The Shift
The Old Way: Banks Don't Lend to the Poor
Traditional banking is built on collateral. No assets = no loans. This excludes billions of people.
- 2+ billion people globally excluded from formal banking
- Moneylenders charge 100%+ interest, trapping borrowers in poverty
- Banks require collateral the poor don't have
- Women especially excluded from financial services
The New Way: Group Lending Without Collateral
Borrowers form groups of five; two receive loans first. If they repay, the others can borrow. Peer pressure replaces collateral. Bank workers go to villages.
- Group lending: peer accountability replaces collateral
- Doorstep banking: services delivered to villages, not branches
- Focus on women: 98% of borrowers are female
- Sixteen Decisions: social development integrated with lending
The Story
Muhammad Yunus was an economics professor in Bangladesh who in 1976 lent $27 to 42 families so they could buy materials to make goods for sale.
Grameen Bank is a microfinance institution and community development bank providing small loans without collateral.
Proof Points
Cumulative loans to 10.6 million borrowers since 1983
Who invest earnings in families
Higher than traditional commercial banks
Of rural Bangladesh poverty reduction (1991-1998) attributed to microfinance
Deep Dive
Innovation
Grameen's breakthrough was recognizing that the poor aren't risky—they're risk-averse. They repay because reputation and future access depend on it. Social collateral proved more reliable than physical collateral.
Circular Model
Grameen is not charity—it's a bank owned by its borrowers. Members buy shares and elect the board. The bank earns interest (lower than commercial rates but sustainable).
Community Impact
Research shows Grameen families have 37% lower child mortality, twice the family planning adoption rate. One-third of borrowers have crossed the poverty line entirely.
Business Results
Grameen proved a market existed that banks had dismissed. The microfinance industry it spawned now serves 100+ million people with $25+ billion globally.
Key Takeaway
Poverty isn't a character flaw—it's a design flaw. The poor were excluded from banking because banks designed products for the wealthy.
Founder Pathway
Can start with modest loan fund; group model reduces risk; government support often available