The Price of a Dream

by Scott London

The Price of a Dream by David Bornstein is a compelling and well-written account of how Bangladeshi economist Muhammad Yunus started the Grameen Bank out of his own pocket in the 1970s and thereby launched the microcredit movement. Grameen and efforts like it are transforming not only conventional banking practices but also social and economic development programs throughout the world.

Grameen, whose name is derived from the Bangla word for “village,” first began as an experiment operating from special windows in the traditional national banks. In 1983, the bank became an independent entity. Despite predictions from traditional bankers that Grameen’s clients would take the money and run, 97 percent of its loans are repaid — a rate comparable to Chase Manhattan’s. The reason is that the system is based on trust and mutual accountability. To qualify for a loan, a villager must become a member of a five‑person borrowers group. Groups share responsibility for loan repayments — and defaults — so they are typically very careful in choosing new members. Since most villagers have none of the data that bankers traditionally use to decide if a prospective borrower is credit-worthy, they must rely on trust and social pressure. As Bornstein points out, Grameen’s system ensures “that villagers are brought together frequently in a setting where they are forced to answer for their actions before all eyes.”

Villagers can borrow money from the Grameen Bank only if their assets fall below the value of a half acre of land. Since this range includes half the population of Bangladesh, Grameen Bank branches usually comprise a cross‑section of villagers: some borrowers are absolutely destitute; some are slightly better off; and some are near the top levels of the eligibility criterion. The better‑off villagers usually take larger loans thereby “subsidizing” the poorer ones. This allows Grameen to sustain itself and continue to reach more poor people.

As Bornstein makes clear, the Grameen philosophy represents a radical departure from the traditional idea of banking. By working in villages and small towns rather than cities, lending mostly to women rather than men, and promoting self-employment rather than wage-employment, as well as creating programs and workshops aimed at redressing a wide range of social problems in the countryside, the bank has effectively redefined credit from a privilege reserved for a few fortunate people to a tool by which millions of poor villagers can improve their lives.

Oddly enough, Bornstein says, the Grameen Bank represents a new twist on supply-side economics. It is founded on the idea not of   “trickle-down” prosperity but rather the “bubble-up” effect. While supply-side economics is based on the idea of injecting capital into the economy from the top down — at the level of corporate investors, in the form of tax cuts and special incentives — the Grameen approach is to inject it at ground level in the form of loans to the poor. In the long run the effects benefit everyone, including the wealthy, because as small-business people improve their social standing they eventually reach a point where they have more spending power. This ultimately translates into greater consumer demand for such items as soap, toothpaste and clothing, thereby stimulating the overall economy.

Today the Grameen Bank has become a leader of the so-called microlending movement. The model has been replicated in Malaysia, the Philippines, Malawi, and many parts of Africa. Hundreds of programs have also cropped up in Canada and the United States. Their systems vary according to context and culture, Bornstein notes, but their objectives are the same. “Like Grameen, they view poor people as clients, not beneficiaries, and they seek to provide them with the means to support themselves through dignified self-employment.”