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‘Let’s now ask banks who is credit-worthy: the rich who do not pay back or the poor who do’

With his <B>Grameen Bank</B>,<B><font color="#cc000">Muhammad Yunus</font></B>,<B>winner of the Nobel Peace Prize</B>,redefined the concept of lending. In this <B>Idea Exchange</B> moderated by <B><font color="#cc000">Subhomoy Bhattacharjee</font></B>,Deputy Executive Editor (The Financial Express),Yunus speaks about the current economic crisis and explains the role of micro-credit banks in dealing with poverty


April 12, 2009 2:39:51 am

&#149;Unni Rajen Shanker: In the new financial crisis,how different is going to be the role of micro credit banks?

Micro credit is not impacted by the financial crisis for the simple reason that it is not exposed to the international financing system. Micro credit is really close to real the people. This is one of its strengths. Another strength is that since we are not borrowing from the international market,it is all local money going to the local people. Thirdly,while the conventional banking system is collapsing,micro credit is functioning normally and with high repayment rate and this is based on no collateral,no legal papers — it functions beautifully. So,today,we can raise the same old question we raised 32 years ago when banks told us that the poor are not credit-worthy: who is credit worthy? The poor are the ones who are paying back and it is the rich who are not paying back.

You have to adjust the financial system to a completely new context. The crisis has allowed the world to challenge the system. As long as the system is functioning,no one wants to touch it because it is bearing fruits. Now that it is not bearing fruits,it is creating misery for so many people,let’s unpack it,see which piece is to be replaced or which one has to be rebuilt. I am in favour of completely redesigning it and redoing it. Going back to the same system would be the worst kind of mistake that we can make. Of course terrible things are happening but we should look at this as a great opportunity too.

&#149;Maneesh Chibber: Farmers complain that there are too many checks and balances while giving them loans when the same checks and balances evaporate when it comes to big business houses Is there a need to change the outlook within governments as well as within the micro credit institutions?

Micro finance interests should be as low as possible because this is a business we got involved in not for making money — that intention is not there. The intension is to help people get out of poverty as fast as they can. Micro financing is something we do to give loans to the poor,particularly the poorest women without collateral,without any legal instruments,for income-generating activity with the lowest possible interest rate. That is micro financing.

&#149;Dhiraj Nayyar: Does the potential of micro financing end once people are above the poverty line or does it have the potential to take them even higher?

We make entry into micro credit very difficult unless you are extremely poor. We have a very difficult screening process — we want to make sure we are getting to the person at the bottom. So,if you are a poor person who lives in two-room house,please wait,we are looking for people who live in one room. Once you qualify,you can continue to work as far as you can go,you will never be denied. You can become the richest person in the world but we can still fund you because you had qualified and now you are an example for us. You will inspire others; you are the owner of the bank — Grameen Bank is owned by the borrowers. No one has to leave,everyone can stay as long as they wish.

&#149;Dhiraj Nayyar: How well does the system work?

It is very strong. If you are successful and I am not as successful,I copy you and see if I can benefit from that. It happens a lot. For example,we encourage everyone to send their children to school — 100 per cent of the children of Grameen families are in school. They want to make sure that their children go as high as possible and Grameen Bank gives them a student loan. Right now there are more 35,000 with student loans from the Grameen Bank in business schools,medical schools,engineering schools. So,you inspire each other. That is the advantage of having groups,having weekly meetings and so on.

&#149;Sandeep Das: What is the legal position on NGOs’ lending capacity?

If an NGO wants to lend money to poor women,the law can come and say you are under arrest,you are violating the law because in order to lend money,you have to be a moneylender,registered under the Moneylenders Act or you have to be a bank. The legal system has to recognize that this is a legitimate exercise and then define its rights and wrongs. For example,if you take people’s savings and then disappear,who will stop you when you are not registered? NGOs who are doing good work as micro credit organisations should be given the status of a micro credit bank. You can give them standardized interest rates so that it is transparent.

In USA,there is a law that every financial institution has to express their interest rate in bold letter on top of all announcements. We can do the same thing.

People ask me,why don’t you convert yourself into a bank? I say this is a ridiculous proposition. Banking law is created to create big banks. These big banks are like ocean-going ships for long distance cargo. A micro credit bank is like a dinghy boat that goes into shallow water,ferries a little merchandise. You cannot construct a dinghy boat from the architecture of an ocean-going vessel. This is the difference. Why don’t we make the architecture of a dinghy boat — what is so difficult about it? Grameen Bank has a law that applies to it,it is a specialized bank. We say,why don’t you generalize this law so that anybody can begin a Grameen Bank in Bangladesh? Millions and millions of people need financial service. This is a business but business with a completely different purpose to help people to create their own self-employment. In the context of this financial crisis,this becomes more important because people will be loosing their jobs,will be loosing livelihoods. So,if you can create financial systems of micro credit,they can create self- employment opportunities.

&#149;Unni Rajen Shanker: What do you think are the reasons for the farmers’ suicides in India? The Government has reacted by giving huge loan waivers. What is an ideal solution?

I say this is a human problem and all human problems have solutions. This must have a solution. I cannot sit here and prescribe a solution. I have to be there with the family,understand what happened. There are many aspects to it. Somebody has to sit down there at the ground level and try to address this issue. Is it the credit which causes the problem,is it the seed,the market or traditions which are responsible? Or is it the mixture of all these things? Nobody has a readymade solution,you have to work in the field,place by place and see what works in each case.

&#149;Subhomoy Bhattacharjee: The India government has used the loan waiver as a means to address the issues of poverty. Your experience has been that micro credit borrowers are extremely good repayers. Is there a clash between the two contrasting models?

Politicians are not bankers. They want political solutions. Waiver is a political solution — it is a good way to ask for votes but that is not a financial system which is tenable. A financial system has to be sound by its own principles. Once you waive a loan,you are not only doing harm to the present cycle but you are giving incentives to people in future not to repay and pressurise the government to waive the loans. At election time they become soft and give the waiver. If I have to waive a loan I would do it by giving them cash — because if you borrow,you have to pay back. That is the culture we have to build,otherwise the banking system will not work. At Grameen Bank,we work with the poor; Bangladesh is a country where disasters are very frequent. Many families start from zero after floods but we never waive their loans. The standard practise at Grameen Bank is that as soon as the disaster hits,the branch is converted into a humanitarian organisation. All banking activities cease to exist. Once the crisis is over,we take care of these families,help them start some kind of activity to keep them working. We issue new loans,new houses. But the loans are not waived. Slowly,you pay back. We take your loan and convert it into a very long time one. Our system is that no matter how long it takes you to pay back the loan but the interest can never exceed the total principle. Our policy is to make sure people get back on their feet. If people are not on their feet,the bank will not be on its feet.

&#149;Dhiraj Nayyar: Tell us about your foray into politics: politics didn’t want you or you didn’t want politics?

We had a terrible political situation in Bangladesh with a caretaker government. I was invited to head the caretaker government and I refused. A lot of pressure was brought to bear upon me by my friends: they argued that because of our leadership,Bangladesh was stuck. Why not start a political party? Finally,I agreed to form a political party. I invited my friends to join me. Each one had his own reason why he could not join politics. Instead,the very politicians who were being condemned,came to me. I was stunned; The people I wanted,didn’t want to join me and the people who were surrounding me,I didn’t want them. That’s when I decided not to create a party.

&#149;Malavika chandan: Do you see a difference between urban and rural poor and is there any role for your bank in urban poverty?

I was behind drafting the law for Grameen Bank. I put in a provision that this bank shall never work in any urban centre. Now,we are asking the government to amend it because we have already covered the villages of Bangladesh. Only the cities are left. In rural areas,we now have 7.7 million borrowers – 97 per cent women. Basically,this is a bank for poor,illiterate women – they own the bank. Our board is made up of their representatives,chosen by them.

&#149;Sonali Chowdhury: How do you foresee Grameen activities in India as compared to other poor countries?

There is no Grameen Bank in India,just a Grameen-type programme because there is no law to allow this type of a bank to be created here. Those that exist are restricted since they cannot take deposits. So funding is a problem. Most of the time they are running around to find funds rather than concentrating on the work. We have asked the Indian government to create a wholesale fund. There are lot of dedicated people all over India trying to do this kind of thing and they are successful within the boundaries of whatever money they have got. But they cannot grow bigger. Grameen Bank can grow as each branch is dependent on the deposits it can mobilize from the area and lend the money to the local people — they don’t take money from Grameen Bank headquarters,or the one in the next village. They are not allowed to do that. A Grameen Bank branch is like an independent bank by itself. We want to build our own capacities but because the law doesn’t support this in India there are limited capacities.

&#149;Sarika Malhotra: Grameen America,your New York venture: how did it come about and how does the model work?

It is said micro credit cannot work in United States because it is a different country,a rich country,etc. Grameen Bank started in USA in 1987 when as Governor,Bill Clinton invited me to Arkansas. I had a meeting with him and his wife Hillary Clinton. They were very eager to understand what we do. He said we need this in Arkansas because this is the poorest state in US. That was the beginning and Hillary Clinton was the chairman of the committee running this bank. After he became President that programme was folded up. Then somebody from New York said do it in New York. So, last January,we launched it in Jackson Heights. We deliberately chose Jackson Heights because in Arkansas we had a lot of trouble giving loans to people. The welfare law is a very funny law: if you somehow earn one dollar,you have to report it to the welfare authority and welfare authority will diligently deduct this dollar from your cheque. That is shocking If I were in charge of drafting this law,I would have done just the opposite. So we wanted to choose an area where welfare has not penetrated yet,in a section with all kinds of people — it is the whole United Nations right there. We followed every single principle of the Grameen Bank. Whatever you see in a Bangladeshi village,you see in Jackson Heights. We sent somebody from Bangladesh to start the programme and we chose somebody who has never been to the United States so that he does what he does in a Bangladeshi village. He will not feel embarrassed about it. Today,we have more than 5,000 borrowers,all women,some Caribbean,some Latinos,some Indians. Repayment is 99.6 per cent and while big banks are collapsing in the same environment this bank is flourishing. Now everybody wants a Grameen programme. In Grameen Bank,the rule requires that every borrower must open a bank account. Whatever little money you earn every week,you deposit that in the account. So to open an account for a woman who saves two dollars a week was the greatest hurdle in the entire project. We are getting a lot of invitations,even one from Warren Buffet. His daughter Susan invited us to Omaha because Omaha is very poor. New Orleans after Katrina has invited us. Everybody is in the pipeline.

In this context,I want to talk about social business. The basic thing that went wrong in the whole financial crisis is that the capitalist system took only one aspect of a human being,made the human being appear a as one-dimensional being and created a theory. All they do in their economic life is to make money — maximization of profit is their lifelong ambition. I say yes,making money is an exciting goal but human beings are multi-dimensional beings. There are many other things we take pleasure in doing — that aspect is never included in economics. Even if selfishness is inbuilt in human beings — and on the basis of that the whole business idea that you want to grab everything,own everything — at the same time,selflessness in human beings is ignored. That is where we went wrong. If you could include selflessness in the business world,the business world could be better. Why don’t we create separate business on the basis of selflessness,business to do good to others? This is social business — a non-loss non-dividend company with a social objective. I am told people are not crazy. I say people are crazier — they give away their money. That is what Warren Buffet and Bill Gates did and all of us do. If people can give away,why not use the money to design a business which helps peoplev — like malnutrition in children. In a normal business,at the end of the year,you would be asking the company how much money did you make but in this business you would be asking,how many children came out of malnutrition? People suffer,particularly poor because the private sector is busy with the people at the top. Poor people are left out,particularly the women and the children.

One more point: all the problems that we see — poverty,environmental degradation,healthcare,sanitation — all these problems can be resolved if we use the technology available today. But these technologies are in the hands of business and all they do with this amazing technology is to make money. Why can’t the same technology be used to change the world?

This financial crisis is an opportunity for us to incorporate the idea of social business into the picture. Money making business has failed the world. If we bring the social business into the picture,some balance can be created.

Transcribed by Zahid Rafiq

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