November 2014
Billie Silvey
All over the world, the rich seem to get richer
while the poor get poorer.  But it's interesting
to note that it was in India that perhaps the
greatest recent effort has been made to
balance things.

Muhammed Yunus' father, a successful
goldsmith, encouraged his education, while
his mother reached out to the poor.

In 1974, while serving as an economist at
Chittagong University, Yunus led his
students on a field trip to a poor village.  
There they interviewed a woman who made
bamboo stools.  After borrowing the money to
buy the raw bamboo and repaying the
middleman at rates as high as 10% a week,
she was left with a penny profit on each
Had she been able to borrow at lower rates,
she would have been able to raise herself
above the subsistence level.  

Recognizing the flaws in the economics he
was teaching, Dr. Yunus loaned money to 42
basket-weavers, helping them survive and
creating the initiative to pull themselves out of

He continued making these "micro-loans,"
and in 1983 formed the
Grameen (Village)

Grameen collects an average of $1.5 million
in weekly installments from borrowers,
mostly women.  Over 97% of the loans are
paid back, higher than in any other banking

Last year, Dr. Yunus received the Nobel Prize
for this innovative method of fighting poverty.
Grameen-type microfinance extends credit to
the poorest people, mostly women and
minorities, at rates calculated to lift them
from poverty to a sustaining income.  

Grameen sees credit as a human right, not
based on collateral or legally enforceable
contracts, but on trust.  It is extended to
create self-employment, to generate income for
housing as opposed to consumption.  

It challenges conventional systems that reject the
poor by classifying them as non-creditworthy.  It
provides service at the doorstep of the poor, based
on the principle that the people should not go to the
bank, the bank should go to the people.

Under this system, borrowers join a group of
borrowers.  Loans can be received in sequence.  A
new loan becomes available when the previous loan
is repaid.  All loans are paid back in weekly or
bi-weekly installments.  

The loans come with savings programs for the
borrowers through non-profit organizations or
institutions owned primarily by the borrowers.

The interest rate is kept as close to market rate as
possible without sacrificing sustainability.

Grameencredit seeks to build social capital through
developing groups and centers, promoting
leadership through annual elections, and promoting
discussion among the borrowers.  

It promotes children's education, scholarships and
loans and brings in technology to replace manual

Grameencredit is based on the premise that the
poor have skills which remain under-utilized.  
Poverty is not created by the poor, but by the
institutions and policies that surround them.  

Charity creates dependency and takes away
individual initiative.  Unleashing the energy and
creativity of each person is the answer to poverty.  
Raising the minimum wage is another way to help
lift the poor out of poverty.  

Our policies need to favor labor, not make labor
more expensive and capital cheaper.  As Jeffrey
Dorfman points out, "When the the Fed makes it
inexpensive to replace people with machines and
computers, nobody should be surprised when
employers do exactly that."
The Poor Get Poorer