LONDON – The first time I thought Muhammad Yunus, founder of the Grameen bank, deserved the Nobel Prize was twenty years ago, and I said as much in a column in the International Herald Tribune. “Away from the intrigue of Dhaka, with its street battles, armed police and brigades of international journalists something quite wonderful is happening in Bangladesh.”

It was for me a road to Damascus. Saturated with covering failure in Africa, Brazil and India there I saw for the first time how the poor could almost literally lift themselves up by their own bootstraps. I recall sitting in the shade of a mango tree, not far from the Himalayan foothills, talking to my host, an ultra ebullient Italian, Sergio Apollonio, the information chief of a small Rome-based UN agency, the International Fund for Agricultural Development (IFAD), who had had to twist my arm to persuade me to take the time to make this trip. Rice paddies stretched into the distance in many tones of green. It was early, but villagers, stooping into the floodwaters, were working hard, weeding, sowing, and fishing. “Bangladesh was not the poorest country in Asia for want of hard work,” I wrote.

Twenty years later Bangladesh is still convulsed by political turmoil. But thanks to the inspiration of Yunus and his local imitators poverty is falling faster than anywhere else in south Asia. Hard work now means no longer treading water in an overpopulated land that constantly floods, it means uplift and progress and for the country as a whole a steady growth rate of 5-6%. No wonder many influential voices in Dhaka are asking Yunus to break the political deadlock and run for president.

Meanwhile, the micro credit movement has spread its tentacles all over the Third World, and even into poor communities in North America and Europe. So huge and sophisticated has it become that it now taps capital from Wall Street and other leading financial markets. This week I sat down in Rome with an old friend, Farhana Haque-Rahman, and reviewed with her how that first small loan from IFAD enabled Yunus to get his new idea moving and where it is now heading. “When the world micro credit movement holds its summit on Sunday in Halifax, Canada, you will see how the idea has spread like a benign contagion. All the big players will be there- the World Bank, the International Monetary Fund, all the aid agencies. Our loans were peanuts compared with what is being invested these days. Even hardened bankers have become convinced that a well-run micro finance institution can outperform mainstream, commercial banks in portfolio quantity. The top performing ones in some countries are more profitable than the local commercial banks.”

One secret of Yunus’s success was his caution. At the time I visited he had just turned down a loan of $200 million offered by the World Bank. He believed in natural growth. If the Grameen bank grew too fast its standards would slip and it would collapse. Deep down Yunus had a conviction that “those that believe the very poor are not bankable because they don’t have collateral are totally wrong”. This, he told me, was “like arguing that men couldn’t fly because they didn’t have wings”.

In turbulent times micro finance has shown itself to be a more stable business than commercial banking. During Asia’s 1997 massive banking crisis Indonesia was the hardest hit of all. Commercial bank portfolios deteriorated rapidly, but loan repayments of the micro lender, Bank Rakyat, with its 26 million clients barely declined. It was the same during Bolivia’s banking crisis of two years’ ago- although microfinace portfolios did suffer they remained substantially healthier than the commercial banks.

The Grameen model is not without its severe critics. After bad floods in 1998 dealt a nasty blow to the client base of Grameen, the Financial Times lambasted it for living off “the uncertain charity of development aid” and Raghuram Rajan, director of the IMF’s research department, wrote recently, “if we want micro finance to become more than a fad, a temporary cause for the glitterati, it has to follow the clear and unsentimental path of adding value and making money”.

Yes, I’ve read the books, in particular IFAD’s cost-benefit evaluations and know quite well that most of these Grameen bank type institutions couldn’t last for long without a subsidy from an aid donor. The interest rate they would then have to charge would be prohibitive.

So what? If aid works, and clearly with these institutions it is working, pumping in every year into the poorest of the poor $7 billion worth of credit and, as can be seen in Bangladesh, turning a whole country round, why should we question it?