Analyzing the Grameen Bank: Microfinance, Poverty, and Social Impact

This essay provides an overview of Muhammad Yunus's 'Banker to the Poor,' focusing on the Grameen Bank's foundation and its mission to alleviate poverty through microcredit. It details Yunus's early life, his motivation to help the impoverished in Bangladesh, and the establishment of the Grameen Bank with its unique lending principles. The essay also discusses the bank's strengths, such as empowering the poor through self-employment opportunities, and weaknesses, including increased domestic violence and challenges related to group lending. Furthermore, it highlights Yunus's role as a social entrepreneur and the adoption of the microfinance concept in other regions like Arkansas. The essay concludes by addressing criticisms against Yunus, emphasizing his genuine intention to uplift the poor and promote financial stability. Desklib offers this solution along with a wide array of study tools and resources for students.

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Name of the Student
Name of the University
Author Note

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The book entitled ‘Banker to the Poor: Micro – Lending and the Battle Against World Poverty’,
is an autobiography of Muhammad Yunus, founder of the Grameen Bank, who was awarded the
Nobel Peace Prize in 2006. The book is written by Muhammad Yunus and Alan Jolis. The book
offers an insight into the early life of Muhammad Yunus, and shares a glimpse of his college
days and his years as a Professor of Economics at Chittagong University.
Muhammad Yunus, born on 28th June 1940 in Chittagong, completed his B.A. and M.A.
in Economics from Dhaka University and did his PhD from Vanderbilt University. He was
awarded the Nobel Peace Prize for founding the Grameen Bank and inventing the concept of
microcredit and microfinance. Grameen Bank provides loans to people who are extremely poor,
too poor to qualify for bank loans. In 2006, Muhammad Yunus and the Grameen Bank were
jointly awarded the Nobel Peace Prize “for their efforts through microcredit to create economic
and social development from below.” Akhtar (2017). The Norwegian Committee said “that
lasting peace cannot be achieved unless large population groups find ways in which to break out
of poverty and that across cultures and civilizations Yunus and Grameen Bank have shown that
even the poorest of the poor can work to bring about their own development.” Antohi (2016).
Muhammad Yunnus has been bestowed with other awards as well such as the Ramon Magsaysay
Award in 1984, Independence Day Award in 1987, Aga Khan award for Architecture in 1989,
World Food Prize in 1994, Pfeffer Peace Prize in 1994, Gandhi Peace Prize in 2000, Volvo
Environmental Prize in 2003, Presidential Medal of Freedom in 2009 and Congressional Gold
Medal in 2010.

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While Muhammad Yunus was a professor at Chittagong University, he was deeply
moved by the extreme poverty of the villagers around him at Chittagong and decided to do
something in order to eradicate property. In 1976, Muhammad Yunus took the help of Maimuna
Begum to collect data of the poor people living around him in Jobra. Most of these people took a
loan from a money lender to buy some raw material to make a product, and then sold the product
back to the money lender to repay the loan and made a very meager profit. One woman named
Sufia Begum who was interviewed made no more than two cents per day making bamboo stools
using this system. The list that Maimuna Begum brought back to Muhammad Yunus showed
forty-two women who were living on credit of 856 rupees. On seeing this data, Muhammad
Yunus realized that all it took was 856 rupees to make these women financially stable and
independent. Muhammad Yunus decided to loan them his own money without any collateral and
interest on the loan. After his money was repaid, Muhammad Yunus conducted a survey to find
out if this was a common phenomenon, and he found that this cycle of poverty and enslavement
to moneylenders was extremely common amongst the poor people in Bangladesh. Muhammad
Yunus decided that something had to be done to help these poor and destitute people and so he
went to the local bank and requested the officials at the bank to loan money to these poor people
but the officials at the bank refused. He took up the matter with the top bank in Dhaka “finally
securing credit to loan to local borrowers. Thus in 1977 the Grameen Bank was born”. Bryant
(2017)
The Grameen Bank started on completely different principles and goals and was unlike any other
bank in Bangladesh. Its guiding principle was “that each borrower had a human right to credit.”
(Karlan & Appel 2015). People had to form groups of five in order to avail a loan from the
Grameen bank. A loan was then provided to two people in the group. After the two people in the

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group successfully paid the loan for six weeks, the next two members were eligible to take a loan
from the Grameen bank. The fifth member of the group, i.e. the chairperson was usually the last
person to avail a loan from the Grameen bank. The terms of repayment of the loan was based on
five basic guidelines such as loans would last for one year, the installments on the loan had to be
paid weekly, repayment on the loan commenced one week after the loan was granted to a
person, the interest rate was 20% on the loan and every week the borrower had to repay 2% of
the total loan for fifty weeks. This program of micro-credit started by Grameen, has been
emulated and adopted in many countries worldwide with great success.
The strength of the Grameen bank lies in the fact that it shows that it is possible to
alleviate poverty by giving micro – credit loans to extremely poor people so that they can
generate new self- employment opportunities and be financially stable.
The major weaknesses that threaten the existence of Grameen Bank include an increase
in the rate of domestic violence against women. It has been noted that women who have received
loans from the Grameen Bank have been subjected to greater levels of domestic violence.
Grameen Banks give out loans to families through women in order to empower them and help
them move out of poverty. However it has been noted that this change of power within families,
where women have more financial power over men and are not dependent on men, have
contributed “to a sense of instability and fear for change – which has partially manifested itself in
the increased violence towards women.” (Morduch & Cull 2017).

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Secondly, it has been noted that since Grameen banks provide loans to families through women,
there have been instances where the men in the family, like the husband and the son of the
woman have spent the money leaving the woman in the family responsible for paying the loan.
Thirdly the policy of group lending which the Grameen bank adheres to, wherein if one member
in the group does not repay their loan; it leaves the other members in the group ineligible to
apply for loans. This has led to pressure, conflicts and animosity among families. Very often it
has been observed that the family who is struggling to repay the loan taken from a Grameen
Bank, often recourse to borrowing from the local ‘paikars’ who charge a very high rate of
interest thereby defeating the whole purpose of the original loan given by the Grameen Bank.
Thus the Grameen bank founded by Muhammad Yunus has been extremely successful in
its fight to alleviate poverty among the poor people and it continues to be adopted by various
countries and emulated around the world.
A social entrepreneur is a person who achieves a great social change due to his visionary
and innovative ideas. Social entrepreneurship is about applying an innovative and practical
approach to benefit society in general, especially among people who are impoverished and poor.
Muhammad Yunus went to Arkansas in 1986 at the request of then Governor Bill Clinton
to offer guidance to the people of Arkansas about the concept of micro financing the poor. From
that trip originated the Southern Good Faith Fund, a division of Southern Bancorp. The fund
offers financial assistance to the poor and impoverished people of the Delta. According to
Muhammad Yunus, the concept of lending money to the poor and impoverished people can work
in Arkansas or anywhere else in the world. The Good Faith Fund in Arkanas assists families to
buy houses, start businesses and send children to colleges.

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Muhammad Yunus has been critiqued as encouraging capitalism in the international context, by
encouraging debt and consuming. This perception is completely wrong because Muhammad
Yunus founded the Grameen Bank in order to help the poor and the needy, to alleviate poverty
from society, to empower the poor people and make them self sufficient and financially stable.

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References :
Akhtar, N. (2017). Embedded neoliberal governmentality in Bangladesh’s microfinance sector.
Antohi, M. (2016). Microfinance, capital for innovation. In Social innovation and territorial
development (pp. 55-78). Routledge.
Bryant, E. (2017). Diffusion of microfinance in development: the role of US philanthropic
foundations.
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take action: Contributing to poverty reduction in developing countries. Current Directions in
Psychological Science, 25(3), 196-202.
Kabir, S., & Salim, R. (2016). Two-staged Capital Structure: An Operational Guideline for
Islamic Microfinance System(No. 05-16). Monash University, Department of Economics.
Karlan, D., & Appel, J. (2015). More Than Good Intentions: How a New Economics is Helping
to Solve Global Poverty.
Morduch, J., & Cull, R. (2017). Microfinance and Economic Development. In Handbook of
Finance and Development. Edward Elgar Publishing.
Partzsch, L. (2017). Powerful individuals in a globalized world. Global Policy, 8(1), 5-13.
Regmi, K. D. (2015). More Than Good Intentions: How a New Economics is Helping to Solve
Global Poverty (2011) by Dean Karlan and Jacob Appel. Alberta Journal of Educational
Research, 61(3), 367-370.

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Yaacob, M. R. (2015). Social business: a model to alleviate poverty in islamic countries.
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219-225). Routledge.