Backed by honesty and trust

by Abby Lyall

Nobody knows your life better than you—that’s a fact. Just the same, nobody understands the lives and needs of underprivileged women living in impoverished countries better than those women themselves. This is the philosophy of Muhammad Yunus, a professor at the University of Chittagong and the founder of Grameen Bank, a Nobel Peace Prize-winning microfinance organization. Since its founding in 1976, the bank, which is based in rural Bangladesh, has loaned out over 14 billion U.S. dollars to 8.5 million of the world’s most poverty-stricken individuals.
For those unfamiliar with the concept of microfinance, here’s how it works. Those who live in abject poverty find it very difficult, and usually impossible, to obtain a loan from a traditional bank. Many underdeveloped countries, especially in rural towns and villages, lack any sort of significant banking structure, and even if their inhabitants could make it to a branch of a more traditional financial institution, they would still be unable to obtain a loan due to their lack of collateral. They own nothing, so the bank has nothing (such as a car, house, etc.) with which to secure the loan—nothing to confiscate if these individuals are unable to repay on time. 
Microfinance institutions solve this problem by turning the tables—to get a loan, you have to prove how little income and possessions you have, not how much. Microloans aren’t at all significant by traditional banking standards, often consisting only of a few hundred dollars, but can be more than enough for a borrower to get on her feet, start a small business enterprise and drag herself and her family out of poverty.
But how can you ensure the loans will be paid back? Grameen has a unique answer to this question—new members of the bank are only allowed to join in groups of five. If the primary recipient of a loan from Grameen is unable to make a payment, the responsibility falls on the other four members of the borrower’s group. If a loan goes into default, all group members are prohibited from borrowing from Grameen again. 
When taking out a loan, borrowers also swear to abide by the “16 Decisions,” a set of social conduct rules developed by Yunus including “We shall educate our children,” “We shall not inflict any injustice on anyone” and “We shall always be ready to help each other.” In this way, the bank creates a cycle of honesty, trust and personal responsibility to be used as collateral in the place of a house, a car or a steady stream of income. The system works: Grameen Bank’s default rate is 2%, and revenues in 2014 exceeded $23 million.
Even more amazing than the bank’s profitability, however, is its impact on the borrowers, their families and the communities in which they live. Grameen’s members are 96% women—an incredible statistic for a nation in which only 1% of traditional banking customers are female. Through its efforts, Grameen has found that loaning to women creates considerable benefits for society as a whole, not merely for the lives of the women themselves—as opposed to many men, female borrowers are highly likely to share their income and socioeconomic betterment with their children and emphasize their growth and education, which creates a positive impact for the future of the village and nation in which the borrowers and their children reside. Since Grameen Bank’s inception, 68% of its borrowers have crossed the poverty line by meeting certain criteria for the first time in their lives; these criteria include a rainproof house, a sanitary toilet, clean drinking water and three meals a day.
Grameen’s impact goes beyond material benefits. Yunus’ philosophy is that “unleashing the energy and creativity of each human being is the answer to poverty,” not handouts by charitable or governmental institutions. While these organizations do wonderful work and certainly have their place, there is something to be said for the value of being given the opportunity to create your future and the future of your family for yourself. 
Grameen’s model not only produces economic growth and sustainability for Bangladesh and the 40 other nations into which it has expanded, but also instills in the hearts and minds of women who have been beaten down by destitution and hopelessness—in communities where women rarely are able to take charge of their own lives—feelings of competency, control, self-sufficiency and even pride. And these are tools much more valuable than money in the war against poverty.



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