Center for Social Innovation

When he was an economics professor at Chittagong University in the 1970s, it occurred to Muhammad Yunus that commercial banks could successfully lend money to poor Bangladeshis even if they lacked the traditional assets, such as titled land and houses, typically needed to collateralize loans. The banks could make loans to small groups of peers and neighbors, and the mutual support and social pressure that occur naturally in such groups would ensure that banks got their money back. Still, in 1981, when Yunus asked commercial bank managers in Bangladesh to capitalize his new Grameen Bank’s five-year expansion plan, they all said no. They simply could not get past poor people’s lack of collateral.

Yunus realized that he had to reduce the risk to commercial banks of ... Read more

• Microfinance