There is a banker who is still feted across the world, collecting accolades and honors wherever he goes. The institution he founded more than 20 years ago is unscathed by the current financial crisis, and his opinion is more sought after than ever before as politicians and economists desperately try to fix our bankrupt system.
Muhammad Yunus is to economic development what Nelson Mandela is to world peace — a revered figure whose Grameen Bank has helped millions of Bangladeshis out of rural poverty by lending them small amounts of money, or microfinance, to set up their own businesses. It has 8 million borrowers, 97 percent of whom are women, and since 1982 has issued more than US$6 billion, lending around US$100 million a month, with the average loan just US$220, and repayments of near 100 percent. Its model has now been rolled out worldwide, from China and Zimbabwe to New York, and plans are underway to open the first British Grameen in Glasgow.
Yunus attributes its success to “trust-based banking.” Money is lent to women — who he identified as using money more effectively than men for the wellbeing of their children — in groups of five. If one defaults, they all suffer, so they support each other to pay it back. And the borrowers own the bank, receiving dividends in lieu of profits.
In 1976, when he approached conventional banks asking them to lend to villagers deep in debt to loan sharks, the young economics student was told it couldn’t be done because the poor are not creditworthy. He has proved them wrong, as has the collapse of the global banking system.
“2009 is a good year to ask again: ‘Who is creditworthy?’ Is it the large banks with large clients? They cannot obtain their money back … whereas the poor taking tiny loans, without collateral, are paying every penny of it and changing lives,” he told a packed audience last week at a British Council lecture in London. His lecture, entitled A Framework for a Better Future, outlined how the recession provides opportunities not just for banks, but for businesses and governments to create a more equitable world.
“When things work, you do not want to touch it, because it is working. When things do not work, then you think about it. If it still does not work, then you kick it! This is the time to kick,” he argued.
The biggest hurdle to setting up Grameen America last year, he explained, was finding a mainstream bank that would open a savings account for its borrowers. Under Grameen rules, borrowers are required to save a small weekly amount, but in the US, Grameen is a program, not a bank. Even with Yunus’s clout, it took time to persuade the branches of Citibank to open accounts for customers who wanted to deposit only US$2 a week.
“These are the lessons that we need to now bring together to ask ourselves what kind of financial system we should be creating when we move out of this crisis,” Yunus said.
There are now 660 Grameen borrowers in New York City, with an average loan of US$2,200. More projects are planned in cities across the US, where, Yunus has
said, he wants Grameen to become as “ubiquitous as
fast food.”
After the lecture, I ask him how the Grameen model will translate to inner-city Glasgow, where three generations of unemployment is not uncommon in some families. He readily admits it will be difficult to wean people off welfare and make them more self-reliant. “We don’t know what all the problems will be,” he replies.
Despite his calm, thoughtful demeanor, this champion of the poor is openly critical of welfare systems for deterring people from working. “Today, neither the welfare officer nor the welfare recipient has any incentive to move people out of welfare,” he says. “If you earn a dollar it is deducted from your welfare check. Wrong things have been built into the system.”
Yunus believes a better system would reward people for finding work by matching every dollar earned, rather then deducting it. In the US, Grameen has negotiated a welfare holiday that allows borrowers to claim welfare for three years while they build up their small business. Similar waivers may have to be looked at for the Scottish model, which is being developed with Glasgow Caledonian University and is in the process of raising US$2.5 million.
He is testing out a series of social businesses, in partnership with multinational companies, that are designed to combine the innovation, technology and risk-taking of business with the social objectives of charity in order to improve the health of poor Bangladeshis. Grameen Danone provides malnourished children with a cheap, nutritional yogurt; Grameen Veolia, set up with a French water company, created a small water treatment plant to provide clean drinking water in a country where, Yunus says, “millions of people drink poison every day”; and BASF Grameen will result in the German chemical giant providing treated mosquito nets at little cost to households to protect against malaria.
Yunus is convinced that social business, rather than charity, is the way to tackle social problems. “Your money will be recycled again and again. Much greater impact can be derived from it than from charity. The charity dollar has only one life; you give and it never comes back.”
Nowhere is this more pressing, he believes, than in healthcare. He points to Grameen’s proposed “doctorless healthcare program” as providing lessons for other countries, including the UK. “Health problems are everywhere, and the costs are jumping as populations age or expand,” he says.
One way to cut costs is to focus on prevention,
early detection, and to cut out the doctor until absolutely necessary.
A shortage of doctors at Grameen’s 51 village health clinics has led it to adopt this approach. It is training female graduates, many from the villages, who have put themselves through high school or nursing college with a Grameen scholarship or loan, to run their own health management centers or become self-employed health providers visiting homes with portable diagnostic equipment and mobile phones.
To make it happen, Yunus has managed to persuade some of the world’s most hard-nosed corporations — General Electric, Pfizer and Johnson & Johnson — to agree to create cheaper, handheld versions of hospital kit such as ultrasound machines.
Yunus briefly flirted with politics in 1996 in a caretaker government, but quickly decided that, in Bangladesh, Grameen was the way to change society for the better. There are now some 30 Grameen offshoots covering everything from agriculture, fisheries, and telecommunications.
He clearly relishes the potential there is to channel the knowhow and resources of money-making companies into social businesses. “Once we can do that, we will no longer have any problems,” he says.
No surprise then that, at 68, Yunus has no plans to retire from the world stage. “It’s still real fun,” he says. “Social business, no matter what you say or do, must be a matter of joy. That’s the fantastic thing about it. You can’t beat this, even by making tonnes of money.”
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