LEARNING WITH THE TIMES
Microcredit helps beat poverty

Q: What is microcredit?

A: It is the extension of small loans, from as little as a few hundred
rupees, to poor people who might not have any steady employment, a
verifiable credit history or any collateral. Such people, who would be
ineligible for loans/credit from regular banks, get the capital they need
through such tiny loans to start small businesses. Thus, they are able to
earn enough to escape from the cycle of poverty, feed their families and
meet their basic needs. The repayment period for such loans are relatively
short and a majority of the beneficiaries of the microcredit system are
women.

Q: How did the system of microcredit start?

A: It began as an experiment in a Bangladeshi village in 1976 by Prof
Muhammad Yunus, hailed as the father of microcredit, as an action research
project of Chittagong University. Prof Yunus found that the poor in Jobra
village near the university were forced to take money from moneylenders at
exorbitant rates of interest to engage in any livelihood activity. They
needed very little money to escape from the clutches of the moneylenders. He
approached a bank to get a loan for these poor people. But the bank refused
saying that the poor were not creditworthy. In a bid to prove how wrong the
banker's assumption was, he co-signed on loans in the village. The 42 women
for whom he procured loans in this manner invested the money and managed to
earn enough to pay back the loan and also make some profit. He extended the
project more villages and met with the same success. Yet, the bankers
remained unconvinced. This led Yunus to start his own bank in 1983 that he
named Grameen Bank. He successfully expanded the project to other areas of
Chittagong and eventually to other districts in Bangladesh proving that the
poor can be creditworthy too.

 Q: What is the Grameen Bank?

 A: Grameen Bank (GB) is a bank that offers credit without demanding any collateral. It is a
banking system based on mutual trust, accountability, participation and
creativity. It provides credit to the poorest of the poor in Bangladesh. GB,
in its own words, sees credit as a "cost effective weapon to fight poverty
and acts as a catalyst to improve the socio-economic conditions of the poor"
. As of May, 2006, it had 6.61 million borrowers, 97% of whom were women.
With 2,226 branches, GB provides services in 71,371 villages.

Q: What are the bank's USPs?
A: GB believes that credit ought to be a basic
human right and hence builds a system whereby a person with nothing gets the
highest priority in getting a loan. Unlike conventional banks that focus on
men, it gives highest priority to women. One of its primary principles is
that the bank has to go to the people and not the other way around as in
conventional banks. So services are provided at the doorstep of its clients.
In GB, the total interest on a loan can never exceed the loan amount no
matter how long the loan remains unpaid. No interest is charged after the
interest amount equals the principal. Unlike conventional banks, where
interests are compounded quarterly, all interests is simple interest in GB.
In case of death of a borrower, Grameen system does not require the family
of the deceased to pay back the loan. There is a built-in insurance
programme which pays off the outstanding amount with interest.

Q: Is the microcredit system replicable?

A: The GB has initiated a global microcredit movement. Up to the end of
February 2006, the Grameen Trust supported 137 replication programmes in 37
countries. India too has a host of microcredit organisations.

Muhammad Yunus

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