By Bunny Nooryani
Oct. 13 (Bloomberg) -- Bangladesh's Muhammad Yunus and the Grameen Bank won this year's Nobel Peace Prize for advancing social and economic development by giving loans to the poor.
Yunus, 66, founded the bank, which lends to the ``poorest of the poor'' in rural Bangladesh without asking for collateral. The bank's so-called microcredit system has spread to impoverished communities around the world since its conception in 1976.
``Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty,'' said Nobel Committee director Ole Danbolt Mjoes in announcing the panel's choice of Yunus and the bank as this year's winners of the $1.4 million prize. ``Microcredit is one such means. Development from below also serves to advance democracy and human rights.''
Yunus started the microcredit system when he lent $27 to a bamboo-stool maker and 41 other villagers. The bank makes most of its loans to women and serves more than 71,000 villages in Bangladesh. More than a third of Bangladeshis live on less than $1 a day, according to the World Bank. ``Grameen'' means village or rural in Bengali.
``This is fantastic news for all poor countries around the world,'' Yunus said in an interview with Norway's NRK television minutes after the award was announced in Oslo. ``I can't believe that this has really happened. I am so grateful.''
Economics Doctorate
Yunus, who was born in Chittagong, earned a doctorate in economics from Vanderbilt University in Nashville in 1969 after receiving a Fulbright scholarship. He joined Chittagong University as head of its economics department in 1972. He served on various United Nations panels on women's health and finance, and met with world leaders including former U.S. President Bill Clinton and World Bank President Paul Wolfowitz.
A famine in Bangladesh in 1974, which killed about 1.5 million Bangladeshis, proved a turning point for Yunus, who began questioning why people who worked 12 hours a day, seven days a week, still didn't have enough to eat. The answer, he discovered, was a lack of capital and the burden of high interest rates charged by money lenders.
``I saw how people suffered for tiny amounts of money,'' Yunus said in a June 2005 interview with Bloomberg. ``The money lenders grabbed them and squeezed the blood out of them.''
Central Bank
Yunus's solution was to start a system of lending to the poor in which total interest charged can't exceed the amount of the loan, regardless how long it takes to be repaid, the bank said. In response to Yunus's lobbying, his microcredit system was adopted as a project under his country's central bank.
As of May this year, Grameen Bank had 6.61 million borrowers, 97 percent of them women.
Today, the bank's borrowers are formed into groups of five people providing ``mutual, morally binding group guarantees'' in place of the collateral usually demanded by banks, Grameen said. The initial two members are allowed to apply for a loan. Depending on their performance in making repayments, the next two can apply, and finally, the fifth.
The interest rate on loans is 16 percent, and 95 percent of the loans Grameen makes are repaid, the bank said.
``He has brought hope to the hopeless, giving them a cause to live,'' Zahirul Haque, a Bangladeshi Foreign Ministry spokesman, said in a phone interview after the prize was announced. ``He has made the country and its people proud.''
Poverty Declines
Some 63 million of Bangladesh's 133 million people live in deprivation, two-thirds of them in extreme poverty, the World Bank said in a report last month. Those living in poverty declined from 59 percent in 1990 to 50 percent in 2000, with rural areas accounting for almost four-fifths of this development, the World Bank said.
Bangladesh was known as East Pakistan until it seceded from the union in West Pakistan in 1971. Most of its population is Muslim.
The award may spur India to develop its rural banking system, said Pawan Kumar Bansal, India's junior finance minister in charge of banking. Half of India's 1.1 billion people have no access to finance from any source, whether it is banks or local money lenders, according to Bansal.
``It is a recognition of a banking approach that ensures inclusive growth, where everyone has access to finance,'' Bansal said. ``We welcome it.''
The Grameen name has offshoots including companies that produce knit shirts, write computer programs and offer mobile- phone services. The Grameen Foundation, a Washington-based nonprofit organization of which Yunus is a board member, works in 22 countries to support microfinance programs that lend small amounts of money, usually less than $200, to the poor.
`Proved Its Value'
``Thanks to Professor Yunus and the Grameen Bank, microfinance has proved its value as a way for low-income families to break the vicious circle of poverty, for productive enterprises to grow, and for communities to prosper,'' UN Secretary-General Kofi Annan said today in a statement.
The peace prize, worth 10 million kronor, was created in the will of Swedish industrialist Alfred Nobel more than a century ago. Past winners include Mother Theresa, the medical charity Doctors Without Borders and the 14th Dalai Lama. The prize was first awarded in 1901.
The five-member Nobel committee keeps nominations secret. Of the 191 nominees for this year's prize, 168 were for individuals and the rest for organizations. Yunus wasn't among the favorites identified this week by researchers and bookmakers in their annual predictions of the winner.
Bookmaker's Odds
Australian bookmaker Centrebet's top choice was former Finnish President Martti Ahtisaari. Ahtisaari, 69, was given an even chance of gaining the prize for brokering last year's Aceh peace accord, which ended 29 years of conflict in the Indonesian province. Indonesian President Susilo Bambang Yudhoyono, 57, had 3-1 odds, and the separatist Free Aceh Movement a 9-2 chance.
In his will, Nobel said the prize should be awarded to ``the person who shall have done the most or the best work for fraternity between the nations, for the abolition or reduction of standing armies and for the holding and promotion of peace.''
Last year's prize went to the International Atomic Energy Agency and its Egyptian director general, Mohamed ElBaradei, 64, for their work to stop the military use of nuclear energy.
The prize will be formally awarded at a ceremony in Oslo on Dec. 10, the anniversary of Nobel's death in 1896. Nobel also established prizes for achievements in physics, medicine, chemistry and literature, which are presented by the Stockholm- based Nobel Foundation. An economics award was established in memory of Nobel by Sweden's central bank in 1969.
