"Creating a New World: A Dream or a Reality?"
A very good afternoon to everyone.
I am deeply honoured and privileged to be invited to deliver the Nelson Mandela Annual Lecture here in South Africa. I have been to South Africa many times before, but it is indeed very special to be invited by the Nelson Mandela Foundation to deliver the 7th Annual Nelson Mandela Lecture bearing the name of one of the greatest icons of our times.
The Financial Crisis
I had to create Grameen Bank because the conventional banks refused to lend to the poor. This is the same for conventional banks the world over. Today, after 32 years, we reach with microcredit in Bangladesh, 80 percent of the poor population in Bangladesh. In the next two to three years, 100 percent of the poor will have access to microcredit. Globally, 130 million poor families receive microcredit. Even with the experience, banks have not changed the way they do business. They do not mind writing off a trillion dollars in a sub-prime crisis, but they still do not lend $100 to a poor woman despite the fact such loans have near 100 per cent repayment record globally.
Banks explain that poor people are not credit worthy. The real question to ask is whether banks are people worthy. In Grameen Bank there are no legal instruments between lender and borrower, no guarantees, no collateral. And yet our money comes back while the prestigious banks all over the world that went down had all their intelligent paperwork, all their collateral, all the lawyers and legal systems to back up their lending. This contrast raises many questions in one's mind. Here's how Grameen Bank 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 real. 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. 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, and the ongoing environmental crisis.Â 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 have not disappeared, they simply got pushed back. They are very much alive and have to be addressed.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. There is something basically wrong with the framework that we have developed. 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 year, world leaders have been particularly focused on the emergency situation on the financial front. 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, many governments have been creating bail-out packages for the financial institutions which were responsible for creating the financial crisis in the first place, 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. The change must begin in the financial sector because that's what caused everything to collapse like a house of cards. How do we make the financial system different, and how do we make it inclusive so nobody falls through the cracks? How do you change it so everybody has a chance? We have to create an inclusive global financial system.
Capitalism is Half-Done Structure
In the last 50 years, capitalism has reigned supreme. It has brought unprecedented wealth and prosperity to some countries and to some people. But billions are left out. The situation, in many cases, is getting worse and worse for those who are left out. Even if we can overcome the problem of financial crisis, we are still left with some fundamental questions about the effectiveness of capitalism in tackling many other unresolved problems. In my view the theoretical framework of capitalism that is in practice today is a half-done structure. The theory of capitalism holds that the marketplace is only for those who are interested in making money, for the people who are interested in profit only. This interpretation of human being in the theory treats people as one-dimensional beings.
But people are multi dimensional. They may have their selfish dimensions, but also they have their selfless dimensions. Capitalism, and the marketplace that has grown up around the theory, makes no room for the selfless dimensions of the people. If some of the self sacrificing drives and motivations that exist in people could be brought into the business world to make impact on the problems that face the world, there would be very few problems that we could not solve.The present structure of the economic theory does not allow these dimensions of people to play out in the market place.
I argue that given the opportunity, people will come into the market place to express their selfless urges by running special types of businesses to make a change in the world. In the absence of such opportunity in the market place people express their selflessness through charities. Charities have been with us since time immemorial, and they are noble, and they are needed. But we have seen that business is able, to innovate, to expand, to reach more and more people through the power of the free market. Corporate social responsibility was an important development in the business world but it still does not let business people to express the selfless urges I describe within the framework of the market. The concept that there could be another type of business, crystallized in my mind through my experience with Grameen companies. Over the years, Grameen created a series of companies to address different problems faced by the poor in Bangladesh. Whether it is a company to provide renewable energy or a company to provide healthcare or yet another company to provide information technology and cell-phones to the poor, we were always motivated by the need to address the social need.
We always designed them as profitable companies, but only to ensure its sustainability so that the product or service could reach more and more of the poor - and on an ongoing basis. In all these cases the social need was the only consideration, making personal money was no consideration at all. That is how I realized that businesses could be built that way, from the ground up, around the specific social need, without motive for personal gain.
I am proposing a different structure of the market itself. Along with the profit maximizing business, I propose a second type of business to operate in the same market along with the existing kind of profit maximizing business. I am not opposed to the existing type of business - although I call for many improvements in it like many others do. I propose a second type of business alongside the existing one.
This new type of business I am calling social business, because it if for the collective benefit of others. This 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. Investor can recoup his or her investment capital but beyond that, there are no profits to be taken out as dividends by the investors. These profits remain with the company and are used to expand its reach, improve the quality of the product or service it provides, and design methods to bring down the cost of the product or service.
The idea of social business got a boost when we launched a joint project with Danone. Grameen has collaborated with Danone to supply nutritious fortified yoghurt to the undernourished children of rural Bangladesh. The goal of this social business is to fill the nutritional gap in the diet of these children. 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. 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. If children eat two cups of this yogurt a week regularly over a period of eight or 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 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.Â It was launched just last month. We are selling 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.
We also have built an eye care hospital on social business principles. A second one will open next month. We have also created a joint venture social business with German chemical giant BASF to produce treated mosquito nets to fight mosquito borne disease and also a nutritional sprinkle to combat nutritional deficiencies in women in children.
There is also great synergy between the rapid development of technologies and social business.Technology is the one most fast developing sectors in the world today. The various methods of communication and networking have made it possible to reach anyone in any part of the world. Being a witness to these wondrous improvements I have voiced again and again that technology is one very powerful tool which can be used to bridge the gap between the rich and the poor, in a manner other devices cannot possibly do so. If we could channel some of this intelligence and creativity into building IT solutions for the poor, we would make giant leaps in our race to end poverty. From e-healthcare to mobile phone banking to online supplying to products and services to the poor we are beginning to visualiase what the possibilities are. Grameen has created a social business with Intel to bring these technologies to benefit the poor.
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.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 also 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. 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. 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.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. 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.
Poverty can be overcome
The thought that always energizes me is that the poverty is not created by the poor people. Poverty is an artificial imposition on the people. Poor people are endowed with the same unlimited potential of creativity and energy that any human being in any station of life, any where in the world. It is a question of removing the barriers faced by poor people to unleash their creativity to solve their problems.Â They can change their lives, only if we give them the same opportunity that we get.
Creatively designed social businesses in all sectors can make this unleashing happen. I always insist that poverty does not belong in civilized society. Poverty belongs only in the museum where our children and grandchildren can go to see what inhumanity people had to suffer, and where they will ask themselves how there ancestors allowed such a condition to persist for so long.We have to decide that poverty no more! We overcame slavery. We overcame apartheid. We have done other things that people once thought impossible. We have put persons on the moon, into space to explore far away worlds. We can overcome poverty, if only we decide that this does not belong to the world that you want to create. We can take advantage of the global financial crisis by working together to make the 21st-century to be the beginning of a world that will be a better place for all to live, and where poverty will be found is the poverty museum. The people of South Africa have an indomitable spirit. With this spirit and with its vast human and other resources, South Africa can be the first country to build a poverty museum.
Madiba, I look forward to coming to South Africa in the not too distant future for the opening of the first poverty museum.
Thank you again for inviting me here.
Happy birthday once again our beloved Madiba.