Yunus awarded Medal of Freedom: implications for bottom-up approaches in foreign assistance?

The recipients for this year Medal of Freedom have been announced and include Nobel prize winner, Muhammed Yunus. When Yunus (then the chair of the rural economics program at the University of Chittagong) launched the Grameen Bank as a pilot research project in 1976 in a post-war Bangladesh, his motive was to extend credit and foster micro-entrepreneurship amongst the poorest that were largely ignored by the formal Banking sector. Since then, Grameen has become synonymous with micro-credit and has inspired, along with other pioneers such as SEWA and ACCION, many other lenders to mushroom across the world. However, its own evolution as an organization reflects advancements in the microfinance field as a whole, which is increasingly shifting its focus from credit to savings.

The recently published “Portfolios of the Poor” (2009) provides an account of the transformation of Grameen Bank. In 1998, a devastating flood in Bangladesh only exacerbated the declining loan portfolio of the Bank. This spurred two major reforms. The first was loosening some ends of an erstwhile tight system of rules, making the terms of repayment more flexible. The second was to focus on savings and deposits. A personal savings account was introduced that allowed clients to save and withdraw from their accounts at any time. It also started to offer fixed deposit savings which would provide a good interest rate if the individual guaranteed to save at least $1 a month over five or ten years. Grameen has evolved from being a micro-lender to being a retail bank but one that tailors its products for the poor. In 2002, the total savings portfolio of Grameen Bank at $142 million was 68% of the total lending. In 2005, the savings had jumped to $460 million, surging ahead of the total lending which had also grown to be about $406 million.

In the February 2009 Budget overview, the Department of State and International Programs, USA, does not set savings led microfinance or micro entrepreneurship as a priority. The budget intends to put the United States “on a path to double foreign assistance” that will help the “world’s weakest states reduce poverty, combat global health, develop markets, govern peacefully and expand democracy worldwide”. In 2010 the projected expenditure, excluding food aid, is projected to be $51.7 billion – a 26% increase from $40.9 billion in 2008. The question here is: what kind of new initiatives would all of this extra cash launch? This is a good time to push for more investments in bottom-up approaches that focus on savings and asset building. It is necessary that recognition of innovation, such as that of Yunus, translate into investments in these types of poverty-reduction approaches through adequate funding.

To read more thoughts on asset building through America’s foreign assistance from my colleagues at the Global Assets Project, click here and here. Ray Boshara’s article on “Combating Poverty by building Assets” can be found here.

Shweta Banerjee is a consultant with the Global Assets Project at the New America Foundation.
Banerjee@newamerica.net