It Doesn't Take Much

In 1974, a series of floods destroyed crops throughout Bangladesh, putting the nation in a state of famine. Muhammad Yunus, economics professor at Chittagong University in southeastern Bangladesh, was disturbed by the disconnect between economic theory and the reality he saw around him.

He convinced the university to start a pilot project with the nearby village of Jobra. Students could get college credit by helping the village farmers increase their crop yields. But Yunus saw a deeper problem, so he sent students to Jobra to interview villagers. He believed that the true experts on poverty were the ones who lived with it every day.

Yunus and his students learned that a big part of the problem was systemic. Bangladesh did not have a subsidized public education system. Parents were forced to pay to send their children to school. The cost was prohibitive to poor families, so their children did not get an education. Unable to read or write, they could not get bank loans because they could not fill out the necessary paperwork.

Private lenders filled the gap, but they charged extreme interest rates, often more than 100%.

Yunus spoke with a woman who made bamboo stools. She was able to find a supplier who would buy bamboo and deliver it to her, then buy the finished stools from her. In this way she avoided taking a loan, but her profit was only fifty poysha—the equivalent of two cents—per stool. She could never save enough money to buy the raw materials then sell them on the open market. Her supplier made ten times the profit that she did.

Yunus had the idea to loan her enough money to buy the raw materials, so she could keep the profit herself. She could then use some of her earnings to buy more supplies for the next day. It wouldn't take much seed money to get her started toward financial independence.

Yunus and his students continued their interviews. He identified 42 people in the village who could potentially benefit from seed money. He made a loan of 856 taka—about 27 dollars—split among the 42. He told them they could repay him whenever they were able.

Thus was born the concept of microlending. From those humble beginnings, microlending has grown into a worldwide phenomenon. People who could never dream of getting a bank loan are able to receive a few dollars—just enough to get them started. By paying back the loan plus a modest interest rate, they demonstrate to themselves and others that they are responsible with their finances. They are able to move from abject poverty into a sustainable living.

Yunus eventually started Grameen Bank to expand microlending throughout Bangladesh, and then around the world. He would win the 2006 Nobel Peace Prize for his efforts.

Yunus isn't the only one to have success with microlending. In Bolivia, John Hatch started FINCA with the philosophy, “Give poor communities the opportunity, and then get out of the way!” Al Whittaker and David Bussau started Opportunity International in Indonesia and Latin America. Kiva, founded in 2005 by Matt Flannery and Jessica Jackley, lets anyone with $25 become a microlender. A loan too small to be worth a bank's time and energy is still big enough to make a difference in someone's life.

Thanks to the work of microlenders, millions of people around the world have received the help they needed to climb out of poverty. Some recipients have returned to take further loans to expand their businesses, enabling them to hire employees and spread the new wealth. Some have even been able to buy their first homes.

Microcredit is not the sole answer to the problems of the developing world. But considering the small investment and the enormous return, microloans are possibly the greatest weapon in our arsenal for the global battle against poverty.