October 16, 2006 -- Last week, the Nobel Peace Prize went to Muhammad Yunus and Grameen Bank, the microfinance institution he founded 30 years ago.
The World Bank interviewed Syed Hashemi, a senior microfinance specialist at the Consultative Group to Assist the Poor (CGAP), who assessed the award’s impact on the microfinance industry. Before joining CGAP, Hashemi, a Bangladeshi national, directed Grameen’s Program for Research on Poverty Alleviation.
What will this honor mean for the microfinance industry?
"I think first of all it will remind all of us who work in microfinance that our work is indeed about improving people’s lives. That the Nobel committee has chosen to recognize this is really an honor for the entire industry, especially microfinance practitioners in developing countries worldwide. And no one is more deserving than Professor Yunus.
I had the good fortune of working closely with him for several years at Grameen, and I can echo what the entire world knows about him now -- that he is a tireless champion of the poor and has dedicated his life to this work. He has been an inspiration to me personally and to literally millions of others, including the more than six million clients of Grameen Bank itself. Their achievements -- and Grameen’s role in supporting them -- will now take center stage in the debate over how best to attack and conquer poverty.
I think the Nobel really underscores that microfinance is no longer a niche development field, but has become part of the financial mainstream."
How has microfinance changed since Yunus started Grameen Bank 30 years ago?
"The original Grameen business model -- group lending, and mostly to women -- has been adapted and developed by thousands of microfinance institutions from Latin America to Africa to East Asia and beyond.
But microfinance today is also about much more than small loans. It’s about providing a full range of financial services, like safe places to save and transfer money, to ever-larger numbers of poor people. And it’s being done by much more than donor-funded NGOs.
Microfinance has actually matured into one of the most successful and fastest-growing industries in the world. In Africa alone, its growth is probably second only to that of cell phone use. According to a recent analysis conducted by CGAP, the compound annual growth rate of the world’s leading microfinance providers over the last five years has been an incredible 15 percent. Worldwide, these leading microfinance institutions are nearly twice as profitable as the world’s leading commercial banks."
What about its impact in Bangladesh, the home of Grameen?
"When Professor Yunus gave his first loan to a group of women in Bangladesh, that act was about confronting systems of inequity and exclusion. It wasn’t out of a development playbook somewhere or out of a commercial bank’s operational manual. In fact, Professor Yunus himself has said that he deliberately did the opposite of what conventional banks did; if, for example, a traditional bank client had to go to a branch, Grameen instead brought the branch to the client. That kind of bold grassroots effort built much more than a single microfinance institution; it built a movement.
The movement has quite literally changed the face of Bangladesh. For one thing, women have become visible, productive, assertive members of society. If this seems like an overstatement, consider that Grameen and other microfinance trailblazers like BRAC have branches in tens of thousands of villages across Bangladesh."
What has been the impact of microfinance worldwide?
"It’s no secret that small loans to poor people, especially women, can support micro-enterprises, helping families boost their incomes. But poverty is about much more than the lack of money; it’s multidimensional. Over the long run, access to finance -- loans, but also savings and money transfer services -- has been shown to contribute to better nutrition, education, housing, and other essentials.
Poor people with erratic incomes can also manage their consumption better and cover the costs of medical or other emergencies. But proving the direct impact of a micro-loan on the health or education of a poor person is never a straightforward task, which is why it’s important not to think of microfinance as the "magic bullet" when it comes to poverty alleviation. It’s one of many strategies, but it can lead to empowerment and social stability, as the Nobel committee has acknowledged."
How will the Nobel affect CGAP’s work?
"As a global organization, we remain focused on the central challenge of microfinance today: reaching the nearly three billion people who still lack access to financial services. Getting there will take partnership with a wide range of stakeholders -- including commercial banks, telecommunications companies, and other private players -- that can help us adapt existing payment systems and technologies like cell phones to reach massively larger numbers of people. It’s also important to remember that many of these people are in remote areas, some of them at the very bottom of the “economic ladder.” Helping these people reach the first rung of that ladder will take some innovative thinking. At CGAP, for example, we’re working with social safety net programs in several countries to see if we can “graduate” some of their beneficiaries into microfinance programs and out of absolute poverty."
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