by James Richardson

Created on: May 26, 2010   Last Updated: June 05, 2010

The free market economy, for all its wealth-building power, has created an unequal distribution of the world’s wealth.  It is often said that the rich get richer while the poor get poorer.  However, 2006 Nobel Peace Prize laureate Muhammad Yunus has sought to change the global business model since his founding of Grameen Bank in the early 1980s.

Traditional bank loans often require credit worthiness and collateral before a lending institution will even consider disbursing funds.  This means many of the world’s poor, particularly in developing nations, are unable to obtain any sort of funding that may otherwise help better their plight.  Nearly half of laborers in these nations are self employed or self employ-able.  This means that they have a skill or trade that, when put to use, can become a fulfilling labor for the laborer.  Yunus is credited with seeing the poor laborer’s ability to work his way out of poverty and for developing a system to channel needed funds to the needy people. 

In explaining his avant-garde business model, Yunus is quoted in MIT’s Innovations:

“I didn’t have a strategy, I just kept doing what was next. But when I look back, my strategy was, whatever banks did, I did the opposite. If banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women.  If banks made large loans, I made small ones. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate friendly. If you had to go to the bank, my bank went to the village. Yes, that was my strategy. Whatever banks did, I did the opposite.”

Commonly called micro finance, micro lending, or social business, what organizations such as Yunus’ Grameen Bank seek to do is leverage funds from a benefactor to micro finance institutions (MFI) who then package small loans.  MFIs act as the middleman, paying loans to skilled poor, often in Third World countries, and also collecting repayment.  Interest rates only support operations, and in the case of profit, it is reinvested in new loans.    

Recipients use funds to establish a sustainable business.  Businesses can range from basket weaving to packaged foods to clean-water sourcing to textiles.  Many entrepreneurial ideas that make use of a trade are given consideration for microcredit.      

The Grameen Foundation estimates

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