Wharton School of Business Commencement Speech

UNIVERSITY OF PENNSYLVANIA: WHARTON SCHOOL OF BUSINESS

Professor Muhammad Yunus

A very good afternoon to everyone: Dean Robertson, distinguished colleagues, alumni, friends & families and last but not the least, the students of Wharton’s graduating class of 2009!

It is indeed an honor and a privilege for me to speak at the commencement ceremony of the University of Pennsylvania’s Wharton School of Business. It is always a great excitement for me to be among students, and you are some of the brightest of them in the world on the cusp of making decisions about the direction you will take in your life.  It is you, who represents the future of the world. It is indeed a great honor for me to share my thoughts with you, just as you embark on the important journey of your life.

When I finished school, got my PhD, I had no idea whether my life would someday be of any use to anyone else's.  But in the mid-seventies, I was back in new born Bangladesh, and out of frustration with the terrible economic situation in Bangladesh I decided to see if I could make myself useful to one poor person a day in the village next door to the university campus where I was teaching.

Perhaps the economic situation then is not entirely similar to what it is now, but irrespective, I found myself, perhaps similar to many of you, in an unfamiliar and uncertain situation.  It was out of necessity that I had to find a way out.  I had neither a road map.  At any moment I could have withdrawn myself from my unknown path, but I did not. As Robert Frost had written: “Two roads diverged in a wood, and I – I took the one less traveled by, And that has made all the difference.” Indeed, his words have truth. I followed the path less travelled and stubbornly went on to find my own way.  Luckily, at the end, I found it and what a difference it has made! It resulted in the birth of Grameen Bank and the of microcredit.

When I went into the villages, I could not miss seeing the ruthlessness of moneylenders in the village. First I lent the money to replace the loan–sharks.  Then I went to the local bank to request them to lend money to the poor.  They refused. After months of deadlock I persuaded them by offering myself as a guarantor.  This is how microcredit was born in 1976.  Grameen Bank lends money to nearly 8 million borrowers, 97 percent of whom are women, and offers services in all of the country's 83,967 villages. Today, after 32 years, we reach out to 80 percent of the poor population in Bangladesh, and in the next two to three years, it will come near 100 percent.  Our borrowers own the bank.  The bank has lent out over $7 billion in Bangladesh over the years. Globally 130 million poor families receive microcredit.  Even then banks have not changed much.  They do not mind writing off a trillion dollars in a sub-prime crisis, but they still stay away from lending $100 to a poor woman despite the fact such loans have near 100 per cent repayment record globally.

Yes, the big banks are failing, but on the other hand, microcredit banks, such as, the Grameen Bank of Bangladesh, are flourishing. Here's how it works: The bank gives loan to the poorest of poor on their promise to pay it back. There's no collateral, only mutual trust, accountability, participation and creativity. Loans are granted on the potential of the person instead of the amount of material possessions. The bank is owned by poor women, not rich men. And its goal is to make the world a better place by eradicating poverty.

For example, when we give a $100 loan, behind that there's a cow, there's a few chickens, there's something. The banks that are collapsing were based on chasing papers. It was a race to create a fantasy world of papers. And when something went wrong, the whole thing collapsed. The Grameen Bank is locally based; our source of money is local. In other words, the money comes from the deposits of the people in the bank. We take the depositors money and lend it; we are not connected with international banks, so their crisis could not reach us.

While other experts are banking on gloom and doom, I see the economic downturn as a prime time to shake things up in a positive way that will lead to permanent social change. This is a big crisis, but this is also a big opportunity to redesign and retool, so we don't have to go back to the same normalcy. So in a certain way, the crisis is good; it gives us a good opportunity to redesign for the better.

It is understandable and quite expected that everyone’s focus is on the recession, since it hits the paycheck. This is an overwhelming crisis, but it is not the only crisis.  In 2008, before this crisis began, there were other crises, including the food crisis, the energy crisis with oil price hitting $150 a barrel, and the ongoing environmental crisis.  Although they all are happening at the same time, because of the sudden disappearance of enormous wealth and the number of big companies collapsing, financial crisis has occupied all the news media. I'm trying to bring attention to those forgotten crises, because they didn't disappear, they simply got pushed back. They are very much alive and have to be looked at.

Global warming, for instance, is hitting Bangladesh, which is a flat, highly populated country. The sea level is rising 4 millimeters a year, the ocean is rising, and Bangladesh is sliding into it. The projection is that within this century at least one-quarter of Bangladesh will disappear.

These crises must be examined and solved together because they are not separate; in reality it is only one crisis with separate manifestations. They are all coming from a fundamental cause, and that happens to be the very way we have conceptualized our world. The way we see the world, the way we work within a framework that we have developed there is something basically wrong. That has caused all these troubles.

As of today, we have only seen the beginning of these crises; it is going to be a long and painful period ahead.   The combined effects of the financial crisis, the food crisis, the energy crisis, and the environmental crisis will continue to unfold in the coming months and years, affecting the security of the bottom three billion with special force.  And of course the troubles of the world’s poorest will have an impact on the developed nations, too.  Social unrest, border clashes over scarce resources, spreading instances of state failure, and vast migrations by populations desperate for relief from poverty and environmental disaster will create political and military hot spots around the globe that will threaten world peace.

Over the past few months, world leaders have been particularly focused on the emergency situation on the financial front. As mentioned earlier, this is quite understandable. But it should not be seen as a problem of high finance only.  This narrow view of the financial crisis is likely to exacerbate our global social and political problems. The human aspect of the financial crisis must be integrated into all policy proposals. The appropriate thing would be to treat all four crises as one crisis, since all are linked together. So far, governments have kept themselves busy  coming up with super-size bail-out packages for the financial institutions which were responsible for creating the financial crisis, yet little is being done to bail out the victims of the crisis—the three billion people at the bottom of the economic pyramid and the planet that sustains us all.  For this reason, I have repeated that this mega-crisis be taken as a mega-opportunity to redesign our existing economic and financial systems so that they can become the foundations for lasting global security.

To find the solution, the world right now has to work together, must concentrate on the opportunity, not the crisis, and capitalize upon the lessons of these crises. When things don't work, that's the best time to re-do it, to reorganize it, to re-conceptualize it, to redesign it. That should take some part of the front page news, too. We keep talking about how to get over the crisis, but I wish we would talk more about how to redesign the system. The change must begin in the financial sector because that's what caused everything to collapse like a house of cards.

Amidst the financial crisis, the real challenge will be to create a strong new system that isn't dependent on a few major institutions in one main city whose collapse would destroy the life of every person on the planet. How do we make it different, and how do we make it inclusive so nobody falls through the cracks? How do you change it so everybody has a chance? Here’s a proposal for a second type of business to operate in the same market along with the existing profit maximizing businesses.  This new type of business, I am calling “social business” because it exists for the collective benefit of others.

A social business is a business whose purpose is to address and solve social problems, not to make money for its investors. It is a non-loss, Non-dividend Company.  The investor can recoup his investment capital, but beyond that no profit is to be taken out as dividends by the investors. These profits remain with the company and are used to expand its outreach, to improve the quality of the product or service it provides, and to design methods to bring down the cost of the product or service. If the efficiency, the competitiveness, and the dynamism of the business world can be harnessed to deal with specific social problems, the world will be a much better place.

Over the years, Grameen has created a series of companies to address different problems faced by the poor in Bangladesh. Whether it is a company to provide renewable energy, a company to provide healthcare, or yet another company to provide information technology to the poor, we were always motivated by the need to address the social need. We designed these businesses as profitable companies, but only to ensure their sustainability so that the products or services they provided could reach more and more of the poor, on an ongoing basis. In all these cases, the social need was the only consideration; earning a profit was no consideration at all. That is how I realized that businesses could be built that way, from the ground up, around specific social needs, without relying on the motive of personal gain.

Some people are skeptical when I describe the concept of social business. Who will create these businesses? Who will run these businesses? Why would anyone devote time, energy, and money to projects with no hope of personal gain?  I always say that, to begin with, there is no dearth of philanthropists in the world, no dearth of donor countries giving grants. People give away billions of dollars every year.   So do donor countries.  Imagine if those billions could be used by social businesses to help people. These billions would be recycled again and again, and the social impact could be all that much more powerful.  In the same way, money allocated by companies to corporate social responsibility projects could easily go into social businesses. Each company would create its own range of social businesses.   We can also create Social Business Funds to pool funds from many sources and invest them in social businesses.  The opportunities for launching social businesses are really limitless.

We can recognize a profit-maximizing company as a social business if it is owned by the poor. This constitutes a second type of social business. Grameen Bank falls under this category of social business. It is owned by its poor borrowers. The borrowers buy Grameen Bank shares with their own money, and these shares cannot be transferred to non-borrowers. A committed professional team does the day-to-day running of the bank. Every year, dividend checks are sent to the borrowers, representing their share of the bank’s profits.

Bilateral and multi-lateral donors interested in supporting economic development could easily create social businesses of this type. When a donor wants to gives a loan or a grant to build a bridge in the recipient country, it could create instead a "bridge company" owned by the local poor. A committed management company could be given the responsibility of running the company.  Part of the profits earned by the company would go to the local poor as dividends, while a part would go towards building more bridges. Many infrastructure projects, like roads, highways, airports, seaports, and utility companies could be built in this manner. Once the concept of social business is included in economic theory, thousands of people will come forward to invest in social businesses because of the social dreams they have in their hearts.

The concept of social business got international attention when we launched a joint venture with Danone, a multinational company from France.  Grameen teamed up with Danone to bring nutritious fortified yogurt to the undernourished children of rural Bangladesh. The aim of this social business is to fill the nutritional gap in the diet of these children. Danone provided $500,000, a sum that was to be refunded after several years, and all other revenue has to be reinvested in the project. The project is a joint effort. Grameen Bank borrowers buy cows and sell the milk to Danone. Once the yogurts are prepared by Danone, Grameen Bank borrowers sell the yogurt door to door in the villages. The yogurt is sold at an affordable price, charging just enough to make the company self sustaining. Beyond the return of the original investment capital, neither Grameen nor Danone will make any money from this venture. Currently, the project employs 50 to 60 women and provides income for approximately 1,600 local people. The aim of the Grameen-Danone venture puts micronutrients in the yogurt that the kids are missing. They don't spend money on fancy marketing or on design of packaging. When children eat two cups of yogurt a week, in eight to nine months, they get all the micronutrients needed to be healthy. We have one yogurt plant already operating in Bangladesh, and in time we hope to have 50 such plants throughout the country.

We also have built an eye care hospital on social business principles.  And we have created a joint-venture with Veolia of France to deliver safe drinking water in the villages of Bangladesh. This joint venture is building a small water treatment plant to bring clean water to 50,000 villagers, in an area of Bangladesh where the existing water supply is highly arsenic contaminated.  We will sell the water at a very affordable price to the villagers to make the company sustainable, but no financial gain will come to Grameen or Veolia.  Now more and more companies are coming forward to partner with us to set up new social businesses. We feel excited about creating a series of examples of social businesses, which, hopefully, will encourage others to join in.

In additional to local projects, powerful multi-national social businesses can be created to capture a share of the benefits of globalization for poor people and poor countries. Social businesses will either bring ownership to poor people, or keep the profit within poor countries, since taking dividends will not be their objective. Direct foreign investment by foreign social businesses will be exciting news for recipient countries. Building strong economies in poor countries and protecting them from plundering companies will be a major area of interest for social businesses.

To connect investors with social businesses, we will need to create a social stock market where only the shares of social businesses will be traded. An investor will come to this stock-exchange in order to find a social business, which has a mission to his or her liking, just as someone who wants to make money goes to the existing stock-market. To enable a social stock-exchange to perform properly, we will need to create rating agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications, such as The Social Wall Street Journal, and new electronic media, such as Social Bloomberg. Business schools will offer courses and business management degrees to train young managers how to manage social businesses in the most efficient manner, and, most of all, to inspire them to become social business entrepreneurs themselves.

The world shouldn't depend on only one kind of business, the kind that we have today.  Business today is all about making money through maximization of profit. This presents human beings as money-making machines. But the real human beings are multi-dimensional; money-making is only one dimension. How do we bring other dimensions of human beings into the structure of economics? Of course, we have selfishness in us, and present business is created on the basis of this selfishness. As a result we want to bring everything to us. However, an important thing to remember is that we also have selflessness. But that aspect of human feeling is totally ignored. Why don't we build another kind of business based on our selflessness?  Then we'll have a balanced word. Making money in a profit-making business will be the "means". Using this money for social business will be the "end". Social business can work in tandem with profit-making ventures.  If I own some shares in a money-making company and I own some shares in a social business to make an impact on the world. It's OK. People should have a choice of how to distribute their resources so they can express their multidimensionality. To facilitate that social business, to connect the entrepreneurs with investors, we need to create a separate stock market because existing stock market is all about making money.  In our current stock market system social business will have no place. So why don't we create a social stock market so we can reach out to the companies which are helping make clean drinking water, companies which are helping to protect women at childbirth, etc. When I find them I can go and say I want to invest my money in your company.

Many more companies from around the world are showing interest in such social business joint ventures.  A leading shoe company wants to create a social business to make sure that nobody goes without shoes. One leading pharmaceutical company wishes to set up a joint venture social business company to produce nutritional supplements appropriate for Bangladeshi pregnant mothers and young women, at the cheapest possible price. We are also in discussion to launch a social business company to produce chemically treated mosquito-nets to protect people in Bangladesh and Africa from malaria and other mosquito-borne diseases.

We have to design a new global economic architecture to make sure that one person's enjoyment of life does not take away another person’s right to survival, and that one generation’s enjoyment of life does not put another generation in peril.

Your generation can bring a breakthrough in changing the course of the world.  You can bring your creativity to design brilliant social businesses to overcome poverty, disease, environmental degradation, food crisis, depletion of non-renewable resources and the other grave crises that we are facing.

Each one of you is capable of changing the world.  Tackling big problems does not always have to be through giant actions, or global initiatives or big businesses. It can start as a tiny little action.  Even the biggest problem can be cracked by a small well-designed intervention.  That's where you and your creativity come in.
You are born in the age of ideas. You will take your grand-children to the poverty museums with tremendous pride that your generation had finally made it happen.

I applaud all of you for your hard work and hope you shall make the most of the education and the experiences that you have gathered by being a part of such an esteemed institution – the Wharton School of Business.

Congratulations, for being part of a generation which has exciting possibilities for creating a world that will be a better place for all to live.

Thank you.

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