Nobel Peace Prize Winner Speaks About Microcredit

from Georgetown University

When Muhammad Yunus lent 42 Bangladeshi families a total of $27, no one imagined that the small gesture would change how the world views credit practices.

On that day in 1974, even Yunus could not have predicted he would later be known as the "godfather of microcredit." But with that one lending decision, Yunus, the 2006 Nobel Peace Prize winner, revolutionized how money is lent to impoverished borrowers worldwide.

The story illustrates the power of keeping an open mind, the Nobel laureate explained to a Georgetown audience during a March 14 speech on globalization, microenterprise and poverty.

"In order to redesign the world, we have to go back to the drawing board. We can create a world that we imagine," Yunus said. "So let's be bold and imagine it. One of the things, I'm sure, that is in your imagination is a world totally free of poverty."

Yunus contends that financial institutions could play a big role in rectifying destitution by providing small loans to poor borrowers without insisting on exorbitant fees and collateral. Lenders must stop believing the poor are unfit for credit, he said.

"Poverty is not something inherent in a person. Poverty is something that is artificial," he said. "Something that is artificial can be peeled off very easily."

After Yunus made his first loans in the 1970s, bankers told him to kiss his money goodbye, and insisted that extending credit to the poor is too risky. But time after time, he proved conventional wisdom wrong as his microloan program expanded. The secret, he said, is remaining open-minded about how to view impoverished people.

Encouraging that same flexibility in how poverty is regarded is critical to eradicating it, he told the crowd in Gaston Hall. Seeing how lives changed with economic viability, Yunus founded Grameen Bank, which now provides small loans to nearly 7 million borrowers. Ninety-seven percent of its clients are women, and the bank, which is owned by the borrowers, boasts a 98 percent repayment rate.

University President John J. DeGioia said Yunus' story "shows us that with ingenuity and determination, we can respond effectively to the moral challenges of globalization.

"As Georgetown deepens further its engagement in the global community and seeks to bring the unique resources of the academy to bear in the promotion of justice, professor Yunus' leadership is an important model," DeGioia said. "His work … reminds us of the moral responsibility we all share for one another in an increasingly interdependent global community."

Yunus' next challenge to economists is to change how business models are viewed. "Social businesses" are ventures founded on the sole principle of helping others, rather than focusing efforts on profit. Investors will recoup their money, but any profit will be reinvested into the business so it is able grow larger and more effective.

Yunus created such an enterprise in 2005 with Groupe Danone, which opened a factory to make fortified yogurt for malnourished children.

Social businesses are viable, he said, because "people want to help others."

The Nobel laureate challenged audience members to reshape their views on poverty. Poor people should be seen as more than their economic status, he said -- they are creative beings waiting for an opportunity to develop their talents. The world could eventually stamp out poverty entirely if destitution is viewed as a human rights violation, Yunus said.

"Poverty is not a creation of the poor person. It is created by society at large, by the system at large, by the concepts we teach in our classrooms," Yunus said. "So the challenge is to create an enabling environment where every single human being will have the capacity to unleash their creativity."

Yunus' lecture was sponsored by the Mortara Center for International Studies and the president’s office.