A Year in Uruguay

The 2006 winner of the Nobel Peace Prize is economist Muhammad Yunus. Professor Yunus created the Grameen bank in Bangladesh giving very small loans to very poor people. This started the microcredit movement that has spread throughout the world. Unlike some multimillion dollar development projects, microcredit has proved effective at alleviating poverty for some of the poorest of the poor.

Paul Sinclair describes how Professor Yunus began:

One day he met an impoverished single mother of three named Sufia Begum, working to weave bamboo stools, morning to night whilst living in utter destitution.

“Do you own this bamboo?” he asked her.
“Yes”.
“How do you get it?”
“ I buy it.”
“ How much does the bamboo cost you?”
“5 Taka” (22 cents US).
“Do you have 5 Taka?”
“No, I borrow it from the Paikars.”
“The middlemen?” he asked. “What is your arrangement with them?”
“I must sell my bamboo stools back to them at the end of the day so as to repay my loan. That way what is left over to me is my profit"
“How much do you sell it for?”
“Five Taka and 50 Paisa.”
“So you make 50 Paisa profit?"
She nodded. That came to a profit of just over 2 US cents.
"And could you borrow the cash and buy your own raw material?"
"Yes but the money lender would demand a lot. And people who start with them only get poorer."
“How much do the money lenders charge?”
“It depends. Sometimes they charge 10 percent per week. I even have a neighbour who is paying 10 percent per day".
“And that is all you earn from making these beautiful bamboo stools, 50 Paisa?
“Yes.”

The Professor watched as Sufia set to work again, because she did not want to lose any time, her small brown hands plaiting the strands of bamboo as they had every day for months and years on end.

He had never heard of someone suffering so much for the lack of 22 US cents. The Professor thought Sufia’s status as virtually a bonded slave was never going to change if she could not find that five taka to start with. Credit could bring her that money. She could then sell her products in a free market and she could get a much better spread between the cost of her materials and her sale price.

The Grameen bank has grown to be an international network, including Grameen Uruguay. Other organizations have been inspired by the Grameen model and there are even commercial banks making microcredit loans.

update: Read an opinion piece by Muhammad Yunus in the Wall Street Journal

[see this post on Monday's Economics Prize.]

Labels: economics, Uruguay