Big Payback
January 2009Leadership
CNBC Europe Business
Professor Muhammad Yunus, the CEO of Grameen Bank, is a Nobel Peace Prize winner and the acknowledged father of micro-credit. In his native Bangladesh 30 years ago he pioneered giving small loans to very poor people who could not otherwise get credit because they had no collateral. Now his microfinance bank employs over 27,000 people and has made $7.5 billion in loans.
January 2009
Leadership
CNBC Europe Business
Simon Hobbs talks to microfinance guru Muhammad YunusProfessor Muhammad Yunus, the CEO of Grameen Bank, is a Nobel Peace Prize winner and the acknowledged father of micro-credit. In his native Bangladesh 30 years ago he pioneered giving small loans to very poor people who could not otherwise get credit because they had no collateral. Now his microfinance bank employs over 27,000 people and has made $7.5 billion in loans.
Simon Hobbs: You say that two thirds of the world’s population has no access to the banking system – what is at the heart of this problem, why are the markets failing?
Muhammad Yunus: The way the banking institutions have been designed and built is based on certain criteria which poor people don’t fulfill. The more money you have, the more money you can get.
SH: You’ve said that the glorification of the entrepreneurial spirit has led to one-dimensional human beings being motivated solely by profit.
MY: Yes, I see this not just in the banking system but across the board as a fundamental flaw in the structure of economic theory. Humans beings become designed to make money—that’s all they know: that’s what excites them and that’s what they do. Real human beings are not one dimensional – they are multi-dimensional. They enjoy making money but also enjoy other things, like helping people and changing the world for the better.
SH: Why are 97% of your customers women?
MY: The same reason that 99% of borrowers at most banks in most places are men. I wanted to make sure that half the borrowers in my programme were women – and this was my first mission, to correct what was missing in the conventional bank. This was a difficult task because women themselves didn’t think that they should borrow. But we didn’t give up and it took us six years for us to get to the 50-50 level. Then we saw real benefits of money going straight to women – children benefitted directly and women had long-term vision for escaping poverty. So we changed our policy and decided to focus on women and that’s how we got to 97%.
SH: In your mid-twenties you went to the US to study at Vanderbilt University as a Fulbright scholar with a PhD in economics and then took up a post as an assistant professor in Tennessee.
MY: And I enjoyed that very much! It gave me a lot of experience.
SH: In 1970, your home country Bangladesh was hit by a devastating cyclone and then, in response to the brutal War of Liberation in which many were massacred and many others fled to India, you and others in America founded a citizens’ committee and ran the Bangladesh Information Centre.
MY: I respond to situations very quickly – I don’t think much about drawbacks or difficulties. I jump in when I feel strongly about a situation, such as the War of Liberation.
SH: When you returned home, you witnessed the terrible famine of the 1970s – did that create a crisis of confidence in your belief in economics?
MY: That was a frustrating experience for me, as I taught elegant theories of economics that I had learned in the US. I felt good that I knew these tools very well, but here I was, teaching these theories to my students and I saw people dying all around me. So I said, forget about these theories – I’m still a human being and I can go out and help. It was easy for me because poor villages were right next to the university and every day I would go to see if I could help just one person. Tiny little things for me, but for that one man or woman, a thing that meant a great deal.
SH: Tell me about the woman who made bamboo stools?
MY: I saw that her bamboo stools were beautiful, bright and colourful but her clothes were torn and she was distressed, her house in ruins. It turned out that she had to borrow to buy the bamboo and conditionally had to sell her stools to the man who lent her the money, at the price he decided. It struck me that though she was talking in economic terms, it was slave labour – she borrowed 35 cents but became a slave for 25 cents. I thought this could be easily solved. I went around and made a list of 42 people who borrowed that kind of money and the total amount was $27. I said, my God, people suffer so much for so little. And I lent them the money which made them free from the loan sharks – so many people so happy for such a little money. But the real banks refused to loan money to the poor. Finally, I offered myself as a guarantor and it worked.
SH: And how did you scale that up?
MY: Well, it was working and the banks got the money back. When I asked for more loans, they couldn’t really say no.
SH: Your loan repayment rates are amazing – 98% – and at the heart of that is this demand from you that people apply for credit together in solidarity groups. Is that about peer pressure or did you want people to work collectively in, say, manufacturing?
MY: If I go into a forest in the dark night, I will get scared alone. If I have a friend I will feel a little better. If I have friends we shout and make noise and feel safe. It works as a community – you get to know each other and each other’s difficulties. The system needs this. If I am in trouble, I don’t go to the bank first, I go to my community and they take the decision to help me.
SH: You’ve also diversified. Talk to me about the 300,000 telephone ladies.
MY: Our intention was to bring the mobile phone into rural areas and to provide loans to buy mobile phones and to enable the selling of mobile phone services.
SH: Let’s talk about the Nobel Peace Prize. One of the reasons you won this prize for business is because of the very broad definition of peace in which you believe, that it’s not just about solving military conflict.
MY: That’s not really peace – that’s absence of violence. Peace is wider – it’s about the way we live.
SH: And how does that philosophy translate into your work?
MY: We are very happy with our progress, combating poverty and seeing women transforming their lives. But there is something trying to reverse this progress and that is global warming... We need to work to stop such problems or else we are pushed back to the same problem with which we began. We have more flooding than ever before and Bangladesh is sliding into the ocean. The poor will be pushed into even more marginalised lands and they will suffer first.
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