Source - The Guardian
What began with a loan of $27 to 42 women in a small village 33 years ago, has grown into a global microcredit movement that has changed the lives of millions of poor people around the world. Muhammad Yunus, Founder and Managing Director of Bangladesh's Grameen Bank, was the guest speaker at Wharton's MBA commencement on May 17 and the recipient of an honorary doctor of laws degree during the University of Pennsylvania's commencement on May 18. Yunus, a 2006 Nobel Peace Prize winner, spoke at the event about his successes, challenges and upcoming initiatives. Excerpts.
People often associate good works and worthwhile causes with non-profit institutions. But you have emphasised that your model is a for-profit, not a non-profit one. Can you briefly describe that model and explain why the distinction is so important to you?
We are not trying to create a non-profit. That was not our intention. Our intention was to persuade the bankers to lend money to poor people. So, my struggle was always with the bankers. Initially, I offered myself as a guarantor, and then took the money from the bank and gave it to people. So it was an extension of the bank's activities. When we saw that it was working well and the banks were not as enthusiastic as we were, we thought maybe we should have a separate bank created for this purpose.
Finally we did that in 1983- called Grameen Bank or the "village bank." So we became a bank because it is a bank's activity. We lend money to the poor. People sometimes refer to us as an NGO. We have to explain that we are not an NGO. It's not that we are belittling NGOs.... I'm simply stating that people get confused, thinking that because we work with the poor, we must be an NGO. I say, no, we are a bank and it is owned by the poor people. The owners of the bank are the borrowers of the bank. That's the distinction that we want to make, to clarify what we are.
Grameen Bank has grown dramatically since the time that you founded it and now has operations in more than 100 countries, with seven million borrowers in Bangladesh alone. But your success with Grameen has led to a lot of other people entering the microcredit area. Some of them are commercial banks. Some are funded by venture capitalists. How has that changed the microcredit model, and can you explain some of the issues that have come up as a result of that?
Just a little clarification: We work- or at least the main idea has been working- in almost all the countries of the world. So now it's not right to say 100 countries.
So you're even more successful!
At least the idea is that it's spread. Whether they are big or small- successful or not- there are presences in all those countries. Right now, we are nearly eight million borrowers within Grameen Bank itself. In that way, Grameen Bank has expanded within Bangladesh. Lots of organizations have come in to do this and we have encouraged them. NGOs have done that. Others have done that. When the word becomes popular and the idea becomes popular, many people want to join in. So the word "microcredit" became very popular. "Microfinance" became very popular. And institutions not using these words before, suddenly started using them- like agricultural banks around the world saying that they do microcredit. They never said that before.
Whether they are microcredit or not is a debatable subject because we define microcredit, microfinance, in a certain way. This is a credit and financial service to the poorest people without collateral, without guarantee and without any lawyers in the system. That has to be very clear in our work before we call it microcredit or microfinance. And this has focused more on women- the poorest women.
If you look at agricultural banks, for example, most of the agricultural banks around the world require collateral.... Similarly, savings and loan associations say they do microcredit. Cooperatives say they do microcredit. Those who are giving agricultural loans- commercial banks- are saying they do microcredit. So we need to clarify what microcredit is in its pure form rather than everything else. Microcredit was always given to people for income generating activity. So whatever money you are taking, you are investing it to create an income source for yourself. There are many programs which give loans for buying consumer goods, and they say they are doing microcredit, they are giving money to buy a refrigerator or buy a television. We say, "No, sorry, that's not microcredit." So we have to sort this out.
Another aspect that I want to draw attention to- there are many microcredit programs going around advertising themselves saying, "Oh, this is a great opportunity to make money." And they encourage people who want to make money to join in and do that.
Again, we say, "Look, our purpose is not to excite people about making money. Our purpose is to help people get out of poverty. The focus is not on profit making. The focus is on helping people to get out of poverty. Those who are seeing this as an opportunity to make money have to raise their interest rate to the extent that they make a lot of money.
The interest rate issue becomes a sensitive one. We are saying interest rates should be kept as low as possible, preferably to cover costs. If you want to make a little profit on top of it, it should be a very modest profit, so that it doesn't look like this was your intention. Those who are doing that-using microcredit, microfinance, to make a lot of money- we keep saying that this is not microcredit in the sense that we do it. We came here to fight the loan sharks, not become loan sharks ourselves. This is their moving into the direction of loan sharks. We want to disassociate ourselves from them.
So, how do you tackle that? Is there some regulation required, and if so, what kind of regulation should there be?
In Bangladesh, we have been talking about regulation. The Bangladesh government has created a microcredit authority, based on our suggestions. So they will be looking into the interest rate issue, the transparency issue. A lot of people quote their interest rate in many, many ways, hiding the actual fact of how much they are charging. We say it has to be very transparent. All interest rates should be expressed in a standardized form so that you can compare A and B. Who charges more or less? This is something that they have to clarify right away, and they also have to keep the interest rate as low as possible. This is an encouragement regulatory authorities should be putting in.
I, personally, have been promoting the idea that a true microcredit interest rate should be within a particular range -- as a cost of fund at the market price plus 10%. This is the green zone of microcredit interest rates. You are legitimate. You are doing excellent work. If it is cost of fund at the market price plus 10% to 15%, we say your interest rate is in the yellow zone. You're on the high side, but still we will consider you a genuine microcredit program. We will encourage you to push yourself back into the green zone. If cost of fund is at the market price plus 15% and above, then we say you are in the red zone, meaning that you are too high and you are on the wrong side of microcredit. You are moving into the loan shark zone.
You have spoken about the downside of a globalized economy, referring to it during the Nobel Peace Prize ceremony in Oslo as "a dangerous free-for-all highway whose lanes will be taken over by the giant trucks from powerful economies, even as Bangladeshi rickshaws will be thrown off the highway." I'm assuming you're referring to the one-dimensional profit mode of these giant trucks that focus more on money than on social good, but how do you think a global scenario could realistically be averted? Isn't globalization, in fact, desirable?
I was giving an image of globalization as like a multi-lane highway. All the products are moving back and forth in many directions, and everybody on the road is getting their merchandise. Big countries, big economies, rich economies will have more merchandise to carry, and big trucks to carry it in. They are very powerful and take over the lanes. The small countries don't have space for themselves because it's all taken over by the big trucks and the big companies. I said if that image fits into the picture, then we should have traffic rules so that the little company in the little country in the little economy can ... move slowly and safely, and the big trucks don't take over everything.
If we accept the traffic rules idea, then we will need traffic police so that these rules are obeyed. The idea is to have a traffic authority that says, "This is the rule of globalization -- that if you are a big company, you cannot come to a weak economy and say, 'I am taking over the whole economy.' They can, because they have the money power. That will be the wrong kind of globalisation. In globalization, both sides must be the winner, and whatever gain in trade takes place, it should be shared equally. Just because I have the power -- out of 100, I take 99.9 per cent and give you 0.1 per cent and say this is globalization- I don't think that would be tenable or sustainable. So we have to agree how much you should get and how much I should get, although I could have taken over everything. But by agreed principles, we don't do that. We give you some and we keep some. And what that participation would be -- how the division would be -- would be up to the traffic police or the traffic authority to decide. Otherwise, globalization will become an economic imperialism, with big economies taking over small economies.
One affect of globalization we see right now is what's happening in the world banking industry. Why I find it very interesting is because if you were to look at Grameen's own borrowers, they are not just subprime, but sub-subprime. In spite of that, Grameen's repayment rates are 99 per cent or so, and you have never required a bailout. From that perspective, I wonder how you see this global banking crisis and what advice you would give to the CEOs of institutions like Citibank or Bank of America about what they could do to salvage their operations.
It's a paradoxical situation right now because 33 years ago- when I was trying to start this program in a city village with a few people and arguing with the bankers that it would be a good idea to give loans to poor people- their argument was that poor people are not credit worthy. They will never pay back and so on. Today, 33 years later, you can ask the same question. Who is credit worthy? It is the poor who turned out to be more credit worthy than the other category of people, because microcredit programs all over the world still function very well. Their repayment is very high, whereas the big banks and their big lending operations are near collapse. They are falling down.
Given the situation we have now, we have no other way but to redesign the whole system- recognising the strength in non-collateralised loans for the poor people and the weakness in collateralized loans for the rich people. We have to find a ground where we can have an inclusive financial system where nobody will be thrown out of the system- not the poorest person, not the homeless person or a beggar person. Nobody should be thrown out. They have already created a long-time record of what they have done.
So this is one lesson to be taken into account when redesigning the financial system. Another point I would like to make is that this global crisis, financial crisis is the worst in our lifetime- the whole world is going through it. While we look at the crisis part of it, we forget this is also the greatest opportunity. When the system is not working, that's the time you unpack and redesign it so that it not only works, it works better than ever before. Unless we do that, we will be committing a big mistake. So I emphasise the opportunity part of it. The crisis will take time to run its course, but we should be focusing our attention on redesigning, piece by piece, those parts that need to be fixed so that we don't have the same old system we had before.
What qualities does one need to lead a microfinance institution and how are these different from the qualities needed for another type of organisation?
We came from the direction of wanting to bring financial services to the poor to help them generate income for themselves and gradually move out of poverty.Build confidence, build experience, and step-by-step, move on and get out of poverty. So we would like to keep microcredit in that mode, not a profit maximization mode, because then you are not looking at people's condition; you are looking at your own condition. You want to take out as much as possible to improve your financial strength and so on.
That is the number one requirement for microcredit- that you have the right kind of attitude when you get involved with it, that here I have come to use my talent, my creativity, my management skills to help people get out of poverty without losing money.
Losing money pushes you into another direction. It pushes you into charitable kinds of programs. Microcredit is not a charity program. Microcredit is a business program- but business with a social purpose. In a separate way, I have called it a social business and defined in clear terms what a social business is like.
So ideally, I would like microcredit to be a social business where profit is zero for the person who is investing, but the company can make profit. Profit stays with the company with a social objective- in this case, to help people get out of poverty.
But in terms of individual leadership skills, or organizational skills, how do you nurture these in individuals at Grameen Bank?
With Grameen Bank, we just recruit people and let them learn by apprenticing with other, older persons in the branches. So it's not a classroom training, which makes all the difference. Classroom training is a very small part of our training. We simply introduce what we do and then let them figure out how it is done. When they join Grameen Bank, for them it's just a job. They are looking for a job. Not many jobs are available. They get the job. They are very happy. They will work and get a salary. So the intention of helping the poor was not part of the job.
But once you start working with poor people and get to know the system and its objectives, gradually you are taken by it. More and more you feel inspired by it. All these ideas that, yes, my work helps people, excites them. It's a wonderful experience to be able to touch other peoples' lives. It's almost an intoxicating experience. Once you have it, you cannot get away from it. You want to help more, because you see things are happening in people's lives. Their children are going to school. The kid you saw running around in the village -- now you see that he or she is in school and doing very well, and talking about what she wants to be, what he wants to be. And you remember your own childhood -- how difficult it was for you.
These kids are lucky kids. They are in school. Some of the older students are now going on to higher education. Grameen Bank gives them education loans. They say, "Nobody gave me an education loan. My education ended. After high school I couldn't proceed any further. The only job I could get is this one. But I'm happy. Through my job, I'm helping other kids to go on to higher education, become doctors and jurors and university professors and so on and so forth. That excites them, that yes, their service is useful.
One of the really interesting aspects of Grameen's operations is the way you have been able to extend the concept of microfinance beyond just credit into areas such as health insurance. I wonder if you could explain some of those activities and how they have evolved? What have some of your challenges been?
We do not consider micro insurance or health insurance as outside the financial service area. So we take it as a part of our activities- the bank's activity. We started with giving credit at the same time we were taking savings. So it's always together: Savings and credit formed our basic tool. Then we encouraged people to go into other directions regarding health and other issues. Gradually we introduced insurance programs. Life insurance was our first insurance program. Then we introduced the health insurance program. We saw that we can give health insurance, but then how do you ensure that people get the health service? The existing health service system is not very reliable. So we started creating health services through a separate company we created called Grameen Kalyan, or Grameen Well-Being.
Through that, we started setting up clinics in the villages with a professional doctor at the top of the clinic, and then paramedics and health workers with a pathological lab attached to it so that people don't have to go to the city for simple pathological testing and so on. Everything is self-contained. Today, we run about 51 such clinics. On an average day, they cover about 93 per cent of the costs; another seven per cent we could easily cover if we could retain the doctors in these clinics. That became a big problem: Doctors don't want to stay in the kind of clinics that we operate in the villages. Most of the time, almost half or one-third of the doctors are missing.
That's where our popularity in the area is not as high as it should have been. Now we are trying to redesign it, do it in a different way by trying to set up a program at the village level- what we call Grameen Health Management Centers- where our focus will be on prevention. Our focus will be on the healthy people first and then on the sick people. For the sick people, we say this is where we will do early detection and early treatment without relying on the doctors in the village. So doctors can stay in the cities, wherever they are.
We are trying to link the doctor and the patients through information technology. The mobile phone in Bangladesh is everywhere, like many other countries. The mobile phone is a common phenomenon. Even in the poor families, you will see mobile phones. They are very cheap. And these phones are Internet phones. They also carry Internet service. Bangladesh can receive Internet services everywhere through the mobile phone. So we want to do the diagnostics and plug them into a mobile phone -- transmit all the images and all the data to the specialist doctor in the city who can analyze it and decide what the problem is, talk to the patient on the mobile phone and then some intermediary who can go between the patient and the doctors to carry on all these services. This is the new idea that we are promoting. Health insurance is a very popular concept provided we can guarantee that people get the services.
Is there a plan to extend this further with Google?
We have been discussing it with many partners. Already we have created a social business with the Intel Corporation. It's called Grameen-Intel Company in Bangladesh. Through that company, we are bringing mobile phone services to the village with the health care software included in it.
The initial one that we are doing is a series of questions that we place before pregnant mothers designed in such a way that, by evaluating the answers, , doctors can tell whether she has a risky pregnancy. So immediately, we have screened a risky pregnancy. Then you can concentrate on that one. Gradually we'll be moving into ultrasound. We will bring ultrasound to the family house to image the baby inside the womb and transmit it to the doctor. The doctor can then confirm that, yes, there is a problem. We can zoom in to that particular patient, and so on.
On this trip, I'll be meeting with the Google people to talk about it. One other idea that I'll be discussing with them is how to capture all the patient data. Simultaneously, as we meet the people, talk to people, all this comes in a way that you can put in a central server through Google. You have global patient data available. You can analyse it. You can find out the incidents of diseases. You can know how the treatment is working, which treatment is working, how people are improving and so on. Lots of information can come out of that. There are many ways you can do that. It's very simple. Now that technology is available, it can be almost cost-free- but at the same time extremely valuable- information about health care. So we want to see Excite, Google and others get involved. Google already has a lot of health care related programs, but we are trying to see how to extend the service and collaborate with them.
* Culled from Knowledge@Wharton, a publication of University of Pennsylvania, United States of America