Creating A Nation Of Entrepreneurs Loan By Loan

For 20 years, Muhammad Yunus has helped the poor in his native Bangladesh. But don't talk to the managing director of Grameen Bank about charity. "Handouts take away initiative and help maintain poverty," he says. His antidote is credit for entrepreneurs--which he says the poor would be except for a system that denies them fair chances.

In 1983, Yunus acted on his convictions. Then a professor of economics at the University of Chittagong, he rounded up government loans and aid from European donors and opened Grameen in Dhaka. So far, so good: The bank has made some $1 billion in loans to 2 million poor families--with a default rate of just 2%. It's 90% owned by its borrowers, 94% of whom are women.

Grameen's approach is the opposite of most banks'. "The less you have, the higher the priority you get," says Yunus. With 1,042 branches and 11,000 employees, the bank reaches 34,000 of Bangladesh's 68,000 villages. A potential customer must form a group of five like-minded women in the same village. They decide how much to borrow for practically any income-generating activity--fish farming, basket making, or textile weaving--at 20% noncompound interest, repaid in 52 weekly installments.

TOUGH RULES. These small groups are organized into centers, each with about 40 women, who meet weekly with a bank representative to make their payments. The bank also requires that members build up a cushion in an interest-bearing account--which today totals $71 million. "Poor people are always told that they can't do anything," says Muzammel Huq, the bank's director of training and special programs. With Grameen's help, however, "they take responsibility for changing their lives."

At first, Grameen wasn't just for women, but it soon drifted that way. "When a man increases his income, his dream is about himself," says Huq. "A woman's income goes toward her family." The women have made rules for borrowers: Keep your house in good repair, keep families small, and educate your children. Tough rules, but they work. A study last year by David Gibbons, a professor at the Universiti Sains Malaysia, found that 46% of borrowers at one Grameen branch had escaped poverty, and a further 25% were coming close. One other payoff: Studies show that Grameen borrowers are twice as likely as nonborrowers to use contraceptives.

Now, the bank is branching out: In the mid-1980s, it took over a failing government-financed fish farm--and last year the farm yielded 800 tons of fish, 50% of which went to the poor people who help maintain the ponds. Two years ago, it launched a nonprofit company that organizes home weavers to produce madras cloth for garment makers. Grameen even runs a health-care program. Its seven centers serve 3,000 families for an annual fee of $1.25 and 2 cents a visit. So far, it breaks even.

Over the years, visitors from 71 countries have learned from Grameen. The Good Faith Fund in Arkansas is modeled on it, as is the Women's Self-Employment Project in Chicago. Come 1997, however, the bank will stop expanding--at 2.5 million borrowers. That's as many as Yunus figures Grameen's hands-on approach can handle. But at least it's a start. "If we imagine a world where every human being is a potential entrepreneur," says Yunus, "we'll give everyone a chance for a job."

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