Nobel winner's micro-finance concept not new

SANTA FE, N.M. (10/23/06)--When American-educated economist Muhammad Yunus and his Grameen Bank in Bangladesh became joint winners of the 2006 Nobel Peace Price earlier this month, some people in credit unions and cooperatives thought the microfinance model sounded familiar.

The Grameen model's concept of microlending is similar to the cooperative philosophy of cooperatives and credit unions. And at least one newspaper, The Santa Fe New Mexican, has noticed.

"His concept was hardly original," said the newspaper in its Oct. 18 issue. "For 45 years, Peace Corps volunteers have helped advance cooperatives, credit unions and similar bootstrap efforts at economic betterment."

It also mentioned that even longer ago, Maryknoll missioners and other community-development groups ventured into remote corners of the world, "working little by little to lend people the hand up that leads from hopelessness to self-sufficiency at greater or lesser levels," said the publication.

Grameen Bank, a "poor-focussed institution," has issued more than $5 billion in loans to six million borrowers in 70,000 Bangladeshi villages, with a recovery rate of 99%.

The Grameen model works this way: A bank unit is set up with a field manager and a number of bank workers covering about 15 to 22 villages. They visit villages to become familiar with the local milieu in which they will operate and identify prospective clients. They explain the purpose, functions, and mode of operation of the bank to the local population.

Groups of five prospective borrowers are formed. In the first stage, only two are eligible for, and receive, a loan. The group is observed for a month to see if members conform to the bank's rules. Only if the first two borrowers repay the principal plus interest over a period of 50 weeks do other group members become eligible for a loan. Because of the restrictions, group pressure keeps individual records clear. Collective responsibility of the group serves as collateral for the loan.

The group model's basic philosophy lies in the fact that shortcomings and weaknesses at the individual level are overcome by the collective responsibility and security afforded by forming a group. The collective is also used for education and awareness building, collective bargaining power, peer pressure and more.

Grameen's website discusses the difference between the model and that of credit unions and cooperatives.

When Yunus and his bank were named for the Nobel Peace Price, the Nobel Committee noted the connection between poverty and conflict and concluded that this was poverty-fighting at its most basic level, said the newspaper.

While micro-lending might seem trivial in prosperous countries, the newspaper said, "there might be room for proportionally bigger banking in places like rural New Mexico, where art and artesans, not to mention agricultores, might be advanced by cooperatives already in existence, or as credit-union extensions."

print this story email this story
Resource Links
Grameen model vs. CU, cooperative models
RELATED STORIES: CUs Make a Difference


More CU/System

Copyright © 2012 Credit Union National Association