David Bornstein writes about social innovation. I chose this book based on recommendations by friends and his article in Heifer Int.’s Sep-Oct 2006 World Ark. This book had very many “must read” reviews.

Bangladesh’s Muhammad Yunus and the Grameen Bank he founded split the 2006 Nobel Peace Prize. Bornstein tells how Yunus, an American-educated economist, gave up his university position for an experiment is a nearby village. Many of his students quit to join him. Yunus listened to the poorest villagers about the ways they saw to improve their lives. He was motivated by the abject failure of first-world banking and credit rules to help the very poor, landless villagers. By many trials and errors, and by close watch on all aspects of the small loans, Yunus gradually developed the first trust-based loan system. He always kept in mind the huge number of poor Bangeldeshi his system could help, so he expanded his system as fast as he could push, and he pushed hard. Traditional commercial bankers kept telling him “You can’t do that!” but he ignored them because his “upside-down” system worked – it wasn’t static – he and his dedicated local bank workers adapted it to fit the situations found in problem areas. There were very difficult times due to flooding and other disasters, but he loosened bank rules to meet disasters, doing what was best for the villagers’ recovery. No Katrina-like “recoveries” allowed.

Most everybody today knows something about trust-based micro-finance loans. This book focuses on their beginnings and how Yunus’ system grew. Imagine a village meeting of 30 women – 6 groups of 5 teams – with each group making their weekly payment. The 5 members of a team know each other well; the team decides the size of each member’s loans. If a member of the team falls short in payments, the other members must make up the default and help (often with a “spur”) the defaulting member catch up. At each meeting The Sixteen Decisions (wise management of work, health, and family) are recited by these illiterate women – who earned respect and now held their heads high. With local control and area bank monitoring, the default rates are less than 1%. How far did this spread? By the end of 2005, Grameen Bank in Bangladesh had 700 microcredit institutions reaching 14 million families, nearly half the nation’s total. Yunus’ vision is to double that amount.

Muhammad Yunus’ first three themes are: (1) credit should be a human right; (2) self-employment is better than wage-employment to combat poverty; (3) give women top priority. Microcredit has sprung up to help the poor get a start in many countries in most continents. His themes worked wonders in third-world countries, but can’t be directly adopted in the more developed countries. But he believes that modified schemes, with local decision making, can be found, as long as traditional commercial banking (mainly by and for the rich) stays away from the poor. His ultimate goal is that of Jeffery D. Sachs (book 162): ending poverty by 2030. I enjoyed this book very much and I very strongly recommend it to all. Muhammad Yunus and the Grameen Bank clearly deserved the 2006 Nobel Peace Prize.