Yunus, Muhammad

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Muhammad Yunus

Nobel Prize-winning economist Muhammad Yunus (born 1940) has worked to make microlending and related social business models the norm rather than the exception in developing countries.


Muhammad Yunus was born on June 28, 1940, in the Bangladeshi seaport of Chittagong, when the city was still part of India under British rule. His father was Hazi Dula Mia Shoudagar and his mother was Sufia Khatun Yunus. Yunus was the third of 14 children, nine of which survived, and they grew up in the village of Bathua before moving into the city of Chittagong, where their father opened a jewelry shop. Yunus was always active, even in his youth. He participated in the Boy Scouts and even traveled with his troop to Canada in 1955.


Yunus first attended Chittagong Collegiate School, then Chittagong College and eventually Dhaka University. He earned an undergraduate degree in economics at Chittagong College in 1960, and a master's degree from Dhaka University a year later. Yunus then traveled to the United States to attend Vanderbilt University on a Fulbright scholarship, where he married a Russian student named Vera Forostenko. They had a daughter, Monica Yunus, who became an opera soprano. Yunus taught economics classes at Middle Tennessee State University from 1969 until 1972, when the Pakistani civil war ended and Bangladesh was born. He wanted to return to Bangladesh, but his wife chose not to come with their infant daughter. They divorced and Yunus returned, taking a position teaching economics at Chittagong University, where he was invited to head the University's economics department. In 1980 he would marry again, this time to fellow Bangladeshi Afroji Yunus, a physics professor, and they would have a daughter, Dina Yunus.

Bailed Out Bangladesh

Bangladesh is known as one of the poorest places in the world, and has a population close to 120 million people. In 1974 Yunus took his economics class into the local village of Jobra on a field trip, where, according to a now-wellknown story, as reported in Contemporary Heroes and Heroines, they “met a woman who made bamboo stools, but she earned just two cents for each. She told Yunus and the class that if she could save 20 cents to buy her own supply of bamboo, she would not have to borrow from the dealer who sold it to her; because she owed him money, he was allowed to dictate the price of each stool she sold.” Yunus felt that people should be able to sell their wares at a fair price and make enough money to pay their debts, support themselves and and make a little profit. Commercial banks, however, would not issue loans to the poor, because they had no assets, business experience, collateral or often basic literacy skills, a combination that in view of lending institutions, made them the ultimate lending risk.

Yunus saw a great need for a bank that would lend money to the poor, and decided that it could be done at commercial interest rates. He developed an experiment with two other researchers, in which he lent money to a group of borrowers and tracked results. The experiment was successful: the debts to Yunus were repaid in full and on time. He continued to develop the lending model until he succeeded in founding the Grameen or “Village” Bank in Bangladesh in 1983.

Microlending Began with Grameen Bank

Only the destitute were eligible to borrow from Grameen's community banking system. The system used the pressure of a group of peers to keep borrowers from defaulting. A borrower might get enough to buy a chicken or cow and sell the eggs or milk, while raising and then selling the chicks or calves. The loan amounts were small, but the results turned out to be noteworthy. Yunus quickly learned that men tended to spend loan money on drink, new wives and other personal status items rather than reinvesting or saving it, as female borrowers reliably did. As a result, the majority of Grameen borrowers were women, although there have been both religious and social repercussions resulting from that practice. Islamic fundamentalists have attacked Yunus for his efforts to empower women. According to an article in Fortune by Sheridan Prasso, “Grameen has provided women the financial means to leave abusive husbands. They own homes in their own names, no longer pay dowries, live longer, have improved nutrition and hygiene, and are better able to care for their families …. ‘I am destroying the culture, yes,’ Yunus says, beaming mischievously at the thought. ‘Culture is a dynamic thing. If you stay with the same old thing over and over, you don't get anywhere.’ ”

Reached For the Stars

Yunus has stated on many occasions that his goal is to put poverty in a museum, where it belongs, and he has stated that, with credit as a fundamental human right, people can rise out of poverty with dignity. A 1986 article in The Economist explained the unusual services that Grameen Bank offered: “Borrowers can get cheap seeds, seedlings and ducks, lessons in reading and writing, medical help, and advice on family planning. The bank also dabbles in social engineering: borrowers who accept dowry from their son's bride may have their loan recalled.” According to a 2007 article in Social Education, the Grameen Bank also developed a “social agenda, outlined in four principles: discipline, unity, courage and hard work; and 16 decisions—including the abolition of dowries, attention to environmental causes, and education for all children.” A throng of Grameen bank model replicas—often called MFI's or Micro Financing Institutions—have sprung up in other countries and cultures, and Grameen has branched out to include a wealth of telecommunications services and other efforts at economy building.

Congratulation and Criticism

There are many critics, as well as devout enthusiasts, of microlending in general and Yunus in particular, from both the left and right ends of the political spectrum. In a 2007 article in The American, writer Tom Bethell was critical of Yunus and the microcredit movement, but granted that Yunus is developing market opportunities in a country that sorely needs them, and added that “he seems to represent an emerging consensus that government-to-government aid enriches only the rulers.” Bethell noted that some critics have questioned Grameen's assumption that poor individuals want to be self-employed instead of earning a paycheck, or that accumulating debt rather than savings will alleviate their poverty.

Social Business

Yunus's current book, Creating a World Without Poverty: How Social Business Can Transform Our Lives (2007), briefly tells the story of microcredit, then communicates the ways in which the “social” business model can help people while still generating a profit. Many have noted the swiftly growing field of social entrepreneurs and professionals— who espouse more than just the traditional motivation of maximizing profit—who have established a tri-fold bottom line of profit generation, worker welfare and environmental responsibility. More than half the world's population is under 25 years of age, and a great portion of this youth base is openly motivated to seek out a profession that improves life for everyone as well as supporting their own subsistence.

Always one to try and transform theory into reality, Yunus and French food company Danone agreed to partner up and build a yogurt factory in Dhaka, Bangladesh. It opened in November of 2007. Prasso explained the system: “The yogurt … would be fortified to curb malnutrition and priced (at 7 cents a cup) to be affordable. Revenue would be reinvested, with Danone only taking out its initial cost of capital …. The factory—and ultimately 50 more, if it works—will rely on Grameen microborrowers buying cows to sell it milk on the front end, Grameen microvendors selling the yogurt door to door, and Grameen's 6.6 million members purchasing it for their kids. It will employ 15 to 20 women, and provide income for 1,600 people within a 20-mile radius. Biodegradable cups made from cornstarch, solar panels for electricity, and rainwater collection vats make the enterprise environmentally friendly.”

According to Anne W. Howard, writing in the Chronicle of Philanthropy, Yunus strongly believes that such social businesses “can solve problems that capitalism, government, and nonprofit groups cannot.” She said that Yunus maintained that a social business operates like a “profit maximizing” business … by charging for goods and services. “However, its goal is not to return the largest profit to investors but [in Yunus's words] ‘to create social benefits for those whose lives it touches.’ ”

Man and Mission for the Masses

Whether Yunus is described as a “mesmerizing salesman,” in Bethell's words, or as “a bona fide visionary,” as on the Grameen Web site, the popularity of his personality and professional ideas are not in question. The United Nations declared that 2005 would be known as the Year of Microcredit, and in 2006 Yunus and Grameen Bank were awarded the Nobel Prize for Peace. While it was not the first time the Nobel Committee related peace to the eradication of poverty, they stated that “lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means,” as reported on the Web site. The Committee's choice not only underscored the growing efforts to eradicate poverty, but also opened channels of communication with the Muslim world while highlighting the importance of empowering women.

In 2007 a commemorative postage stamp was issued in Yunus's honor. Celebrities of the music world gathered at a benefit to celebrate the Nobel Laureate with proceeds that went to fight poverty, and early in the year there was media buzz about whether or not Yunus would take his success and popularity into the political arena. Many sources said a party named Nagarik Shakti or “Citizen's Power” was being developed by Yunus and his supporters. According to BBC Monitoring South Asia, Yunus sent open letters “to all Bangladeshis urging them to give their opinion on whether he should join politics and launch a party,” and “proposed that his party activists would work as ‘volunteers’ and bear all costs of electing nominees for their constituencies … arguing that ‘If locals want to see good people elected, they will have to spend their own money.’ ”

While the political career appears to have been shelved, people from all over the world have continued to shower Yunus with praise. Messages have included thanks to Yunus from many countries, including Kenya, Malaysia, the Peruvian Amazon, New Zealand, Somalia, Italy, and the United States. An article in the Economist suggested that “to rid the globe of poverty through credit would require many, many more people with [Yunus's] energy and optimism.” A 2006 PR Newswire article commented that Yunus “has broken countless rules of banking …. He provided loans to the poor, not the rich; to women, not men; in small amounts, not large; and without collateral or excessive paperwork.” Despite the inevitable critics, most hope that Yunus will continue breaking the social “rules” that oppress the poor, and that it will inspire others to do the same.


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Yunus, Muhammad

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Muhammad Yunus

Economist and microfinancier

Born June 28, 1940, in Chittagong, Bangladesh; son of Hazi Dula Mia Shoudagar (a jeweler) and Sufia Khatun Yunus; married Vera Forostenko (divorced); married Afrozi (a physics professor); children: Monica (with Forostenko). Education: Attended Chittagong College, mid-1950s; Dhaka University, B.A., 1960, M.A., 1961; Vanderbilt University, Ph.D., 1969.

Addresses: Office—Grameen Foundation, 236 Massachusetts Ave. NE, Ste. 300, Dept. P, Washington, DC 20002.


Research assistant for West Pakistan Bureau of Economics, early 1960s; lecturer in economics, Chittagong College; assistant professor of economics, Middle Tennessee State University, 1969–72; Chittagong University, professor of economics after 1972; founder and managing director, Grameen Bank, 1983–.

Awards: Nobel Peace Prize, Norwegian Nobel Committee, 2006 (with Grameen Bank).


Muhammad Yunus, an economist from one of the world's poorest nations, won the Nobel Peace Prize in October of 2006 along with the institution he founded, Grameen Bank. Yunus established this "Bank of the Villages" in 1983 to provide what are known as microloans to those who otherwise had no access to credit or capital. "Poverty is not created by the poor," he explained to John Carlin, a writer for the London Observer. "So I don't take the crass conventional view that they are lazy, don't have the skills, don't have the drive. It is not their fault. They are not the creators of poverty. Poverty is created by the system that we built. The poor have as much energy, as much creativity as any human being on this planet."

Yunus was born in 1940 in Chittagong, a seaport city on the Karnaphuli River near the Bay of Bengal. At the time of his birth, the city and surrounding Chittagong District were part of India, which was still under British rule. Yunus spent his earliest years in a village called Bathua, and his family eventually moved to Chittagong proper, where his father had a jewelry business. As a youth, he was active in the Boy Scouts organization, and even traveled to Canada for the 1955 World Scouts Jamboree. Back home at Chittagong Collegiate School, he was a top student, and went on to Chittagong College and then Dhaka University, which took its name from the city of the same name that would later become the capital of Bangladesh.

Yunus earned his undergraduate degree in economics in 1960, and his master's degree a year later from Dhaka University. He took a government job as a research assistant with the country's Bureau of Economics before moving to the United States to pursue a doctorate in his field from Vanderbilt University in Nashville, Tennessee. While there, he married a fellow student, and they had a daughter together. Between 1969 and 1972 he taught economic courses at Middle Tennessee State University in Murfreesboro.

Ethnic and religious tensions had simmered in southwest Asia since the end of British colonial rule in 1947. The Chittagong area became part of what was known as East Pakistan, one of two separate territories that divided the once-powerful kingdom of Bengal along religious lines. Disagreements between all sides continued, and a 1971 civil war ended with independence for East Pakistan, which renamed itself Bangladesh, a word that meant "Country of Bengal." Sensing a new era for his homeland, Yunus was eager to return, but his wife objected to moving there with a young child, and the pair divorced.

Back in Bangladesh, Yunus took a job as a professor of economics at Chittagong University. The tiny country had a shaky economic foundation, and was prone to natural disasters like a 1970 cyclone that devastated the coastal region. It became known as one of the world's poorest nations, and a 1974 famine proved even more ruinous to Bangladesh's poor. Yunus explained his frustration at his country's circumstances in an interview with the UNESCO Courier many years later. "While I was teaching beautiful economic theories, people were dying," he said. "This was very hard to accept, and I started thinking about what I could do to help the poor to rise out of poverty."

A field trip to a village with his students yielded some insight into this quandary for Yunus: There, they met a woman who made bamboo stools, but she earned just two cents for each. She told Yunus and the class that if she could save 20 cents to buy her own supply of bamboo, she would not have to borrow from the dealer who sold it to her; because she owed him money, he was allowed to dictate the price of each stool she sold. This story spurred Yunus to devise a project that would loan money to such struggling entrepreneurs, and then track their success rate. He and two researchers found 42 other villagers who needed a small bit of capital to start a more independent economic life. All had met certain requirements, and the total amount needed to seed their initiatives was just $27.

Yunus took his idea to banks in Chittagong and Dhaka, proposing that they would provide the $27 directly to the entrepreneurs. But instead the doctoral-degreed professor was forced to listen to "long lectures on banking" and how the poor people were the worst credit risks for bankers, he told the UNESCO Courier. "I wasn't convinced. I said that the poor were the people who most needed money, and that it was to them that money should go. They wanted to give money to the rich. I told them I thought that was a strange idea."

Yunus decided to guarantee the loans himself. Each of the entrepreneurs paid him back, and on time, and so he returned to the banks with the results of his project. He thought that the banks might now agree to expand the project to other villages, but they turned him down once more. Again, Yunus co-signed for a loan, and disbursed the funds himself to the next village, and the others that followed. Most of his loan applicants were crafts artisans who made useful household items, or those who hoped to buy a farm animal so that they could sell its milk or eggs. With the banks still reluctant to get involved, Yunus decided to start his own bank, but it took him two years to win government approval for Grameen Bank, or "Bank of the Villages" in the Bengal language.

Bangladesh was a Muslim country, where polygamy was practiced and large families were the result. Women were considered less than secondary citizens, and often the target of physical abuse. Yunus' initial idea had been to dole out the loans equally by gender, but there were many barriers for female entrepreneurs, including their own limited self-confidence about financial matters. He came up with a plan for a community of applicants instead: There would be five members in a village, who then joined with other sets of five to create a "family"; five families would constitute a group, and ten of those would be a center. The centers would function as the local bank branch. The group was required to meet regularly, and all members in it were responsible for the debt of each individual; they were prohibited from borrowing more if one member fell behind in repayment.

Grameen borrowers were also required to agree to a pledge known as the Sixteen Decisions: They vowed to not harm the environment, maintain families of a reasonable size, educate their children, plant vegetables for their families and sell the surplus, build and use pit-latrines, and avoid dowries. A dowry was the exchange of money or gifts between the families of prospective brides and grooms; the practice, however, had escalated and was forcing families into deep debt.

Yunus' strategy of setting up small communities of borrowers was an effective one. Women saw their neighbors learning how to operate a business, and gained a nearby mentor and confidence in their own abilities. But as the Grameen Bank's membership rolls grew, Yunus was surprised to see that "the small amounts of money going through the women brought so much more benefit to the family. The reason why, especially in poor families, is that the woman has trained herself, without realising it, to manage scarce resources," he explained to Carlin in the Observer article. "So when we loaned her a little money … she brought that efficiency to bear, maximizing the benefits." Their male counterparts, by contrast, tended to spend profits on themselves for status-symbol items. With these results in hand, Yunus decided to increase his bank's efforts toward women, with the result that by 1995, 94 percent of its two million borrowers were female. The default rate was impressive, just 1.5 percent, and the bank even began to earn a profit itself.

Watching his microcredit program closely over the years, Yunus estimated that it took a borrower an average of ten loan cycles to rise out of poverty, and a third of his applicants had done so during the bank's first decade in operation. Grameen Bank soon grew into several other successful ventures that also benefited the poorest rural citizens in Bangladesh. There was Grameen Telecom, which brought mobile-phone technology to rural villages and became one of the leading mobile-phone networks in South Asia. An offshoot, the Village Phone Project, offered a loan to those who wanted to purchase a mobile phone and set up a business as the village pay phone; many villages had never had any type of phone service at all, and the idea was immensely successful. He later began planning to set up village kiosks with low-cost Internet access.

Yunus also launched Grameen Shakti ("Energy"), which sells solar panels and other sources of renewable energy, and lured French foods giant Danone to set up a joint project that included a large food processing plant in Bangladesh that would sell much-needed infant formula at an affordable price. To help those on the very lowest rungs of the economic ladder, he created what are known as the "Struggling Members" loans. These are given out to beggars to help them buy a product, like a hen whose eggs they might sell door to door instead of begging; this has also emerged as a radical but successful concept that has aided some 80,000 destitute. "Human civilization still has a long way to go," he reflected in the interview with Carlin for the Observer. "Human beings are not born into this planet to spend their lifespan looking for food. That is an animal activity. So what you learn when you deal with the poor is how unkind society has been with the poor people, how parochial and self-centered."

Yunus' microfinancing strategies have been copied by those who once dismissed his ideas as folly. Citibank, ABN Amro, and Deutsche Bank have launched divisions to enter the microloan market, often via partnerships with local financial institutions. His pioneering vision made him the 2006 recipient of what is one of the world's most prestigious honors, the Nobel Peace Prize, awarded to both him and the Grameen Bank. The Nobel committee bestowed it because "Yunus' long-term vision is to eliminate poverty in the world," its award announcement read, according to the New York Times. "That vision cannot be realized by means of microcredit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing effort to achieve it, microcredit must play a major part."

At the time of Yunus' Nobel Peace Prize honor, Grameen Bank had provided loans totaling $5 billion to date. It operates in 70,000 villages, and 97 percent of its 6.6 million borrowers are women. It employs 20,000, including one of Yunus' students from that original field trip, Nurjahan Begum, who serves as a managing director at Grameen's Dhaka headquarters. Yunus is married to a professor of physics, and his American-born daughter, Monica Yunus, grew up to become a soprano who has performed with the Metropolitan Opera of New York. He was happy to receive the Nobel Peace Prize, but even more pleased that the Grameen Bank had helped so many. "Today, there are many different variations of microcredit," he told BusinessWeek journalist Jeffrey Gangemi. "But I'm glad that it's drawing attention. In Bangladesh, where nothing works and there's no electricity, microcredit works like clockwork. It's fantastic."


BusinessWeek, December 16, 2005.

Christian Science Monitor, October 16, 2006, p. 1.

New York Times, October 14, 2006.

Observer (London, England), November 5, 2006.

UNESCO Courier, September 1995, p. 15.

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