(Balinyouqi town, Inner Mongolia) One of his indirect beneficiaries?
One of the best things about going to an ivy school is the chance to listen to world leaders that come to campus quite frequently. Recently, Muhammad Yunus came to talk about the Grameen Bank and his new book on ‘creating a world without poverty’, and I managed to get into the lecture theatre before it completely filled up. I got one of the last few available seats, and there were hundreds of people in line outside (including a Bangladeshi friend) that were quite upset about the seating capacity. Here are my notes from his speech:
He described the origins of the Grameen Bank from when he was teaching economics at university and saw the disparity between the affluent campus and the poverty just outside. He first noticed the activities of the loansharks in the villages, and studied them, collecting the names of 42 borrowers with $27 in loans. He decided to buy out their debt to free them from the loansharks, but he couldn’t do this for everyone on his own salary. He approached the bank on campus, which refused explaining that the poor were not creditworthy. He offered himself as a guarantor, and was told that he would end up bearing the defaulted debt. As it turns out, they repaid their loans and the rest is history.
The early days of Grameen: As he knew very little about how banks operated, he looked at what they did – and did the opposite instead. Instead of serving the wealthy in urban areas, GB served the rural poor. Instead of men, GB served women. Instead of requiring collateral, GB didn’t ask for any. GB stats: 7.5m borrowers, 97% of which are women, with 98-99% repayment rates. Then he made kind of a cheap shot at the conventional banks whose collateralized operations were nonetheless not creditworthy.
Special GB programs: After many years of GB emphasis that its clients should send their kids to school, it turned out that many client children were at the top of their classes, and went on from primary school to secondary school and then qualified for college but couldn’t pay tuition. GB started an education loan program, where “students can let Grameen Bank worry about the money”. The program has some 34k students in university. Now when seeing the clients and their families, there is this juxtaposition of illiterate clients and their highly educated children who are doctors and the like. He believes that the only difference between the parent and child are the opportunities that were available to them.
Thus he believes that everyone has unlimited potential and it is wrong to say that some are entrepreneurial (and thus benefit from microcredit) and that others are not. So GB started a new program only for beggars, those at the last stage of survival. GB provides a loan to a beggar to carry merchandise for sale as they beg from door to door, so that they offer households more options to donate or make a purchase or both/either. This loan charges no interest and has no maturity date, yet beggars still repay them to qualify for a bigger loan.
The program started small, with a maximum of 1 beggar client per loan officer, but as it proved incredibly popular among GB staff, all 28k loan officers had one. The maximum increased to 4, and there are now more than 100k beggars enrolled. 11k of them have since graduated from beggarhood to become salesmen, some are now personal shoppers for housewives. “The wife tells the husband to get something from the market, but as usual the husband forgets.” The remaining 90k are ‘part-time beggars’, and know which households are better for begging or selling. “They never attended business school but they understand market segmentation.”
GB America: He believes 98% of humanity is the same, so GB sent one of its Bangladesh staff to New York to start the US program in Jackson Heights, exactly the way it works in Bangladesh – no collateral or credit history required. “We are not interested in our clients’ past. We are interested in their future.” It now has 500+ women in the program, average loan size $2200 and a 99.3% repayment rate.
Social enterprises: He described a few GB joint ventures. One with Danone is a yogurt venture to address malnourishment. The product is a cheap fortified yogurt, which restores all necessary nutrients over 8-9 months of 2 per week consumption. The venture pays no dividends, investors can recoup their initial investment but no more than that. Another venture with Veolia addresses the arsenic contaminated water supply. The venture built a water treatment plant to sell cheap, safe drinking water, piped to clients and sold by the liter at the tap. No marketing, packaging, bottling, just the basics. Another venture produces nutrition supplements, another treated mosquito nets.
Social investment capital markets: He believes that government alone cannot solve all of society’s problems, and it is a slow machine, whereas individuals are much faster. Social ventures and businesses don’t need to be big to make an impact, there just needs to be a lot of them. Thus he wants to have a ‘social stock market’ to finance these ventures, and wants to see ventures in health insurance and consumer finance.
Q&A: Social joint ventures legal implications. Having joint ventures with public companies can be problematic because the firm managers have fiduciary duties to their shareholders, who might take issue with the firm making non-profitable investments. While Danone managers were enthusiastic about the venture, they couldn’t use company money for it. So at the AGM, while dividends were announced, they issued a notice to shareholders about the venture, and offered the shareholders the choice of whether to direct their dividend to finance it. 98% of shareholders said yes. Other firms can direct their CSR funds if available.
Q&A: Role of the government. Other than financing social ventures, regulatory bodies can accredit the socialness of ventures for special tax status. GB is able to lend over 1bn a year because it can leverage deposits like any other bank, and each branch of GB is self-reliant for funding, with local money going to local borrowers, and local profits returning to local shareholders. However, in many countries where MFIs are just NGOs without banking licenses, they can’t take deposits and are reliant on grants. This is the same in Jackson Heights where over 1m has been lent, but they can’t lent any more without deposits, and the banking license costs 30m.
Q&A: MF commercialization. “Microfinance was born for a purpose, to help people, not to become loansharks ourselves using the name of microfinance.” He explained the need of a guiding principle on interest rates, where the ‘green zone’ should be cost-of-funds plus 10%, the ‘yellow zone’ 10-15%, and anywhere more than that the ‘red zone’.
thank you. I enjoyed reading it. what an inspiring writeup.