the debt of each individual; they were prohibited from borrowing more if one member fell behind in repayment.
Grameen borrowers were also required to agree to a pledge known as the Sixteen Decisions: They vowed to not harm the environment, maintain families of a reasonable size, educate their children, plant vegetables for their families and sell the surplus, build and use pit-latrines, and avoid dowries. A dowry was the exchange of money or gifts between the families of prospective brides and grooms; the practice, however, had escalated and was forcing families into deep debt.
Yunus' strategy of setting up small communities of borrowers was an effective one. Women saw their neighbors learning how to operate a business, and gained a nearby mentor and confidence in their own abilities. But as the Grameen Bank's membership rolls grew, Yunus was surprised to see that "the small amounts of money going through the women brought so much more benefit to the family. The reason why, especially in poor families, is that the woman has trained herself, without realising it, to manage scarce resources," he explained to Carlin in the Observer article. "So when we loaned her a little money … she brought that efficiency to bear, maximizing the benefits." Their male counterparts, by contrast, tended to spend profits on themselves for status-symbol items. With these results in hand, Yunus decided to increase his bank's efforts toward women, with the result that by 1995, 94 percent of its two million borrowers were female. The default rate was impressive, just 1.5 percent, and the bank even began to earn a profit itself.
Watching his microcredit program closely over the years, Yunus estimated that it took a borrower an average of ten loan cycles to rise out of poverty, and a third of his applicants had done so during the bank's first decade in operation. Grameen Bank soon grew into several other successful ventures that also benefited the poorest rural citizens in Bangladesh. There was Grameen Telecom, which brought mobile-phone technology to rural villages and became one of the leading mobile-phone networks in South Asia. An offshoot, the Village Phone Project, offered a loan to those who wanted to purchase a mobile phone and set up a business as the village pay phone; many villages had never had any type of phone service at all, and the idea was immensely successful. He later began planning to set up village kiosks with low-cost Internet access.
Yunus also launched Grameen Shakti ("Energy"), which sells solar panels and other sources of renewable energy, and lured French foods giant Danone to set up a joint project that included a large food processing plant in Bangladesh that would sell much-needed infant formula at an affordable price. To help those on the very lowest rungs of the economic ladder, he created what are known as the "Struggling Members" loans. These are given out to beggars to help them buy a product, like a hen whose eggs they might sell door to door instead of begging; this has also emerged as a radical but successful concept that has aided some 80,000 destitute. "Human civilization still has a long way to go," he reflected in the interview with Carlin for the Observer . "Human beings are not born into this planet to spend their lifespan looking for food. That is an animal activity. So what you learn when you deal with the poor is how unkind society has been with the poor people, how parochial and self-centered."
Yunus' microfinancing strategies have been copied by those who once dismissed his ideas as folly. Citibank, ABN Amro, and Deutsche Bank have launched divisions to enter the microloan market, often via partnerships with local financial institutions. His pioneering vision made him the 2006 recipient of what is one of the world's most prestigious honors, the Nobel Peace Prize, awarded to both him and the Grameen Bank. The Nobel committee bestowed it because "Yunus' long-term vision is to eliminate poverty in the world," its award announcement read, according to the New York Times . "That vision cannot be realized by means of microcredit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing effort to achieve it, microcredit must play a major part."
At the time of Yunus' Nobel Peace Prize honor, Grameen Bank had provided loans totaling $5 billion to date. It operates in 70,000 villages, and 97 percent of its 6.6 million borrowers are women. It employs 20,000, including one of Yunus' students from that original field trip, Nurjahan Begum, who serves as a managing director at Grameen's Dhaka headquarters. Yunus is married to a professor of physics, and his American-born daughter, Monica Yunus, grew up to become a soprano who has performed with the Metropolitan Opera of New York. He was happy to receive the Nobel Peace Prize, but even more pleased that the Grameen Bank had helped so many. "Today, there are many different variations of microcredit," he told BusinessWeek journalist Jeffrey Gangemi. "But I'm glad that it's drawing attention. In Bangladesh, where nothing works and there's no electricity, microcredit works like clockwork. It's fantastic."
BusinessWeek , December 16, 2005.
Christian Science Monitor , October 16, 2006, p. 1.
New York Times , October 14, 2006.
Observer (London, England), November 5, 2006.
UNESCO Courier , September 1995, p. 15.