A Firsthand Look at Microcredit in Bangladesh

Student observes workings of Grameen Bank during Winter Term

by Anne C. Paine

Yoav Tal first heard about the Grameen Bank when he took the Modern South Asia course taught by Danforth Professor of History Michael Fisher. The concept of microcredit fascinated him.

"My jaw dropped," the sophomore economics major said. "I wanted to go and see how it works."

Tal, who also is pursuing a concentration in international studies, began his quest with a private reading supervised by Visiting Assistant Professor of Economics Steven Yamarik, a specialist in economic growth. They focused on the theory behind the Grameen Bank, the concept of microcredit, and the use of credit as a development tool.

Tal's quest ended in Baneshwor, a Bangladeshi village about 200 kilometers northwest of Dhaka, close to Bangladesh's border with India. He spent last winter term there, observing the business operations of the Grameen Bank and interviewing loan recipients in the village.

The Grameen Bank was established in 1976 by Muhammad Yunus, an American-educated economics professor in Bangladesh who pioneered the microcredit movement. (Oberlin awarded Yunus the honorary doctor of humanities degree in 1993.)

Yunus' bank loans very small amounts of money to people too poor to qualify for credit at traditional banks while simultaneously providing close supervision to borrowers. Loan recipients are required to repay loans in small installments at weekly meetings with bank officials and to be part of cooperative teams of five people, all of whom are responsible for the loans of individual borrowers.

To date, Grameen (which means "village") has loaned a total of about $3 billion to some 2.4 million borrowers, most of them women, and about 98 percent of its loans are repaid on time. Its practices have been adapted in at least 40 other countries, including the United States.

"The beauty of microcredit is that it addresses poverty alleviation. I see that as different from development," Tal said. "Development strategies are often built on large notions of infrastructure and changes in financial systems and markets. Microcredit is very simple. It uses a basic tenet of capitalism – people are smart enough to provide for themselves. They need to have credit to do that, though. They don't need roads, they need $3. Yunus believes that credit is a fundamental right for all people."

Tal spent most of his mornings with bank managers, attending weekly borrowers' meetings. Afternoons were spent walking through the village, interviewing loan recipients or observing loan disbursals. He recorded his observations in a journal.

Because Grameen's policies are "friendly," the bank is often mistaken for a charity. Tal found that it is most definitely a business.

"I saw a woman who had asked for a loan that exceeded the amount the bank is willing to give," he said. At first the loan had been approved, but then the error was caught. "She was crying. She needed this money. She won't be able to borrow again – if you don't follow the rules, you're not eligible for the next loan. And once you start getting these loans, you realize you need credit," he said.

The system can be harsh, but more often it empowers.

"One woman who really did impress me used her first loan to purchase a cow. Slowly she added chickens and goats," Tal said. "Now, 10 years later, she has one and a half acres of land. She rents out a half acre. She hires people to work her land, to help harvest in harvesting season. She helps other people when they can't pay back their loans. She keeps a stash of her own money, secret from her husband. She is supporting her two sons' businesses. She's clearly become a power in the community now."

Tal, whose airfare to Asia was financed by a competitive winter-term grant of an airline ticket by Bálint Gergely '00, said he was well prepared academically for the trip, but was shocked by the environmental conditions in Dhaka, the capital city. People's welcoming attitude toward visitors, and their fascination with foreigners, also surprised him.

Tal is already putting his experiences to work in a summer job with the Cooperative Housing Foundation, a Maryland organization that works to improve housing, community services, and finance throughout the world.