POVERTY: Microfinance history

After getting a PhD in economics at Vanderbilt in Tennessee, Muhammad Yunus returned to his newly independent country Bangladesh and taught at a university. There was a famine in the country and here is what I usually stress, 'Prof. Yunus said the economic theories in my text book are very elegant, but they aren't working in the village next to my campus. I am going to go into the village and learn economics from the villagers. With starving people virtually at the doorstep of his university he wondered about the value of all the fancy theories he was teaching. He said he started to dread his own lectures and their elegant theories.
So in 1976 he went into the village next to his campus to see if he could be of use to even one person for one day. In the village of Jobra, Prof. Yunus met Sofia Khartum who made bamboo stools. She became his new teacher.
He asked her how much profit she made each day.
'Two cents' she replied.
He was shocked and asked why she only made two pennies profit for such a beautiful stool. She told him that she didn't have the money to buy the bamboo so she borrowed the money from a trader, a money lender on the condition that she sell the finished product back to him at a price he set. The moneylender's price barely covered the cost of the bamboo, leaving her with a two-penny return on her hard work.
'If you could sell the stools to anyone, could you make more?' Prof. Yunus asked.'I could,' she replied, 'but I don't have the money to buy the bamboo so I have to keep borrowing it from the money lender.'Prof. Yunus had a student go around the village to see who else borrowed from the moneylender. The student found 42 people who needed a grand total of $27 to free themselves from this debt trap, less than $1 each. He lent the 42 people $27 from his pocket allowing them to pay off the money-lender, buy their raw materials, make their products and sell them to the highest bidder. Sofia Khartum's profits soared from two cents a day to $1.25 a day. Those 42 people were the first borrowers of what became Grameen Bank, which means village bank. It now has more than 8 million borrowers, 97 percent of whom are women and it affects the lives of more than 40 million family members.
Another glimpse of the revolution he promulgated came years later when he would be asked what his strategy was in forming Grameen Bank. Here's how he would reply: 'I didn't have a strategy, I just kept doing what was next. But when I look back, my strategy was, whatever banks did, I did the opposite. If banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks made large loans, I made small ones. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate friendly. If you had to go to the bank, my bank went to the village. Yes, that was my strategy. Whatever banks did, I did the opposite.' Do you see the revolution here -- the rule breaking?
This should have been warning of what was to come when microfinance institutions began to run more like commercial banks and what that might do to the soul of microfinance.
http://www.huffingtonpost.com/vivian-norris-de-montaigu/the-soul-of-microfinance_b_575156.html