Ford Launches Microfinance

  • Overseas
  • 1976

When economist Muhammad Yunus returned to his native Bangladesh after studying in the U.S. as a Fulbright Scholar, he bored into the problem of South Asian poverty that then seemed so intractable. He eventually concluded that lack of access to capital was a major reason everyday people in his country were poor. He experimented with small loans ($27), and learned that they could spur an efflorescence of business activity.

Local commercial banks would not back Yunus’s idea of awarding small loans for business purposes to people without regular employment or collateral. The Ford Foundation had supported his academic research starting in 1976, so Yunus approached its office in Dhaka about the possibility of an $800,000 grant to help him roll out his microcredit operation. Ford approved the proposal in 1981. Additional donations followed Ford’s lead, and funds began to be lent, repaid, and then re-lent on short cycles at Yunus’s new Grameen (“Countryside”) Bank. Very soon, it had disbursed a cumulative total of more than $13 million, in tiny doses, to small business creators. The microbank eventually offered billions in loans, and achieved astonishingly high recovery rates of more than 98 percent.

By the time Muhammad Yunus and the Grameen Bank shared the Nobel Peace Prize in 2006—“for their efforts to create economic and social development from below”—tens of millions of poor people in scores of developing countries had become active capitalists and seen their lives transformed by microfinance. In places where government agencies and commercial lenders saw only want and risk, philanthropists demonstrated that they could spark extraordinarily productive behavior among the poorest citizens on the globe.