Professor Muhammad Yunus was a highly respected Head of the Economics Department at Chittagong University, Bangladesh.In 1974 a terrible famine gripped Bangladesh and skeleton like people began to flood into the capital Dhaka. This caused Professor Yunus to feel empty inside. He used to get excited about teaching how economic theories provided answers toeconomic problems of all types. But what were the use of theories when all around him, people were dying of starvation. Where did poverty fit into the economics equations?
So Professor Yunus decided to take a ‘worms eye view’ of a local village,Jobra, so he could learn about village life in person. The poor would become his teachers and the village his university of the real world.
One day he met an impoverished single mother of three named Sufia Begum, working to weave bamboo stools, morning to night whilst living in utter destitution.
"Do you own this bamboo?" he asked her.
"Yes".
"How do you get it?"
" I buy it."
" How much does the bamboo cost you?"
"5 Taka" (22 cents US).
"Do you have 5 Taka?"
"No, I borrow it from the Paikars."
"The middlemen?" he asked. "What is your arrangement with them?"
"I must sell my bamboo stools back to them at the end of the day so as to repay my loan. That way what is left over to me is my profit"
"How much do you sell it for?"
"Five Taka and 50 Paisa."
"So you make 50 Paisa profit?"
She nodded. That came to a profit of just over 2 US cents.
"And could you borrow the cash and buy your own raw material?"
"Yes but the money lender would demand a lot. And people who start with them only get poorer."
"How much do the money lenders charge?"
"It depends. Sometimes they charge 10 percent per week. I even have a neighbour who is paying 10 percent per day".
"And that is all you earn from making these beautiful bamboo stools, 50 Paisa?
"Yes."
The Professor watched as Sufia set to work again, because she did not want to lose any time, her small brown hands plaiting the strands of bamboo as they had every day for months and years on end.
He had never heard of someone suffering so much for the lack of 22 US cents. The Professor thought Sufia’s status as virtually a bonded slave was never going to change if she could not find that five taka to start with. Credit could bring her that money. She could then sell her products in a free market and she could get a much better spread between the cost of her materials and her sale price.
The next day he had a list made of how many people in Jobra, like Sufia, were borrowing from traders and missing out on what they should have been earning from the fruits of their labours.
Forty-two people had in total borrowed 856 taka (a total of less than $US 27). "My God, my God, all this misery in all these forty-two families all because of the lack of $27!" he exclaimed.
The Professor lent them $27 and said they could repay him whenever they could afford to. Over the next week, it struck him that what he had done was not sufficient because it was only a personal and emotional solution. He had simply lent $27 but what he had to do was to provide an institutional solution.