To ease the credit process for the poor, loans should be collateral-free. There are many bureaucratic policies and practices in conventional banking that discriminate against the poor, including a provision to enforce a contract by external legal intervention. Legal pressures and conventional banks’ tendency to punish so-called “defaulters” deter the poor from borrowing, and in many cases, the desperate agree to conditions that bring them deeper into debt. In the service of lifting the poor from poverty, many unnecessary policies should be streamlined. For example, the bank should work with borrowers who cannot pay on time to reschedule their loans without further consequence; indeed, they have not done anything wrong. Interest rates should be lowered enough to support just the sustainability of the program—in Grameen’s case, the cost of funds plus 10 to 15 percent. Instead of oppressing its borrowers, this system works to assist them in times of difficulty and makes all effort to help them regain their strength and overcome struggles.

Comprehensive services for borrowers support the poor, nurture communities, and ensure the social efficacy of loans. Credit in the hands of women has raised their status within families, empowering forgotten members of the community and facilitating their transformation into local leaders. Research shows that women tend to spend more of their earnings on their families, investing in their children and therefore enhancing the human capital of the community. By monitoring the education of children in client communities, giving scholarships and student loans, and tracking the progress of housing and sanitation, access to potable water, and communities’ capacity for meeting emergency situations, banks can play an integral role in community building. Ensuring that its loans are used efficiently to create sustainable enterprises, a bank can help its client rise above a previous cycle of poverty and debt.

In order to facilitate the distribution of credit to the poor, a new bank would go to the doorstep of its borrowers. The clients do not go to the bank; rather, the bank goes to the people. Grameen provides an apt example: the branches of Grameen Bank are situated in rural areas, unlike the branches of conventional banks, which are generally located in business districts and urban centers. Every week, Grameen Bank’s 12,000 staff members meet 3.2 million borrowers in 45,000 different villages spread around Bangladesh to deliver individualized bank services. While doing business this way creates more work for the bank, it is far more convenient for its borrowers, who otherwise would not have access to credit. The guiding philosophy of microcredit is simple: banks should not choose or dictate the ways in which borrowers use their loans. Members should have the freedom to determine how to maximize the benefits of their loans given their existing or potential skills. For the over 80 percent of the Bangladeshi poor who have access to microcredit, there is sufficient evidence to show that when the poor are given the tools for change, they can build sustainable communities and significantly improve their standards of living.

The Impact on the Poor

Independent studies show that microcredit has a host of positive effects on the families that receive it. A World Bank study in 1998 reported that five percent of Grameen Bank members move out of poverty each year. Similarly, a 2003 World Bank study by Shahid Khondkar shows that microcredit programs operating in Bangladesh over an extended period have produced a greater impact on extreme poverty than on moderate poverty. Khondkar concludes, “The results of this study strongly support the view that microcredit not only affects the welfare of participants and non-participants but also the aggregate welfare at village level.” His findings support the notion that long-term poverty reduction efforts at the village level become more sustainable as the general level of local education and healthcare improves. Indeed, impact studies of Grameen replicators in other countries, such as ASHI, Dungganon, and CARD in the Philippines; SHARE and ASA in India; and Nirdhan and SBP in Nepal all show increases in income among their borrowers.

The role of microcredit in disaster situations and post-conflict areas has also been well documented. When financial services are flexible, convenient, and easily accessible, microcredit programs allow families in such areas to rebuild economic activities and livelihoods. Studies have also shown that microcredit programs improve the coping mechanisms of the poor. This phenomenon was very clearly demonstrated during times of disaster, such as the 1998 floods in Bangladesh. More recently, microcredit has helped more than 10,000 families in war-torn Kosovo move out of poverty. A large number of Grameen Bank impact studies have been made from a variety of perspectives, but in every study, research findings show significant impact on Grameen members across a wide range of economic and social indicators. These effects include increased income, improved nutrition, better housing, lower child mortality rate, lower birth rate, better healthcare, better access to childhood education, and many others.

According to Grameen Bank’s own internal survey, 42 percent of its borrower families had crossed the poverty line by 2001. This figure was attained through evaluations based on the bank’s 10 indicators of poverty—the size of the loan, amount of savings, housing condition, furniture in the house, provision of warm clothing, education of the children, access to water, sanitation, nutrition, and adequate health care—set by Grameen Bank to track the impact of its program on the poor families that it serves. To prepare the next generation to stay out of poverty and end the recurring cycle, Grameen Bank encourages the children of Grameen families to enroll in school, stay there, and do well. Grameen Bank offers scholarships to the top students of each branch and gives student loans to all students who are going to universities, medical schools, engineering schools, or other professional schools. Significant investments in human capital are key to preventing recurring cycles of poverty.

Social Business: An Innovative Way Forward

Another way of rethinking our current economic framework is through the concept of social business. This is a new kind of business that has the sole objective of making a difference in the world. Investors in a social business would recoup their investment money but would not make any profit off the company. Instead, all profit would be reinvested into the company to expand its outreach and improve the quality of its products and services. A social business would be a non-loss, non-dividend company. Once social business is recognized by law, Grameen envisions that many existing companies will come forward to create social businesses in addition to their foundation activities. Activists from the non-profit sector will also find this an attractive option. Currently, those who work in the non-profit sector must collect donations to maintain activities, but a social business is self-sustaining and will create surplus for expansion because of its status as a non-loss enterprise. And as social businesses begin to gain recognition, a new type of capital market will arise to serve their capital-raising needs. Almost all of the world’s social and economic problems can and will be addressed through social businesses. The challenge is to create innovative business models and apply them to produce desired social results in a cost-effective and efficient manner. Social businesses could cover an array of services in developing countries. Exciting ideas for such businesses include healthcare, information technology, and education for the poor, as well as renewable energy. The list is endless. I believe that young people around the world, particularly in rich countries, would find the concept of social business very appealing, as it would provide a chance to enact change for the better. Special academies could be set up to train social business entrepreneurs, and customized social-MBA courses could be set up in universities to guide and inform the dreams of the next generation. These educational activities would mainly instruct entrepreneurs of social businesses, while training and recruitment of other employees could be carried out as they are in other traditional businesses.