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Sidney Fussell

December 2, 2010

Social Business: The socioeconomic effects of the Grameen Bank’s

microfinance strategies on countries with developing economies

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Executive Summary

Proposed by Bangladeshi philanthropist Muhammad Yunus, the revolutionary concept

of “microcredit” – small loans to groups of families in developing countries - has created

a contentious discourse in the topic of international economics. Seeing the rampant human

suffering in his native Bangladesh in the years following British imperialism and wars for

independence from Pakistan, Yunus proposed a system of lending and saving that attempts

to allow stable economic access for people in developing countries. The Grameen (meaning

“village”) Bank is his vision. The people of developing nations have always been excluded

from traditional lending institutions because of their lack of financial capital, lack of saving

opportunities and illiteracy. What is so remarkable about the Grameen Bank is that, unlike

traditional international aid, it is attempting to tackle the roots of inequality and curb the cyclical

nature of poverty by providing economic access to the underprivileged.

While its low default rate has garnered Yunus and the Grameen Bank much praise,

including the 2006 Nobel Peace Prize and a 2009 Presidential Medal of Freedom, there are also

accusations of injecting of leftist ideologies into poor countries under the guise of collectivism

and female empowerment. This paper will focus on the sociocultural effects of the Grameen

Bank in South Asia, placing emphasis on Bangladesh, the country in which the bank originated.

It will argue that the specific lending tactics of the Grameen Bank are attempts by Yunus to

elevate the goal of the Grameen Bank beyond providing money to the poor, and to reverse the

cyclical nature of economic inequality and exploitation that has been the status the quo of the

third world.

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Historical Overview

The concept of the Grameen Bank began in 1940s Bangladesh with the birth of

founder Muhammad Yunus. Many of the issues of class, culture, inequality and poverty that

Yunus endeavors to rectify through the Grameen Bank are repercussions of events that began in

this period. Yunus was born in what was then the British Indian province of Bengal. (Engler 3)

Over the next several decades, the name and identity of the nation would change many times,

with long lasting consequences. The province of Bengal was divided into East and West Bengal

following the 1937 Partition of Bengal, a religious-based partition that divided the nation

between the predominately Hindu west and the predominately Muslim east. On August 14, 1947

India gained autonomy from Britain following nearly 350 years of colonization. India was then

divided in accordance with the Mountbatten Plan into three countries –West Pakistan (modern

Pakistan), India (geographically the same as modern day) and East Pakistan (modern

Bangladesh). The Mountbatten Plan formed 1940s India from mostly Hindu regions and East

and West Pakistan out of mostly Muslim regions. Yunus’ birthplace of Bengal was then divided

in half; the western half became part of India and the Eastern part became East Pakistan and

eventually, Bangladesh. (Jones 87)

Following the partition, economic strife perforated throughout the region as tension

built between East and West Pakistan. Monetary resources were allocated overwhelming to

West rather than East Pakistan. From 1950 to 1970, only 41% of the common budget went to

East Pakistan. From 1955 to 1960, East Pakistan received 32% of the common budget. East

Pakistanis felt their rights were being encroached upon even further when, in 1948, Governor

General Mohammad Jinnah declared Urdu as the official language of Pakistan. Only roughly

7% of Pakistani people spoke Urdu fluently, with virtually no one in East Pakistan functionally

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competent. Bangla was the most commonly spoken language of Pakistan, with nearly 59%

of Pakistanis functionally competent in the language. Urdu was seen as a hallmark of Indian

Islamic culture, which clashes with the dominantly Hindu culture of East Pakistan. Student-led

protests to the declaration led to violent confrontations with policemen, leaving several dead, and

lingering resentment for the West Pakistani led government.

Additionally, political differences continued to strain the already tense relationship

between the two countries. Despite its population majority, East Pakistan was the lesser of

the two countries in terms of political strength. Political and military force was pooled in West

Pakistan and the majority of the leaders who assumed power immediately following the partition

were from West Pakistan, but supposedly represented both countries. Sheikh Mujibar Rahman,

leader of the Awami League, the largest East Pakistani political power, called for independence

as political stewarding became the norm whenever attempts were made to place political power

in the East. Most notably, in 1970 East Pakistan had a majority of seats in the Public Assembly,

giving them the constitutional right to form a government. However, Rahman was refused

recognition as Prime Minister by West Pakistani officials and called for a nationwide strike until

the voices of East Pakistan were heard at the National Assembly Meeting several months later.

At the meeting, however, talks of compromise failed and West Pakistani soldiers entered East

Pakistan to halt protests. (Jones 112)

Sensing the rising discontent among East Pakistanis, the government of West Pakistan

planned violent repression of Bengali nationalist movements. Codenamed ‘Operation

Searchlight’ the government was planning a systematic multi-phase strategy to quell Bengali

rebellions. Those targeted included East Pakistani intellectuals, members of Bengali armed

forces and Bengali sympathizers. College students at Dhaka University were targeted as well,

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with as many as 600 students in the resident halls murdered. Millions were displaced as they

fled to nearby countries to avoid being targeted by the government. Those who were unable to

flee were murdered and placed within the many mass graves of Bangladesh. The total death toll

for Operation Searchlight is unknown, with estimates ranging from 200,000 to three million

killed in the attacks. It is difficult to accurately collect data on the death toll as the government

systematically deported all foreign journalists and controlled all press in both East and West

Pakistan.

Following the killings, would be Prime Minister Rahman declared independence for all

of Bangladesh on March 7th 1970, sparking a bloody nine month war between East and West

Pakistan. Millions of East Pakistanis fled to neighboring India to find asylum,

Today, the consequences of the partitions, political upheavals and revolution are a state

in social and economic turmoil. Bangladesh is very rural, with roughly 85% of its population

living in rural areas. As such, any tangible change to society needs to begin with reformation on

the agrarian level. Roughly half of the people of Bangladesh’s 160 million are below the world

poverty line, meaning they have less than $2 a day to live on. More than 50 million people are

rural poor subsistence farmers, many of whom are illiterate. Illiteracy, widespread poverty and

health issues are all crippling societal ills that have become the country’s norm since its creation

in 1971.

Analysis of Current Situation

Upon earning his PhD in Economics from Vanderbilt University in 1972, Yunus returned

to accept a position as the head of the Rural Economics Program at Chittagong University in

Southeastern Bangladesh. Soon after, Yunus began immersing himself in Bangladeshi villages,

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observing how the poorest of the country lived. He has since remarked on his experiences

in visiting the villages, saying “I became very frustrated. As a university teacher I felt that

the economic theories that I was teaching had no effect. What was going wrong?” This

microeconomic perspective became the basis for the Grameen Bank’s founding.

The origins of micro-lending came upon Yunus’ meeting a poor woman in a village

in Jobra, Bangladesh. The woman made bamboo stools by hand for a living. However, she

borrowed money from a local lender in order to afford the bamboo to make them. By the

time she’s paid her lender, she receives mere pennies for her labor. Yunus found that within

the village, more than 40 people had similar tales, even though their collective loan was only

$27. Yunus has since expressed his own disappointment with the failings of the plight of the

Bangladeshi people, saying “I was very ashamed of being part of a society that cannot even

provide $27…just to make a loan.”

In 1976, Yunus and the Rural Economics department then created “The Grameen Bank

Project” designed to combat rampant the predatory lending rampant in Jobra and many adjacent

villages. Yunus, believing in self-sufficiency, planned to provide the indebted villagers with a

loan, fully intending for the villagers to pay them back. However, he was turned away from each

bank he visited as the villagers were deemed not credit worthy. The prototype microfinancing

project was a success; the villagers were able to pay off their debt. (Engler 4)

The predatory lending Yunus saw in Jobra is a serious problem for the people of

developing countries and is one of many crises of poverty. Because people in developing

countries have no assets to claim as collateral, large banks routinely ignore them and do not

consider them for loans. Additionally, the people of developing countries lack the institutions

with which to save money. Everything they earned is consumed because there is no avenue for

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investment. This cyclical nature of poverty makes the people of developing nations targets for

exploitation because, much like the woman Yunus met with, they need assistance in economic

actions – even if those actions are purely for subsistence. (Grameen)

Putting his knowledge of economics to task, Yunus hypothesized that by setting up a

system of credit for very poor people (as opposed to simply giving one-time handouts) the

villagers would be able to gain economic independence from lenders and raise their own

profitability. This vision was faced with many difficulties, however, as Yunus was unable to

secure funds to disperse to the villagers. Banks were unwilling to lend to the rural poor and

Yunus himself had served as a guarantor for the loans. Yunus then revised his system of lending

to villagers, to include safeguards within the lending system that would help to supervise the

investments made with borrowed money and to select more trustworthy clients, with the

additional goal of borrowers policing themselves. The features of the early model for micro-

lending, as recorded by Hulme in The Story of the Grameen Bank: From Subsidized Microcredit

to Market-Based Microfinance included:

• Lending to poor, rural women (as they were less likely than men to use loans

badly and were more reliable for repayment).

• Organizing women into cells of five, that took collective responsibility for each

other’s loans (creating social collateral and a peer screening process).

• Establishing Kendro (centers) where six cells (i.e. 30 women) met, at a set time

each week, to apply for loans and make repayments.

• Charging a higher rate of interest than government schemes and NGO loans

programs.

• Requiring clients to make compulsory microsavings each week (to create

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financial discipline and generate financial collateral for groups), and to make

promises about their social conduct.

• Simple, standardized products that required regular, small repayments.

• Recruiting and training bright, young graduates to administer services (to

minimize corruption).

Many of these features were incorporated into the modern micro-lending strategies that

the Grameen Bank uses today. After altering his lending model to include these changes, Yunus

saw a much better repayment rate among villagers. Taking this model to larger organizations,

Yunus made his first attempts at institutionalizing and financing his vision. The bank’s initial

funding came primarily from the Bangladeshi Krishi Bank (BKB), Bangladesh’s central bank,

with the UN's International Fund for Agricultural Development (IFAD) providing supplementary

funding. Afraid that relying too heavily on the central bank would lead to too much government

influence, Yunus lobbied for the passing of the Grameen Bank Ordinance Act of 1983. Its

ratification declared the bank as a ‘parastatal agency,’ with reduced government funding and

influence. Currently the Bangladeshi government owns only 6% of the Bank’s stocks.

The ratification of this law in 1983 marks the transition of the Grameen Bank from

research project to poverty alleviating authority. Following its inception, Yunus began an

aggressive expansion campaign, facilitated by the bank’s growing international recognition.

Foreign countries looking to invest in third world development became an increasing source of

aid. Agencies from Norway, Sweden, the Netherlands and the United States partnered with

Yunus and formed a donor consortium, each pledging to help finance the Bank’s expansion.

Operating from Dhaka, Bangladesh’s capital city, the Grameen bank has since expanded to 2,565

branches, and provides services in 81,373 villages, covering more than 97 percent of the total

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villages in Bangladesh. Its loan disbursement in the 27 years since its inception is $9.87 billion

USD, $ 8.76 billion of which has been repaid. It lists its repayment rate at an unrivaled 97%.

What has led to the banks monumental success was the creation of social collateral and

the focus on collective lending. Social collateral is a substitute for the financial collateral

developing countries like Bangladesh lack. The Grameen Bank’s lending tactics differ greatly

from the traditional collateral-based approach to obtaining collateral. While in traditional lending

systems, the borrower finds others to cosign, with the social collateral approach, borrowers self-

select into their groups. Because borrowers have pre-existing relationships, they’ll only self-

select into groups with people they can trust. Also, the Grameen Bank employs ‘joint liability,’

meaning if a single person within a group defaults, then all the members of the group default –

preventing them from securing any future loans. Individual group members are not financially

liable to pay back the debt, though they cannot attempt to secure any loans from the bank. Peer

pressure and the imposition of social penalties are powerful motivators and add additional

incentive not to default on one’s individual portion of the loan. In the small villages of

Bangladesh and throughout South Asia, one’s reputation is their most protected asset. Because of

this, there is even further incentive for self-policing within groups. (Todaro 345)

Similarly, lending exclusively to groups allows for mutual insurance. The borrowers, by

insuring each other against defaulting, are also insuring the lender against the same. Because

the actions of one borrower affect them all, they advise each other against the risky investments

and personal consumption that made Yunus’ individual lending strategies unsuccessful. Because

collective lending allows for self-regulation and mutual insurance, it makes loans to poor

countries – nearly unfeasible before the concept of microfinancing – a viable choice for both

investment and economic change.

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Finally, the bank developed a pension scheme in 2001 to create a safety net for its

borrowers. Called ‘Grameen Pension Savings,’ it is a savings fund required for borrowers

whose loans exceed 8,000TK, the Bangladeshi unit of currency. Each month, the borrower

must deposit at least 50TK into the fund (approximately .86USD) and, at the end of the 10 year

savings period, is guaranteed an amount equal to twice the total TK the borrower deposited over

the savings period. Because the rural poor have no equivalent of social security or retirement

benefits, they have no financial resources to pass onto their children or to aid them in the event

of emergencies. Having a form of pension to pass down is a decisivie blow against generation

poverty, as future generations will have savings waiting for them, they will not start off without

any wealth.

The Grameen Bank’s non-traditional lending criteria have social, as well as economic

effects on its borrowers. Its most unique mandate of borrowers is its ’16 Decisions’ required

from borrowers in lieu of a contract. The 16 Decisions are as follows:

1. We shall follow and advance the four principles of Grameen Bank: Discipline,

Unity, Courage and Hard work – in all walks of our lives.

2. Prosperity we shall bring to our families.

3. We shall not live in dilapidated houses. We shall repair our houses and work

towards constructing new houses at the earliest.

4. We shall grow vegetables all the year round. We shall eat plenty of them and sell

the surplus.

5. During the plantation seasons, we shall plant as many seedlings as possible.

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6. We shall plan to keep our families small. We shall minimize our expenditures.

We shall look after our health.

7. We shall educate our children and ensure that they can earn to pay for their

education.

8. We shall always keep our children and the environment clean.

9. We shall build and use pit-latrines.

10. We shall drink water from tubewells. If it is not available, we shall boil water or

use alum.

11. We shall not take any dowry at our sons' weddings; neither shall we give any

dowry at our daughter's wedding. We shall keep our centre free from the curse of dowry.

We shall not practice child marriage.

12. We shall not inflict any injustice on anyone; neither shall we allow anyone to do

13. We shall collectively undertake bigger investments for higher incomes.

14. We shall always be ready to help each other. If anyone is in difficulty, we shall all

help him or her.

15. If we come to know of any breach of discipline in any centre, we shall all go there

and help restore discipline.

16. We shall take part in all social activities collectively

Adherence to the ’16 Decisions’ is required in lieu of a legally binding contract, which

would be extremely difficult to obtain in a society with a literacy rate of roughly 43%. However,

many argue against using credit to advance social reform in this manner. Jeffery Tucker, editorial

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vice president of the Ludwig Von Mises Institute, argues that the group-oriented focus of the

decisions “read like a party platform for collectivist regimentation” and describes the Grameen

Bank’s socioeconomic strategies as “socialist ideals with free market means.” Even literature

published by [WHODAF] warns the decisions may“[undermine] the traditional social and

religious values of the country.”[GRAMEEN AND BRAC]

Still, there is much to be said about the goals that the 16 decisions aspire to, and the

problems they are attempting to correct. Numbers 6 – 8 tell borrowers to restrict their family

size and realize the importance of educating their children. Family planning and education are

extremely important in the fight against cyclical poverty as they allow for literacy, greater social

mobility and the possibility of urban employment. They are among the most controversial of the

tenets because they shift the focus from regulations meant to facilitate health and farming and

now places emphasis on regulating populations. Many of Yunus’ critics say this is overstepping

the bounds of a lender’s role. In a 1998 interview with New Internationalist magazine, an

interviewer implied that this decision “smacked of population control,” to which Yunus replied

“'No, it is very easy to convince people to have fewer children. Now that the women are

earners, having more children means losing money.' Patrick Bond, a South African development

economist was critical of this response, saying that Yunus is simply “commodifying everything.”

[INSERT CITATIONS] Ethically unsatisfying as this may be, Yunus argues that keeping family

sizes small also means women adopt an empowering role in family planning, ultimately deciding

to focus on saving money in lieu of having children. (Ahmen 18)

Yunus is correct to note the correlation between the decision to have a child and finances,

high birth rates are both a tactic by the impoverished for survival as well as a major perpetuator

of global poverty. World Hunger: 12 Myths, produced by the Institute for Food and Development

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Policy explains that high poverty and a high birth rate “both persist where societies deny security

and opportunity to the majority of their citizens. Where infant-mortality rates are high and

adequate land, jobs, education, health care, and old-age security are beyond the reach of most

people, and where there are few opportunities for women to work outside the home.” These

societal crises are all present in modern Bangladesh and as such, they endure despite attempts for

permanent structural change.

It is imperative to realize that the high birth rate of impoverished nations is, as World

Hunger puts it, a “defensive reaction against enforced poverty.” The book says that birth rates

remain high in poor nations because of two simple truths: First, “children provide labor to

augment meager family income.” Children in poor nations such as Bangladesh are expected

from a very young age to work to help their families and to provide for them. Secondly,

“impoverished parents know that without children to care for them in old age, they will have

nothing.” There are no social security, retirement or 401K resources available for the rural poor

of the world. Familial obligations are their attempt at longevity. Additionally, the poor economic

structure also necessitates having many children because “hunger and lack of health care will kill

many of their offspring before they reach adulthood.”

Still, the overpopulation that results from high birth rates is problematic to development.

British MP Richard Ottoway said in a 2006 seminar on population in developing countries

that “No country has ever raised itself out of poverty without stabilizing population growth.”

Referencing the UN’s Millennium Development Goals, which include eradicating extreme

poverty and reducing child mortality, Ottaway said" the MDGs are going to be difficult or

impossible to attain without a leveling out of population growth in developing countries."

Although a high birth rate is a way of responding to the ills of faulty economic structures,

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overpopulation and increasing the number of people underneath the poverty line is a risk. Yunus

is right to realize that family planning is urgent to bring about permanent structural change.

“Though growing old is a constant worry for them,” he says “they have to ponder on quality or

quantity. The most natural choice is to choose quality – have fewer children and spend more on

them. Send them to school.’ “In keeping with decisions 6-8, borrowers are asked to consider

living conditions of their children and focus on education.

Among its sociocultural aspirations, the bank also attempts to empower women. It

lends overwhelmingly to women – 97% of all borrowers are female. Additionally its 9-member

Board of Directors is comprised totally of women. Bangladesh is an extremely patriarchal

society, women have low mobility, play little role in decision making and are routine victims of

domestic violence. Compounding this is observance of Purdah, an Islamic and Hindu custom of

secluding women from society. As stated in Purduh law, it is the woman who goes without food

when there is little to eat. Despite this, women who borrow from the Grameen Bank generally

have greater involvement in income earning activities within the family, have better educated

daughters, even if they themselves do not seek further education, and have increased awareness

of social, economic and health issues. Yunus’ decisions provide a catalyst for empowering

women and changing gender roles within these societies because they require women to act and

break the norm of passivity.

As discussed in “Empowering Women through Microfinance,” a 2002 publication

released by UNIFEM, the United Nations Development Fund for Women, focusing on

empowering women is integral to alleviating the effects of poverty. The report asserts that

“societies that discriminate on the basis of gender pay the cost of greater poverty, slower

economic growth, weaker governance, and a lower living standard of their people.” Targeting

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women for borrowers of microfinance credit is important because their new role within their

families and communities “confers greater legitimacy and value to women’s views and gives

them more entitlements than they would otherwise have.”

The document quotes literature published by the United Nations Capital Development

Fund (UNCDF) that re-enforces the importance of making gender equality a priority of lasting

economic change, saying “Women’s success benefits more than one person. Several institutions

confirmed the well-documented fact that women are more likely than men to spend their profits

on household and family needs. Assisting women therefore generates a multiplier effect that

enlarges the impact of the institutions’ activities.” Yunus himself asserts this same viewpoint in

his literature. “When men make money, they tend to spend it on themselves, “Yunus writes, “but

when women make money, they bring benefits to the whole family, particularly the children.”

The Grameen Bank is right to prioritize empowering women, as the UNCDH and

UNIFEM research have shown that gender equality is important for installing permanent,

structural changes needed to combat systemic poverty. However, not all agree with the idea

of a bank involving themselves in the relationships of its borrowers. Number 11 is another

controversial attempt at empowerment. Forgoing a dowry is an attempt for future generations

to see wives as more than possessions and raise their status within the family. Mises says this is

the social equivalent of “criminalizing the diamond engagement ring” and that “if you're single,

the prohibition on dowries limits your marital prospects.” However, the dowry is not specifically

sanctioned by Islam is not a mandate for Muslim marriage.

Numbers 3, 4, 9 and 10 teach the importance of sanitation and health education in

maintaining a healthy family. Because villagers lack access to modern medicine and a stable

healthcare center, education concerning sanitation is paramount. Clean drinking water is

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especially important in Bangladesh. The WHO has conducted research indicating that as many

as 70 million Bangladeshi citizens drink from groundwater naturally contaminated by arsenic.

Bangladeshi doctor and professor, Mahmuder Rahman, explained in a 2008 interview that not

enough is being done to find alternative sources of clean water: “When it was established that a

well was contaminated, it was painted red and people were asked not to drink from it, but it was

not sealed. Because there were no alternative sources of water, people started to drink the water

again. Arsenic is colorless and odorless…so people, especially children, continue drinking it.”

Sanitation is integral to health, and clean drinking water, the most fundamental of all resources,

is a necessity to uplift Bangladesh from its impoverished conditions.

Finally, numbers 13-16 reinforce the collectivist aspect of micro-lending; that it is a

group undertaking with wide-reaching repercussions. It asks lenders to take the collectivist

perspective in all of their actions. (Grameen)Dr. Nidhiya Menon’s ‘Inter-dependencies in Micro-

Credit Groups: Evidence from Repayment Data expounds upon the importance of emphasizing

collectivism among borrowers:

Groups with high levels of .. reciprocative mutual assistance are often considered to possess high levels of social capital. Studies such as Grootaert (2001) have reported that the presence of social capital reduces the likelihood of being poor. In this research, inter-linkages in repayment behavior may lead to the creation of mutual assistance networks (as seems to be the case from anecdotal evidence), which, in turn, strengthens social capital. Social capital contributes to the eradication of poverty.(Menon, 2001,pp.128)

The development of social capital is paramount in the struggle against structural poverty.

Increasing social capital and emphasizing collectivism is the backbone of the Grameen bank and

Yunus’ main tool in correcting the social crises of Bangladesh such as its gender inequalities,

high birth rates and rampant poverty. Yunus’ 16 decisions and lending tactics work together as

ways to do this through self-sufficiency that by steps traditional exclusionary lending tactics.

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Yunus’ decisions reflect his feelings that the world’s poorest are capable of pulling themselves

up without handouts. “Even those who seemingly have no conceptual thought, he says no ability

to think of yesterday or tomorrow, are in fact quite intelligent and expert at the art of survival.

Credit is the key that unlocks their humanity.”

Well, has it? The World Bank’s profile of Bangladesh notes that “while the percentage of

Bangladesh's total population living in poverty has been reduced, the absolute number of people

living in poverty has changed little over the decade because of population growth.” The

Grameen Bank’s ideological suggestions and pension plan are not enough to combat its rapid

and self-destructive growth rate.

It remains true that microcredit lending, despite all its altruistic aspirations, can do little

to reverse long-held cultural norms. A researcher from the University of Oregon wrote that

women were recipients of the loans in name only: “I found that men used 95 percent of the

loans…in my research area, rural men laughed when they were asked whether the money

belonged to their wives. They pointedly remarked that ‘since their wives belong to them, the

money rightfully belongs to them.’”Additionally, multiple sources report that it is not uncommon

for borrowers to use their funds for immediate consumption, not to fuel enterprise. The Wall

Street Journal cites a study that finds “one-fourth of microcredit loan money in Bangladesh is

used for household consumption.”

The most damning critique of the Grameen Bank is that is it helping to propagate the

very problem it was designed to prevent: predatory lending. In order to prevent government or

corporate intervention, the bank runs on a model of self- sufficiency. Borrowers own 94% of all

shares. However, to finance loans without these sources, the bank has a high interest rate on its

loans (upwards of 30%), one that, coupled with the societal repercussions of not repaying, places

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tremendous pressures on borrowers. Development Analyst Sudhirendar Sharma says this has

“landed poor communities in a perpetual debt-trap.” Yunus counters that “the moment you get

exposed to international money, you’re open to problems,” such as the volatility of the

international markets and something he termed “mission drift,” a conflict of priorities -

specifically from social change to profiteering. Literature published by the Asian Development

Bank report that high interest rates are a necessity to cover the cost of funds, the bank’s

operating expenses, loan losses, and the “profits needed to expand their capital base and fund

expected future growth.” While some argue that the high interest rate makes loans exploitative,

the ADB says reducing the rate would not be enough to cover costs and would reduce the credit

worthiness of lending institutions.

Among the most vocal of dissenters are Bangladeshi citizens, including Sheikh Hasina,

the current prime minister of Bangladesh and the eldest daughter of the country’s founding

father, Sheikh Rahman. Hasina has been extremely critical of the bank’s high interest rate,

saying “those who lend money at a high rate of interest can never fight against poverty; rather,

they nurture poverty.” Development analyst Sudhirender Sharma says that the Grameen Bank’s

lending practices have a deleterious impact on the finances of rural households. “Far from

generating wealth,” he writes “the repayment pressure dries the household's existing savings.

Sharma notes that while “groups with exceptional entrepreneurial skills do make profit” the high

interest rates of the loans can create a “debt trap” for borrowers. Sharma warns that when

“interest rates exceeding the repayment capacity of the poor, a debt-trap has been laid.” Yunus

remains firm in the face of this criticism, saying it is important for the bank to remain

autonomous and without corporate influence, because “when you are running a business, you

think differently and work differently than when you are running a charity.”

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And ultimately, this is what a social business is. In Creating A World Without Poverty,

Yunus asserts that in the modern world, there is a need for a new business model, one that

“recognizes the multi-dimensional nature of human beings.” In the wake of profit-maximizing

businesses, he says there is a need for businesses with specific social goals such as the alleviation

of poverty. This is what the Grameen bank is. It is, as Yunus defines it, “cause-drive rather than

profit-driven” with “the potential to act as a change agent for the world.”The line between social

ideologies and financial concepts is not merely blurred, but erased. Ideally, they work together

in unison to bring about social changes with the concrete finances needed to survive in a profit

driven world.

How successfully the Grameen Bank is doing this is open to debate, but one thing

is certain: to aid the millions suffering underneath the crises of poverty there needs to be a

monumental change. Yunus’ idea of a social business is, at the very least, a step in the right

direction because it shows that there needs to be a serious shift in the global mindset in order to

aid the world’s poor. By placing profit as the apex of success, we are overlooking the potential

of enterprise to bring about change. We must, like Yunus, recognize that economics and society

are intricately linked and must not be tackled separately. As such, handouts that are not socially

contextualized are unhelpful and attempts to change society without the finances needed to

support them are ineffective. By creating an entity, a “social business,” Yunus had recognized

the need to craft a dual solution that brings empowerment to the underprivileged people of the

world, not paternalistic charity. While the bank’s execution is far from perfect, it is a step in the

right direction for positive social change on an international scale.

Recommendation Narrative

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Yunus’ 16 Decisions is a perfect example of the interplay between economic growth and

social change needed to combat poverty. The reason traditional aid has been unable to bring

substantive change to Bangladesh and other impoverished nations around the world is that

cultural norms and exclusion from financial institutions remain in place even after the money is

spent. A country that has received money in aid will squander it if it does not develop its human

capital (the health and education of its citizens) effectively. And how could the people of a

country know to do so without knowledge of family planning and sanitation?

Dissenters will argue for cultural relativism, that to change each countries ideals equates

to forcing one’s own ideologies onto other people, in this case with money. However, because

of the entwinement of Yunus’ personal experiences with those of the people he is serving, he

walks a fine line of lender and helpful neighbor. The non-traditional lending criteria are highly

contextualized and tailored to the specific needs of South Asia. By focusing on collectivist

thought, he is able to create a self-policing entity that is highly self-selective and discriminating

and also gives individual borrowers an important role in the future of their villages.

The success of Yunus’ microcredit program is its innovation. It allows the poorest of the

poor access to progressive pension, education, independence and empowerment. It allows them

the economic access that can keep them from being trapped in poverty for generations to come.

What is most remarkable is that it simultaneously addresses the need for social reform and

challenging cultural norms. The group aspect of the lending criteria also acts as a catalyst for

solidarity among its group participants.

To expand upon the success Yunus has found in the past, the program should provide a

greater emphasis on health and education. It should strive even more for equal access to

education among sexes and for health education at all levels. The primary focus of the bank

Fussell | 21

should be the future, so greater emphasis should be placed on providing social mobility for the

descendents of borrowers. By uplifting the ‘starting point’ of the borrower’s children, it

(somewhat) lessens the disadvantages of the children of developing countries. Given the very

high birth rate of the third world, it is important to focus on generational change.

And because poverty is too complex an issue to be tackled by any single organization, a

region specific group of organizations would be most effective in bringing bout social change. IF

each specialized in a certain field (water purification, family planning, education, etc.) the group

would have the greatest results.

Finally, I’d recommend lowering the interest rates and subsidizing the gap with donor

aid. Yunus would be counter to this, and for good reason. Involving donor funds means

involving donor motives which could blur the focus of the organization. However, a system of

checks and balances designed to guard against this may have the greatest chance of success at

creating organizations that are, as Yunus put it, cause-driven; not, profit driven.

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of Developing Areas, 42(2), 89-110.

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122-155.

• Basher, A. (2007). Empowerment of microcredit participants and its spillover

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40(2), 173-183.

• Grameen Bank – Banking for the Poor. 2004. 20

October 2010 < http://www.grameen-info.org/index.php?

option=com_content&task=view&id=28&Itemid=108>.

• Hulme, David, The Story of the Grameen Bank: From Subsidized Microcredit

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• Menon, N. (2007). Interdependencies in micro-credit group: evidence from

repayment data . The Journal of Developing Areas, 40(2), 111-131.

• Menon, N. (2002). Declining benefits to membership in microfinance programs:

theory and empirical evidence. Brandeis University,

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http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB79/

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