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If Grameen was to work, we knew we had to trust our clients. From day one, we knew that there would be no room for policing in our system. We never knew that there would be no room for policing in our system. We never used courts to settle our repayments. We did not involve lawyers or any outsiders. Today, commercial banks assume that every borrower is going to run away with their money, so they tie their clients up in legal knots. Lawyers pore over their precious documents, making certain that no borrower will escape the reach of the bank. There are no legal instruments between the lenders and the borrowers. We were convinced that the bank should be built on human trust, not on meaningless paper contracts. Grameen would succeed or fail depending on the strength of our personal relationships. We may be accused of being naïve, but our experience with bad debt is less than 1 percent. And even when borrowers do default on a loan, we do not assume that they are malevolent. Instead, we assume that personal circumstances have prevented them from repaying the money. Bad loans present a constant reminder of the need to do more to help our clients succeed.
A Bangladeshi social entrepreneur, banker, economist, and civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance. These loans are given to entrepreneurs too poor to qualify for traditional bank loans.
Banker to the Poor: Micro-lending and the Battle Against World Poverty. 1999. Public Affairs, New York. P.70
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