Nobel Peace Prize

I love this story on the Nobel Peace Prize – the idea of a professor of economics doing more than being in the Ivory Tower – but finding a basic way of using basic capitalism to help those who need it most:

The 2006 Nobel Peace Prize was awarded today to the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, for pioneering microcredit — using loans of tiny amounts to transform destitute women into entrepreneurs.

The Norwegian Nobel Committee praised Dr. Yunus and Grameen for their “efforts to create economic and social development from below.”

Though it is not the first time the committee has chosen to honor economic development as a contribution to world peace, rather than the more usual diplomacy, rights advocacy or philanthropy, it is the first time the prize has been awarded to a profit-making business.

The selection seemed to embody two connected ideas that are gaining ground among development experts: that attacking poverty is essential to peace, and that private enterprise is essential to attacking poverty.

Dr. Yunus founded the bank in his native Bangladesh to lend small amounts of cash — often as little as $20 — to local people, almost always women, who could use it to found or sustain a small business by, say, buying a cow to sell milk or a simple sewing machine to make clothing.

Traditional banks considered such people too risky to lend to, and the amounts they needed too small to bother with. Dr. Yunus’s simple but revolutionary idea was that the poor could be as creditworthy as the rich, if the rules of lending were tailored to their circumstances and were founded on principles of trust rather than financial capacity. He found that they could achieve lasting improvements to their living standards with a little bit of capital.

Since its creation in 1983, Grameen has made a total of $5.72 billion in such small loans, and has turned a profit in all but three years, including $15 million in 2005.

“Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development,” the Nobel citation said.[….]

James D. Wolfensohn, the former president of the World Bank president, said by telephone Friday that the award testified to “the power of entrepreneurialism.”

“What it has to do with peace,” he added, “is that it gives dignity to families and hope to families. And it’s the lack of hope that is the greatest cause of bloodshed and intolerance.”

Dr. Yunus reacted joyously to the news of the prize, The Associated Press reported. “I am so, so happy,” he said in a telephone interview from Dhaka, the capital of Bangladesh, shortly after the prize was announced. “It’s really great news for the whole nation.”

The son of a prosperous goldsmith, Dr. Yunus has said that his mother’s generosity to the poor instilled in him from a young age a sense of duty to the poor. [….]

Dr. Yunus, then a professor of rural economics at Chittagong University, gave the woman and several of her neighbors loans totalling $27 from his own pocket. To his surprise, the borrowers paid him back in full and on time. So he started traveling from village to village, offering more tiny loans and cutting out the middlemen. Dr. Yunus was determined to prove that lending to the poor was not an “impossible proposition,” as he put it.

When he later formalized the loan-making arrangement as the Grameen Bank in 1983, the bank adopted its signature innovation: making borrowers take out loans in groups of five, with each borrower guaranteeing the others’ debts. Thus, in place of the hold banks have on wealthier borrowers who do not pay their debts — foreclosure and a low credit rating — Grameen depends on an incentive at least as powerful for poor villagers, the threat of being shamed before neighbors and relatives.

The bank’s 6.6 million borrowers so far have paid back 98.5 percent of their loans.

“We have no guarantee, no references, no legal instrument, and still it works — it defies all the conventional wisdom,” Dr. Yunus told Fortune magazine in a recent interview.

By contrast, acccording to Mustafizur Rahman, the research director at the nonpartisan Center for Policy Dialogue in Dhaka, traditional banks in Bangladesh, which lend mainly to businesses and affluent families with collateral, have recovery rates of just 45 to 50 percent, and most of them survive only because they are owned by the government and receive large subsidies.

The Grameen Bank has also transformed attitudes toward women in Bangladesh, a heavily Muslim country, Mr. Rahman said.

The Nobel citation described microcredit as a “liberating force in societies where women in particular have to struggle against repressive social and economic conditions.”From the start, profit-making was central to Dr. Yunus’s philosophy.

“Grameen believes that charity is not an answer to poverty,” he wrote in an introduction to microcredit posted on the organization’s Web site in August. “It only helps poverty to continue. It creates dependency and takes away individual’s initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.” [….]

As for Dr. Yunus, the prestige of the Nobel and the $1.4 million prize money, divided equally between him personally and his bank, may propel him closer to a distant goal: “One day,” he has often said, “our grandchildren will go to museums to see what poverty was like.”

It’s so inspiring; the idea that people having hope may lead to peace – well, isn’t that what Nobel, the man who invented explosives and felt bad about that, meant to bring to us with his award?

Leave a Reply

Your email address will not be published.