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Making the dollar go further, the Yunus way
Some 30 years ago, economics professor Muhammad Yunus made his first
loan of $27 (Dh100) to a group of 42 women so they could expand their
bamboo furniture-making business.
After the success of his
initial loan, Yunus saw that such a small amount of money could change
the lives of the people and thought why not do more? Since then, small
collateral-free loans known as microcredit have been provided to 100
million people across all continents.
With 94 per cent of the
world's income going to just 40 per cent of the population, Yunus
decided it was time to do something for the remaining 60 per cent.
Commercial
banks did not provide such loans to the poor and women only accounted
for one per cent of borrowers in Bangladesh at the time.
Yunus
founded the Grameen Bank (Village Bank) with half the borrowers being
women. Initially, Yunus says many women were afraid of borrowing and
would say they did not understand money.
To Yunus, it was not
their voice he was hearing, it was the voice of a history of neglect.
He was determined to peel away this fear layer by layer and eventually
he began to notice something remarkable. When money was lent to women,
they were not only better borrowers, but also invested more of their
earnings into their households.
Today 97 per cent of the 7.5
million borrowers at the Grameen Bank are women. Yunus disagrees with
those who say microcredit is good, but only works for those with
entrepreneurial instincts. He believes all people are entrepreneurs but
societies are created in a way that not everyone gets the opportunity
to unleash their talents – everyone has the gift but not everyone is
fortunate enough to be able to unwrap it.
In February 2008,
Grameen Bank opened a branch in New York City, its first in a developed
country. The bank plans to provide $176 million in loans over the next
five years, targeting the 28 million Americans who have no bank
accounts and another 44.7 million who have limited access to financial
institutions.
In business, Yunus says there is only one
concept and this is how to make money. But he adds that humans are
multi-dimensional, they enjoy making money but also helping others.
Yunus' next big idea is social business and one of his first ventures
is to produce yoghurt for millions of impoverished people in Bangladesh
through the Grameen-Danone partnership formed in 2006.
Yunus
says a dollar given to charity can be used only once but the beauty of
a social business is that it extends the life of the dollar, while
creating much needed institutions and efficiency.
Insead Knowledge writer Rahilla Zafar interviews Yunus on his efforts.
Have you been surprised by how far microcredit has come, even being successful in places drastically different than Bangladesh?
Yes
and no. It has come a long way since we began. At that time my students
and I had no idea how far it would grow, it was beyond our imagination.
But at the same time, it has not gone far enough. After all, 31 years
have gone by and it has been demonstrated that it can be done and is
important for people's lives. It can work in all circumstances,
environments, national situations but still has not been
institutionalised; it is still done by NGOs (non-governmental
organisations) and not as part of a formal financial system. So that
has been a very frustrating experience at the same time.
How do you foresee microcredit when practised in a place like New York City?
It
is still the same concept: tiny loans for income-generating activity in
a sustainable way so people can get a chance to create self-employment
and income using their own talents. So those basic things remain no
matter where you go, whether it is New York City or a remote village in
a poor country, it doesn't matter. People need money and it brings
money to them and provides a service.
With stores such
as Wal-Mart, will borrowers in the US have to produce different kinds
of products than those in developing countries?
People
do things which have nothing to do with Wal-Mart. For example somebody
does fashion design, she knows how to do the designing, people like her
so she gets orders. She makes wedding or party dresses. So that has
nothing to do with anybody, it is more of personal thing. Someone takes
care of flowers, people like their flower setting and want to hire her.
Do you foresee micro-insurance becoming more widely available, especially in places where microcredit has been such a success?
Everything
is a necessity, whatever the rich person can get, the same service the
poor person can get too. There is no distinction between something for
the rich and something for the poor. Only the sizes will be different.
The rich borrow $1m while the poor borrow anywhere from $100 to $1,000
and that's about it. Insurance is the same, health insurance is the
same and whatever programmes you can think of. But it has to be brought
to the poor since it's not available to them.
In the future, will we continue to see more ventures like the Grameen-Danone partnership?
Absolutely,
this is a whole new world to open so everybody can participate. It can
happen anywhere; there are lots of problems you need to address in a
business way. For example, 50 million people in the US don't have
health insurance. So helping them could be a social business. In
Bangladesh, millions are malnourished and yogurt provides vital
nutrients they lack in their everyday diet. Grameen-Danone agreed to
take back their investment but receive no dividends. Yogurt is sold at
a nominal charge; the goal is about having a large social impact and
not making a profit. This can be created all over the world to address
issues such as poverty, housing, safe drinking water, you name it.
Global Business Perspectives distributed by The New York Times Syndicate
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