30 years back, a young professor of economics went for a walk in a village adjoing his university in Chittagong (Bangladesh). While there, he met a poor widow, Sufiya Begum, who tried to make a living by constructing and selling bamboo stools. She worked hard the whole day, and yet her daily net earning was just $0.02 (2 cents).
Why?... because she had to take a daily loan for buying bamboos from the local moneylender, who charged exhorbitant interest, and whose lending condition was that she sells her produce to him at a price decided by him!!!
She was poor - not because she lacked skills, or because she was lazy - but becasue she did not have access to her own working capital. All she needed was $0.27 (27cents) to get out of this vicious cycle of:
Low income => No working capital => High interest loan => Low income
The professor gave her 27 cents... but then, also went on to find out how many others in the village lived on an income of less than $1/day. To his amazement - and dismay - he found that there were 42 such able-bodied skilled working people, whose cumulative requirement to end their poverty was just $27!
He gave them that sum as loan, which they could use to break out of the cycle of poverty... and they returned the loan in due course.
It was such a simple solution to end the poverty. Poverty, the professor realised, is not caused by people; it is caused by the system. Much later, he described his first insight through an analogy:
"You take the best seed of the tallest tree from the most fertile forest, and plant it in a small flower-pot. The seed does not grow into the tall tree..." not because the seed was bad, but because it got planted in the wrong place.
Academically, this simple insight had a simple solution. Get the banks to give loans to the poors.
But the banks refused: how can you give loans to people who have no collaterals to offer? what if they default? and since they own nothing, you can't take back anything from them, can you?
Failing to convince the regular commercial banks to lend money, the professor decided to become the "guaranteer" for their loans with the bank. If they default, he would pay the banks - but they did not default!
But this experience led to the second insight:
The commercial banking system works on a premise that the more you have (i.e., as collaterals), the more you get; the less you have, the less you get... and of course, if you don't happen to own anything, that you are forever condemned out of the banking/credit system.
...Like the local moneylender, the commercial banking system imposes its own conditionalities in which the rich become richer - and the poor become poorer.
And thus the the third insight: Create a bank for the poors!
This simple idea led to the establishment of Grameen Bank - the "barefoot bank" - in 1983. The professor of economics, you guessed, was Professor Muhammad Yunus, who was awarded the Nobel Peace Prize 2006 this week... The rest, as they say, is history...
Today, the Grameen Bank:
Perhaps more importantly, the contribution of Prof Yunus was The Power of the Idea:
"...one of our most successful tools for rebuilding businesses is not government handouts, but rather, small loans packaged with practical business and social advice.... very little of the cash so generously given ever gets all the way down to the very poor. There are too many "professionals" ahead of them in line, highly skilled at diverting funds into their own pockets. This is particularly regrettable because very poor people need only a little money to set up a business that can make a dramatic difference in the quality of their lives."
Instead, eradicating poverty requires innovating systems for economic empowerment... By giving the poor that elusive access to the "first dollar that gets you the next dollar."
It was this power of idea, that has mobilised a global movement for providing "access to credit" to the poor during last 30 years. There are now:
... and are growing in numbers, and innovating new solutions.