Microcredit pioneer Muhammad Yunus on the economics of good
In 1974, there was famine in Bangladesh. Muhammad Yunus, then head of the economics department at Chittagong University, began dipping into his own pocket to give money, then to lend money, to the poor in a nearby village. Forty years, a Nobel peace prize and innumerable other accolades later, his Grameen Bank has more than nine million borrowers in Bangladesh, all poor and overwhelmingly women, and his model of microfinance helps about 160 million worldwide. And he has set up a network of “social businesses”, providing them with communications, power, healthcare and other services.
Yunus is coming to Australia to spread the word about the economics of good, not profit.
Mike Seccombe Let’s go right back to the beginning. What started you off?
Muhammad Yunus People were dying of hunger. I was teaching economics [but] I realised I hadn’t learnt the right things. I came to feel economics was totally useless. It doesn’t help people get what they need. I was looking to get out of formal economics, and see what I could do as an individual.
I did a lot of little things in the village. And I came very close to a loan sharking business. I kept hearing the stories, meeting people who were victims. The idea came: why don’t I lend them money myself? And that’s what I did.
MS So you set up the Grameen Bank.
MY In the beginning it was not a bank, it was my personal initiative. I started lending to poor people next door … and it worked. People loved the idea. I thought I should continue, but in order for that I needed an institution, so I started a bank – Grameen Bank – in 1976. We became a formal bank in 1983.
Today we have over nine million borrowers in Bangladesh and most of them – 97 per cent – are women. The bank itself is owned by poor women. They take deposits from people and lend money to poor people. Microcredit became popular all over the world, [although] Grameen itself doesn’t operate outside of Bangladesh. It’s an idea. These are all local organisations. Sometimes they use the name Grameen.
MS Why do women make up 97 per cent of your customers?
MY It was a reaction to the historical situation here. I was asking the same question, in reverse, of our banks here: why men? And they didn’t have a good answer. So when I started my work I wanted to make sure half the borrowers were women. That was a modest ambition, but it was a tough one, because the poor women expressed reluctance, they said they had never handled money.
It was a struggle for us to explain to them how to use money, but we succeeded. Then we saw that money going to women brought so much extra benefit to the families than the same money going to the families through men. So we changed our policy and focused on them and as a result it became more and more women.
When the idea spread globally it became synonymous with small loans for poor women. Now there are 160 million borrowers all over the world. For example, there is an enterprise we set up in the United States eight years ago – Grameen America – that does exactly the same thing that we do in Bangladesh. We started with the poorest people in New York City, and we have eight branches in New York State, and now others cities including Los Angeles, San Francisco, Boston, Indianapolis – 19 branches in all, and nearly 100,000 borrowers and 100 per cent women.
MS Do you have a problem with bad debts or getting funds to lend?
MY The repayment rate is over 99.6 per cent. The question of bad loans doesn’t exist. And Grameen doesn’t need any outside money because it generates enough money itself. So fundraising is not an issue for me at all. Does Citibank go around raising money? We do it exactly the same way. We take deposits from people and lend money to people. But only poor people.
MS That repayment rate of 99.6 per cent is extraordinary. Surely some businesses fail, or do you assess proposals very closely before providing funding? Do you knock many back?
MY Our attention is always on the poorest and women. The only money we give is for income generation. We don’t lend for consumption. Otherwise whatever crazy idea you have, all you have to do is come and explain to us how it generates income. In Bangladesh, for example, it might be something like raising vegetables or chickens or a cow, or doing handicrafts or making clothes. In the USA it might be something like selling baked products or cleaning services, or selling items for birthday parties, making deliveries, home cleaning services, caring for pets, or day care for children.
MS Do you charge interest?
MY Just enough to cover our costs.
MS Apart from the bank, you also have businesses providing electricity, for example.
MY We also do something we call social business [which is] non-dividend business to offer solutions to problems. We have many of them.
We have one that does energy: Grameen Energy. In the villages in Bangladesh where there is no electricity, we started selling solar panels. We bring solar panels and attach them to batteries for storage. Through this company we have reached over two million homes in rural areas.
MS How does that business sustain itself?
MY Many households burn kerosene. We ask them, “How much money do you spend on kerosene?” Then our deal is we give them the solar home system and they pay us back the amount they would have spent on kerosene each month.
Within three years, the payment is done. We tell them that after that, the system is theirs, and they love the idea.
MS Tell me about some of the other businesses.
MY We have programs for healthcare. We have hospitals, we have nursing colleges. We do cataract operations, we have clinics all over the country. We have mobile ultrasound equipment we take to the homes of pregnant women, and we send the images to doctors in the city.
Everybody has a mobile phone in Bangladesh [thanks in large measure to Grameen, which also has a large stake in the telecommunications, and drove the uptake of cell phones by rural poor] so we can send information.
Death in childbirth is still a common thing in rural Bangladesh. So we have a joint venture with the Intel Corporation of the United States to make a kind of bangle, which is a beautiful ornament on the outside, but includes some very powerful technology. It monitors the body of the pregnant woman. It also gives you weekly messages, like “this is the sixth week of your pregnancy; you will have these symptoms that are normal, but if you have these other symptoms, please press the button and we’ll get in touch with you”.
MS I wonder if your initiatives – through the bank and the various social businesses – have encountered resistance. Is there resentment among people who would otherwise provide the loans – the loan sharks – and people who run alternative businesses competing with your social businesses? Second, it seems many of the services you provide should really be provided by government.
MY On the loan shark issue: they have provided problems for us. There were many [other] forms of opposition. It came up as a kind of religious opposition to our work, because in an Islamic society we were lending money to women. We have overcome these, but it wasn’t an easy task. And about government, we don’t work with government because government is a complicated machine. We don’t want to get involved with them … [but] we are not competing with the government. If the government was already there, we wouldn’t be. But since the healthcare, for example, doesn’t exist, we go and do it.
We don’t push anyone out. We are filling up the empty space that is there.
MS What outcome do you hope to achieve from your Australian visit?
MY Just to talk about what I do. A lot of Australians are working to do similar things in Australia and outside. It’s to get new people involved in social business – business to solve problems, in contrast to conventional business, the business we all know, business to make money.
People want to know what we do. There are lots of tough questions. It is their initiative. My job is to explain to others – as I have to you.
This article was first published in the print edition of The Saturday Paper on Mar 11, 2017 as "Lending gravitas". Subscribe here.