A simple business plan based on the concept of microcredit just won Bangladeshi economist Muhammad Yunus the Nobel Peace Prize. Yunus was awarded the prize today for the bank he founded, the Grameen Bank, which provides average loans of only $200.
A pioneer in the use of such small loans, Yunus founded the Grameen Bank in 1983 in an effort to help poor Bangladeshis who didn’t qualify for bank loans. At the Grameen Bank, no collateral or credit history is needed, and individuals who take out loans are held to a simple standard: the honor system.
As a result, anyone and everyone qualifies for a loan. A scary prospect to consider if you’re the lender. But amazingly, the bank has a 99 percent repayment rate, which is attributed to the method of lending through social responsibility. Loans are given to individuals in groups of five. Initially, two of the five group members are given a loan, and only after they repay the loan in full are the three remaining borrowers eligible for funds.
An amazing 97 percent of Grameen Bank’s 6.6. million borrowers are women who need start-up capital for their own handmade crafts. An estimated 17 million individuals have received $5.72 billion in loans since the Grameen Bank’s inception.
Because of the bank’s success, Yunus has expanded the enterprise to include more substantial loans for houses, fisheries, and secondary education. However, small loans for things like chickens, clothing, and personal enterprise still make up almost all of the Grameen Bank’s transactions.
As the first Nobel Prize winner from Bangladesh, Yunus plans to continue his quest to alleviate poverty by using his share of the $1.4 million award money to create a discount food company and an eye hospital in Bangladesh.