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Muhammad Yunus - Grameen Bank

In: Business and Management

Submitted By donhugo333
Words 1688
Pages 7
October 8, 2015

“Professor Muhammad Yunus, founder and managing director of Grameen Bank, said that if an institution could make financial resources available to the poorest people in Bangladesh, then ‘these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.’"
Grameen Foundation

Muhammad Yunus: banker, economist, professor, author, founder of the Grameen Bank, founding member of Global Elders, World Food Prize winner (1994), Nobel Peace Prize Laureate (2006), recipient of the Presidential Medal of Freedom (2009), and the recipient of 26 honorary doctorate degrees and more than sixty other special awards. There is little to no doubt that the man is accomplished, hailed as the father of microcredit and a pioneer of microfinance. However, his success lies in something seemingly marginal and that much more brilliant, which distinguishes him as an intellectual and a thinker worthy of a place on the thinkers.com top 50 list. The idea of microcredit was first brought to light by Dr. Akhtar Hameed Khan (founder of the Pakistan (now Bangladesh) Academy for Rural Development). Yunus, a follower of Dr. Khan’s work, sought to implement the concept as a unique social business model aiming to eradicate poverty, starting with Bangladesh. With banks refusing to provide loans to ‘high-risk’ markets, Yunus felt that the poor were left at a disadvantage, unable to escape the grip of poverty. “To Muhammad Yunus, micro-credit must be seen as an action for the promotion of the entrepreneurial capacity of disadvantaged families, elimination of informal markets, creation of income and well-being for citizens.” (Microfinance Africa) As such, he set out to establish the Grameen Bank.
The Grameen Bank seeks to improve the lives of the poor by providing access to microfinance and technology. The foundation works with local microfinance lenders to make small loans available to impoverished individuals who then use the funds to invest in small businesses and entrepreneurships. These establishments provide a self-sufficient means for poor villagers to work their way out of poverty. The resulting business improves the lives of not only the proprietors, but their families and communities as well. The loans maintain a short cycle of weekly payments, with no requirement for collateral, lasting anywhere from six months to a few years. The individuals are placed in groups of five, allowing for natural peer pressure to help enforce repayment of such loans as the group would otherwise suffer due to an individual missed payment. The funds repaid by the borrower are then recycled to issue more loans. Furthermore, the borrowers essentially own the bank and profit from it accordingly via dividends. This is more informally known as “trust-based banking”. Such “microfinance programs are funded by loans, grants, guarantees and investments from individuals, philanthropists, social investors, local banks, foundations, governments, and international institutions.” (Grameen Foundation: Microfinance Basics) However, such funding is necessary at inception and early growth. To date, Grameen Bank has not received any donor funds since 1998. The ever-increasing amount of deposits has proven to be enough to continue and expand upon credit programs.
Per the Norwegian Nobel Committee, “Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions.” (NobelPrize.org) Since its birth, Grameen Bank has successfully loaned more than $9.75 billion to a population of more than 40 million people in Bangladesh alone. Standard critiques posed by advocates of capitalism have been duly addressed by the business model. For example, it was argued that those below the poverty line would be unable to successfully establish self-employment. However, the borrowers of Grameen bank have done so as (per the founding belief of Dr. Yunus) the poor had skill sets, creativity, and initiative at their fingertips. They simply required the necessary financial support to help them break through the poverty line. It was argued that the poor were “high-risk” as they would not be able to repay their loans. However, repayment rates sit loftily at 97 percent. Banks would be unable to engage in work with poor rural women. However, they currently serve as 94 percent of the borrowing population. The poor would be unable to save any money. Yet, at the Bank, savings by such borrowers has surpassed $162 million. With such success in fighting for the marginalized, it is clear how such an individual lands the sixth rank in the top 50 thinkers list. However, Muhammad Yunus has done something even more extraordinary. He serves as a model for strategic management, well beyond the realm of microfinancing. Yunus has always maintained a very simple, solitary vision – eradicating poverty. He developed that into a social business model with Grameen Bank. He even made the model purposefully in a manner such that it could be replicated throughout the world, as he recognized poverty to be a consistent, global pandemic. However, he then built further upon the structure by expanding the Grameen Network’s efforts to solution symptoms of poverty as well. Yet, his single vision lies behind every distinct project. Grameen Bank has been providing housing loans amounting to $210.46 million with over 685,467 houses constructed for the poor. Through the years, the Bank has awarded $2.42 million to 114,374 children along with education loans for 47,128 students pursuing higher education and professional studies. The Bank even established a program specific to beggars, with unique rules, regulation and criteria, helping 19,392 beggars establish dignified livelihoods. However, Yunus expanded the concept even further to seek means of abolishing the signs of poverty outside of the financial realm. Grameen Bank took on a joint venture with Danone to produce nutritionally fortified yogurt, which was then distributed to malnourished villagers. Another joint venture with BASF, produced chemically treated bed nets. These served to protect villagers from disease-carrying mosquitoes, thereby addressing key health concerns such as malaria. Another such venture was established with Intel allowing for information technology to be expanded to rural areas. Since then, however, the Grameen initiatives, under the leadership and oversight of Dr. Yunus, have become bigger and more ambitious. Joint venture Grameen Veolia Water Ltd, over the next 2 years, aims to establish clean water production and treatment facilities in five villages serving an overall population of 100,000 people. Grameen BASF is expanding their venture by producing micronutrient sachets filled with essential nutrients, missing from villagers’ diets, to be sprinkled on daily meals. Grameen Intel has expanded operations in support of maternity care (with clinics equipped to provide basic healthcare and help reduce infant and pregnancy-related mortality rates) and agriculture (with IT solutions to assist famers in identifying soil needs and providing cost comparison across sellers). Moreover, Yunus recently was awarded the SolarWorld Einstein Award for the efforts of Grameen Shakti, an organization which, through the use of micro-loans, aims to help members establish off-grid solar power facilities and reduce the use of kerosene lamps, which pose financial, environmental and health concerns. To date, over 400,000 systems have been installed through the rural areas of Bangladesh, with a goal of installing 1 million such systems by 2015.
Per the Norwegian Nobel Committee, “Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries.” His ideas have served as a seedling planted throughout the world, an infectious theory of utilizing microfinancial means to eradicate social ills. His methods and repeatable model serve as shining examples of impactful and meaningful strategic management. Though there are many naysayers, with regards to the models and the means he has employed (i.e., an interest rate for regular micro-loans above that of the market rate), even they cannot deny the positive impact of his efforts. Worldwide, the rapid growth in serving the microcredit market has been astounding. Only 7.6 million families had benefited from the microcredit practices, in 1997. However, in 2005, according to the State of the Microcredit Summit Campaign Report, around 3,200 microcredit institutions were serving a market of 92 million clients, of which, almost 73% had been under the poverty line at the time that they took out their first loan. Dr. Yunus has truly taken the previously existing paradigm and shifted it with the thought that “in the future the question will not be, "Are people credit-worthy", but rather, "Are banks people-worthy?".

Works Cited
All sources are cited in accordance with the MLA Citation Style reference page below.

Cornell University Citation Management – MLA Citation Style (http://www.library.cornell.edu/resrch/citmanage/mla)
________________________________________________________________________________

Benjamin, Alison. The Guardian. “Money well lent.” 3 June 2009.
(http://www.guardian.co.uk/society/2009/jun/03/interview-muhammad-yunus)

Bloomberg Businessweek. “Nobel Winner Yunus: Microcredit Missionary.” 26 December 2005. (http://www.businessweek.com/magazine/content/05_52/b3965024.htm)

Grameen Bank. “Big Results from Microcredit.” 15 August 2009. (http://www.grameen-info.org/index.php?option=com_content&task=view&id=655&Itemid=)

Grameen Bank. “Breaking the vicious cycle of poverty through microcredit.” 9 September 2010. (http://www.grameen-info.org/index.php?option=com_content&task=view&id=25&Itemid=128)

Grameen Bank. “Grameen Bank At a Glance.” September 2010. (http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175)

Grameen Foundation. “Microfinance Basics.” 16 October 2010. (http://www.grameenfoundation.org/what-we-do/microfinance/microfinance-basics)

Microfinance Africa. “Father of micro-credit stresses social function of small financings.” 4 May
2010. (http://microfinanceafrica.net/news/father-of-micro-credit-stresses-social-function-of-small-financings/)

NobelPrize. “Press Release – Nobel Peace Prize 2006.” 13 October 2006.
(http://nobelprize.org/nobel_prizes/peace/laureates/2006/press.html)

Yunus Centre. “Awards of Professor Yunus.” 16 October 2006. (http://www.muhammadyunus.org/Awards-of-Professor-Yunus/)

Yunus Centre. “Social Business.” 16 October 2010. (http://www.muhammadyunus.org/Social-Business/)

Wikipedia. “Muhammad Yunus.” 16 October 2006. (http://en.wikipedia.org/wiki/Muhammad_Yunus#cite_note-Nobel-0)

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