How Prof Yunus conquered poverty

In 1998, YSP Thorat, then a chief general manager of the rural credit and planning department of the Reserve Bank of India met Professor Muhammad Yunus at Dinuabari, a village in Bangladesh.

Thorat was looking for the key to the success of poverty alleviation plans. Yunus showed him some huts in Dinuabari and told him that the only way to succeed was to work for poverty alleviation and not talk about it.

That was not Thorat's first meeting with Yunus, the founder of the Grameen movement in Bangladesh.

A year back, Thorat, then on a sabbatical and researching on rural financial markets in Kolapur in western Maharashtra, had written to Yunus, seeking his guidance. He did not receive any response.

A year later, when Thorat was working for the World Bank's Consultative Group on Alleviation of Poverty in Washington, Yunus met him. A breakfast meeting at a Washington Hotel, slated for 10 minutes, lasted more than an hour.

"While others talk, he acts. Prof Yunus has proved that poverty can be conquered," says Thorat, chairman of the National Bank for Agriculture and Rural Development.

The banking community in India salutes Yunus because he has proved that the poor can organise themselves; save and, most important, are bankable.

"Before he started the movement, nobody could have imagined that financial intermediaries can lend to the poor profitably," says a banker.

Nachiket Mor, deputy managing director of ICICI Bank and a believer in micro-finance, says Yunus has proved that even market-based institutions can have a positive impact on social issues.

"This is possibly the first instance of a Nobel Peace prize going to a person who runs an organisation that makes profit," Mor says. This is because despite high interest rates, micro-finance is beneficial to the poor.

Bankers feel that Yunus's recognition will dramatically change the business of micro-finance in India.

"Often people do not understand the philosophy behind micro-finance. They fail to appreciate the fact that neo-money lenders can change the face of rural India. Now they will be seen in a different light," says the CEO of a foreign bank, which has been experimenting with micro-finance.

The Grameen Bank runs 1,092 branches in 36,000 Bangladesh villages, providing credit to over two million of the country's poorest people. Since its inception, it has extended loans worth more than $2 billion.

It provides unsecured credit to the poorest of the poor. Beginning as an action-research project at Chittagong University, it grew into a full-fledged bank. Most of Grameen Bank's patrons (94 per cent) are women who have an unparalleled repayment rate of 98 per cent.

Yunus has proved that for the rural poor, accessibility of credit is more important than the cost of credit. This is a valuable lesson that the RBI and the finance ministry must learn while pushing banks to serve the un-banked.