2006 Nobel Peace Prize winner, Muhammad Yunus, spoke to the community of University of Saint Thomas, the first and only college in Texas to implement the Micro-Credit Program of which Yunus himself is the pioneer. He explained how it all started and the benefits that the micro-credit program is achieving for the people living below the poverty threshold. Yunus gave his speech in an act held by the World Affairs Council.
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I come from the university campus. I was teaching in one of the universities in Bangladesh right after it became an independent country, in 1971. It had been struck by famine, to the point where people were dying of hunger. At the time, I found it extremely difficult to teach economics in a classroom and go outside and see people dying. I thought that there was no way I could help these people with my knowledge. The knowledge I had concerned overcoming problems in economics, but as a person, as a human being, I could be out there, and see if I could be useful to another human being in distress.
So I started doing that, because the village was just next to our university campus. It was not something I was doing as a long distance work. While visiting the village every day, going downtown to help people in whatever way I could, I saw how loan sharks made people’s lives miserable. So I wrote a list of people who were being bothered by the loan sharks. When the list was complete, there were 42 names on it, and the borrowed money totalled 27dollars. I was shocked, because here in the classroom we talk about national development plans, investing millions and billions of dollars for industrialization, infrastructure development, all kinds of big projects in the name of helping poor people get out of poverty. Yet after all these years, people were not waiting for millions or billions of dollars, they just lacked a few pennies to move ahead with their lives. That was how loan sharks took advantage of them and made their lives absolutely miserable for lending to them.
Going to the shops, I suddenly realized that such a difficult problem had an easy solution. The idea came to my mind that if I gave the 27 dollars to all these 42 people, they could go and return the money to the loan sharks right away, and I thought that was something I could do immediately. I had no idea what would happen afterward, but since I was doing lots of little things for them, that could have been one more little thing. People were so grateful, they began looking at me as if had descended from heaven. It gave me another idea. If I could make many people so happy with such a small amount of money, why shouldn’t I do more of it? So I thought, I could still give more money from my pocket, but maybe I should do something that could continue even without my presence. I thought, “Why don’t I take these people to the bank, which is located on the campus, and it’s done. They don’t have to go to the loan sharks anymore.”
I was full of enthusiasm; I went to the manager and asked him “Why don’t you lend the money to these people? It’s only a small amount, you will not miss it!” He immediately said “No, it can’t be done.” I said “Why not?” and he answered “because the bank cannot lend money to poor people.” So we went over the whole thing of how banks work. The more we argued, the more stubborn he’d become. Finally, I thought I would try to talk to the senior officials who would understand it better. I did it for several months, trying to find a little opening in the bank so that they would listen to me and help with a little money for poor people. Everybody said no. Out of frustration, I decided something else: why don’t I become guarantor? When I spoke to the bankers, I said, “I’ll become guarantor so you can give them the money. This is your rule, not something I’m inventing, and you don’t have to invent anything.” At least for me, the satisfaction was that I had opened the bank doors to the poor. This time they couldn’t throw me out of the office because I was speaking their language. Finally, after a long series of investigations, they accepted this and agreed to lend money with me as a guarantor. That was the beginning, in 1976.
When I gave the money to the people, the managers said repeatedly “this is the last time you’ll see it.” I said: “I don’t know anything, I’ve never done this before, I’ll try it.” I came up with simple rules that encouraged people to pay back, and it worked out. My students and I worked on this and got the people to do it. I was amazed of the response and encouragement they got. But the bank still said, “Well, you’ve been lucky with the first time, you won’t be so lucky next time,” and I responded: “I’ll try next time too.” I tried it again and it worked the same way, so I went on and on like that. Very soon, the bank started to become more and more reluctant, always fearing this whole thing would collapse, and I wouldn’t be able to pay them back. Seeing their reluctance, I thought I should create a separate bank, because what I saw was a possibility, and banks don’t see that. I wanted to demonstrate it for them, but they ignored me.
That led me to a different direction. It took me a couple of years to persuade the authorities to give me the licenses, but we finally became an independent bank, and since then we continued the work.
The point that I’d like to underline here is that I had no idea what banking was, so when I did it, I used only my common sense. There’s no textbook on banking or anything like that, and when we did all kinds of funny things, people looked at it as if it was completely crazy. People ask me “How did you figure out these rules that you made?” I respond “It was very simple.” Whenever we needed to know how to do or adjust something, we looked at the conventional banks and how they did it, and did the opposite. If you look at what we do, it is almost the exact opposite of the conventional system. Conventional banks’ basic principal is: the more you have the more you get. We reversed it, we say: the less you have, the more attention you get; you’ve got absolutely nothing, you have the highest credit. As simple as that. It makes sense to us but it doesn’t make sense to them, so it’s ok with us.
Before the banks give you the money, everything has to be protected. If you take a dollar, you must have something worth two dollars. This is collateral. From day one, we decided we don’t need any collateral because if somebody doesn’t have anything because he’s poor, where is she going to bring the collateral from? So we didn’t require collateral. We didn’t need any guarantees; you don’t need anyone to sign “ok I’m the guarantee for her.” We didn’t need any of that, and on top of it, we didn’t need any lawyers. In the entire system we have no lawyers; that means no papers from the lawyers, green, blue pieces of paper, signed, sealed, nothing. They go to men to lend money, we go to women; they go to the rich, we go to the poor; rich people own their bank, poor women own ours. It continues to work today all over Bangladesh. We have 7.5 million borrowers, 97% are women, and the return payment is 98%. Our bank doesn’t take any foreign money; neither government money or private donor money and we don’t borrow from anybody because we have so much money ourselves.
Where does the money come from? As a bank we just take deposits wherever we go. We have 2,700 branches all over the country, with 27000 staff. What we do every time our manager goes to open a new branch is tell them we don’t need any money; you simply go there and start collecting the deposits. As soon as you collect them, you start lending the money to the poorest women. We tell them: “We want you become sustainable, you have to reach breakeven point within 12 months,” and they do it, so we don’t have to worry. We have more money in our deposits than the money we lend out.
We lend out half a billion dollars a year in tiny amounts, everybody gets a hundred and fifty dollars, and it changes people’s life. The children of these families go to school because we give them an education. More than 21 thousand students from these families are in medical schools, engineering schools, universities, some are even getting their PhD. Yesterday I met one of these students in Austin and I was surprised. “So, what are you doing here?” I asked, and he said “my mother is a borrower of Grameen bank; I got the education loan and I’m studying in Austin.” He represents a completely new generation out of the old generation.
Many people argue that one needs entrepreneurial ability and special people do work with micro credit. This is absolutely against what I always say: All human beings are entrepreneurs by definition; you don’t have to go and prove anything because that’s what we’ve done for millions of years on this planet. That’s what we did at the bank; we went on our own. When we were in the cave, we didn’t send out job applications to anybody, we just cared about ourselves. As students you’ll find out where this idea of job application comes from. If we have survived these million years beyond our own, we can to do it now. This is entrepreneurial ability is built into all of us, even though society never allows us to make use of it. We don’t even know we have a wonderful gift inside of us. What you need is a good environment to unleash that capacity, and then everything can happen.
To demonstrate this, we have what we did four years back when we introduced a new program: lending money to beggars. Everybody said “Are you sure you can lend money to them?” I said “Well I’ll try, I don’t know.” See, that’s another advantage. When you don’t know anything, you can jump at it. Sometimes, knowing too much creates problems. I didn’t know anything about banking, so I could do anything I wanted, and get away with it. As a result, I said “I don’t know if I’d ever lend money to beggars, but I’ll find out.” I talked to my colleagues and decided first we would talk to them. “Let’s find out how she became homeless, at what point in her life, what we did, what did society do to her, to push her to that frontier.” We did that, and then we told them “as you go door to door for begging, would you like to carry some merchandising, some cookies, some candies, or some toys? Look, you’re not doing anything extra, you go there anyway. Having little boxes of something with you. It won’t hurt, and give people the option; they can still give you something in charity, some food, something that you need, or buy something, or do both. Who cares? You are giving people options. That’s all.”
At the beginning, we thought we were going to have a couple of thousand of them. Whether they had this entrepreneurial ability or they were just going to take the money we didn’t know. If so, we’d lose the money and they wouldn’t come to us anymore. We took a chance. All we said was: “this is a free loan, so you don’t have to worry about money getting bigger every day. It doesn’t get bigger, it stays and there’s no time limit, so don’t worry about money, pay us back whenever you can.”
Today there are more than a hundred thousand beggars in the program. It became so popular, not only among them, but also among our staff, that we became mesmerized by this idea of serving. They had been helping the poor women, and they began serving the beggars. Everybody wanted to help them, so I put a restriction: no one can serve more than X numbers of beggars; initially it was one per person. Because of the demand, I had to increase the number of beggars to four per person. We have more than a hundred thousand beggars with us. Within four years, ten thousand of them have completely stopped begging, some of them have even become personal shoppers.
I’d say the remaining ninety thousand of them are part-time beggars now, because they are mixing begging and selling. When my colleagues get impatient in regards to why it has taken so much time to get out of begging, I say “Look, don’t push them. They are in the process of closing down their begging division; after all these years, it is their business, so don’t expect them to close it right away. At the same time they’re trying to restructure their own business, which takes time. So again, we didn’t train them. We say “people have their own skills, they know what their idea is, and they know how to use it.”
Today, our studies and our monitoring show that 64% of borrowers that have been with Grameen Bank for more than five years, have already crossed the poverty line, they’re above it. Now, a whole new class is coming up, because we have all the children of Grameen families going to school, they have been able to succeed, and some of them are going to higher education. It’s a brand new generation coming out of totally illiterate families. We see possibilities of moving into a world where there will be no poverty left for them.
That’s what Grameen Bank is. We are very happy. We say that “poverty is not created by poor people; poverty is created by the system that we built up ourselves”; that is what poverty is all about. Our system refuses almost 2/3 of the world population from accessing the services. What kind of financing institution is that? They told us this couldn’t be done. We have shown them it can be done, and done better than others. People ask me now “what do you think about the subprime crisis?” And I say “look, we don’t have subprime crisis, subprime is a very risky business. Our business has sub, sub, subprime and we don´t find it risky at all. We feel very comfortable because our return payment has been 98 to 99%.
Now there’s only one concept of what a business should be: a business should be something to make money, nothing else. Profit maximization is the central mission of business, that’s what the textbooks say. I think the people who created those theories assume that human beings have some kind of money-making machine, but human beings are not money-making machines. Money making is an important part of human beings, but that is not the totality of it. A human being is much more than that, so I say “what about the other part, why did you skip that? That’s the most interesting part of a human being, which is giving, caring, sharing, contributing, and so on.”
We can address all those problems the world cannot address. Every morning you read the newspaper to see how much money you’re making, and that’s your entire obsession. And with that kind of obsession, you forget the rest of us.