Muhammad Yunus and the institution he founded in 1976, Grameen Bank of Bangladesh, won last year's Nobel Peace Prize for 'efforts to create economic and social development from below'. Owned largely by poor women borrowers, Grameen Bank has long upset conventional banking paradigms. It does not ask for collateral, legal instrument, group-guarantee or joint liability of any kind when giving out small loans or microcredit. It enjoys a recovery rate of about 97 percent. Since its inception, it has disbursed $6.20 billion to over seven million women in 77,000 villages across Bangladesh. Grameen's microcredit model has been replicated in over 100 countries. Columnist Ashutosh Tiwari met up with Yunus in Dhaka.
What do you mean when you say "access to credit is a human right"?
We have the bill of human rights, which covers the rights to shelter, work, education, and so on. My question is: who's going to bring these rights? There is this expectation that the government will somehow provide these rights. But we have seen that the government is unable to provide them on a silver platter.
What it can do is create an enabling environment so that people can earn incomes for food and shelter. This makes earning an income a critical task. Textbooks say that the only way to create incomes is through jobs. But the governments of Nepal and Bangladesh cannot create jobs for all the people. If so, why not let poor people create their own jobs?
As it is, people sell food on the street, pull rickshaws and do other things to make a living. One way to support such self-employment is through financing. That's because once you have some borrowed money, you can use it to earn an income, which makes it easier to buy food, be healthy, and have a shelter and get an education.
You've developed a list of 10 qualitative indicators to assess whether a family is out of poverty. Are these Bangladesh-specific indicators or can they be applied widely?
We have been using them to monitor whether our borrowers get out of poverty. If others find these indicators useful, that's good. When you define a poor person as someone living under a dollar a day or surviving on less than 2200-calorie of daily food intake, who, except for the experts, is going to measure all that? This means that we need experts to tell us who is poor and who is not, and that gets us into academic debates that do not help the poor.
In our case, we regularly visit a borrower's home, and see what kind of roof she's got. If it's leaky, she's poor. If not, that's good. Does she sleep on bed with mosquito net? If yes, that's good. If not, she's poor. Does she have access to clean water and sanitary latrines? Do her children go to primary school? Does she have access to basic health service providers? Do her children go hungry at any time of the year? Only when our 10 easily verifiable criteria are fulfilled do we say that her family has graduated out of poverty. This check-list of simple monitoring indicators has worked well for us.
You have said, "We can put poverty into museums". Are you suggesting that microcredit alone can eradicate poverty?
My point is that all human beings are packed with a bundle of capacities that they need for themselves and to contribute to others' growth. But we live in societies that do not give opportunities to people to unpack the gifts that they have within themselves. If we find ways to unleash people's potential, then, yes, we can put poverty into museums.
I am not saying that microcredit alone will do all that. But it is one tool that helps unlock poor people's untapped potential to do good for themselves and others around them. A woman gets a loan. At first, she is scared because she has never handled borrowed money. Once she starts to use that credit to make money for herself through a small-scale entrepreneurial activity, she finds that new possibilities have opened up for her and her family. Those possibilities are likely to get her out of poverty.
If all our global formal banking systems collapsed today, that would have almost no effect on two-thirds of humanity. That's because billions of poor people are not even participants in what goes on in the name of financial services. Microcredit is one way they can open bank accounts, borrow money, make use of their ideas to make more money for themselves, learn to make their own decisions and empower themselves.
But not all poor women can be successful small-scale entrepreneurs. Does that mean that the success of microcredit is necessarily tied to there being a bundle of services to go along with credit?
Let's look at it this way. If you have a 15-course meal, that's good. But if you are hungry, and have nothing else, then plain rice will do just fine. In times of famine, when you don't even have that rice, then you might ask for the water that comes out when the rice is cooked at a wealthy neighbor's kitchen.
When you say that microcredit needs a bundle of services, you are talking about the 15-course meal. I am starting with plain rice. Gradually, I might add salt, then a few chillies or vegetables to my rice. But that comes later. For now, I want to survive. If someone offers the 15-course meal, I will say that, that's great, but I will not wait for it to come to all anytime soon.
My point is that the concept of microcredit is flexible enough to be customised to address various levels of hunger for credit. People everywhere need money, and there are more ways than one to get it to them. What is important is to start from somewhere, anywhere, and build up from there by seeing what works and what doesn't according to local opportunities and constraints.
In Nepal, government promoted microcredit programs through five regional grameen banks, all of which failed. Is microcredit an area in which a government can play an active role?
I explained to your finance ministers that running microcredit programs through the government would never work. Things get politicised. Loans are given to friends and supporters, who do not pay back. Political supporters are hired as bank officers, and they do no work. I have seen this happen in every country where the government runs micro credit programs. So, the first principle is: no matter what sort of micro credit program you run, do it away from the government. Choosing partners such as NGOs or socially-oriented private businesses comes next. I define a socially-oriented private business as a business that can get its investments back from a socially useful venture but earns no dividend.
You continue to equate microcredit with social business and Pierre Omidyar, the founder of eBay, thinks that it should be commercialised to reach millions more poor people.
Omidyar sees microcredit as a profit-maximising business. I see it as a social business to help the poorest, and we keep on fighting (laughs). I define a social business as a non-loss, non-dividend business that is different from philanthropy in that a social business returns the invested money to its owners. Micro credit should be a social business. We do it to help the poor get their rice. When the poor become rich enough to have that 15-course dinner, then commercial bankers can come in, offer additional financial services and make money off them. Until then, the profit-maximising approach is similar to that of village money-lenders who come with gleaming eyes. Omidyar understands returns, and he is arguing on behalf of a business principle, which I understand.
But one recent event highlighted these different approaches. Compartamos, a bank in Mexico, issued an Initial Public Offering, and made about 400 million dollars. They sold the idea that the bank could make lots of money by giving loans to poor people at interest rates hovering over 100 per cent! What a wrong message to give!
What relationship do you advise a government to have with the private sector?
First, the only thing any government can do is have the humility to accept that it cannot change people's lives, and that it can only help people who are changing their own lives. But most governments simply mess up people's lives, something they are good at. My experience is that business should not be the business of government. Business should be in the hands of the private sector, which produces jobs and services. I define private sector broadly to include both businesses that make profits and do good for society at large such as by building schools, hospitals and the like.
What is life like after the Nobel Prize?
The interest of governments in many countries to implement Grameen-style micro credit programs has gone up. Because of the prize, I think journalists and the public are asking them, "When are you starting micro credit programs in our communities?" I am using my time to advise several countries, including China, to set up their own microcredit programs to help their poor. The prize has made it easier for me to advocate for changes in relevant policies and regulations. Earlier, I used to scream and shout, and not many listened to me. Now I am seen as a wise man, and even my mere whisper carries a lot more weight. (Laughter)