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The Role Of Microfinance To Change The World

There are certain people in the world who inspire others by talking about their experiences with a certain passion that agitates us to change. I was fortunate enough to hear Professor Muhammad Yunus speak at the Milan Urban Food Policy Pact Conference in Montpellier recently. His story is one that challenges us to understand the issues our world faces and to think of the role we can play to improve society. Professor Yunus was recognised for his massive contribution to society as recipient of the Nobel Peace Prize in 2006.

The Father of Microfinance

Professor Yunus started his speech discussing the link between food and poverty. He shared about a famine in his home country of Bangladesh in 1974 where over 100 000 people died. The famine was not due to a lack of food but rather a system that locked people out of purchasing food when in desperate need. Ultimately, lack of food doesn’t kill people, markets do. Professor Yunus has a background in economics, having studied in Dhaka University in Bangladesh, then later receiving a Fulbright scholarship to study economics at Vanderbilt University. Understanding the economic system underpinning his country helped him to identify new opportunities to drive social change.

Professor Yunus asked an important question ‘If economics is working effectively, then why are people dying?’

He concluded that the economic system was failing the people who needed the most help. In fact, it was making the rich richer and the poor poorer. When Professor Yunus looked at banking products and solutions, he found that they were all aimed at consumers with existing wealth. ‘Credit is the financial oxygen of the economy. Without it, you cannot survive.’ Professor Yunus shared. This is particularly true if you have never been in a position to have savings or capital to get a business up and running. In many low socioeconomic communities the desperate need for credit drives them to loan sharks, offering incredibly high interest rates. As majority of banks do not provide products to people with no or low credit history, it makes them a vulnerable market. So, Professor Yunus knew he needed to use his skills in economics to help the people of Bangladesh.

Professor Yunus addressing the audience

Introducing Grameen Bank

With the acknowledgment that the whole banking business model needed to be flipped in order to serve those who need it most (and not just continue to extend credit to people who already have money), Professor Yunus started Grameen Bank in 1983. Initially it involved him extending lines of credit of his own money to women in a local community in Bangladesh. They created a banking system based on mutual trust, accountability, participation and creativity without any collateral. These loans were focused on helping women build businesses becoming an even more integral part of communities.

As he continued to grow his network of Microfinance recipients, Professor Yunus was met with many skeptics, saying that the model would not work, particularly that it wouldn’t be sustainable. Despite the criticism, Professor Yunus continued to work with local communities, building trust and focusing on creating products that were suitable for people who need them most. The impact has been phenomenal. According to their website, ‘As of December, 2018, it has 9.08 million members, 97 percent of whom are women. With 2,568 branches, Grameen Bank provides services in 81,677 villages, covering more than 93 percent of the total villages in Bangladesh.

The work of Grameen Bank has expanded beyond credit with job programs and mentoring to help build successful businesses in villages across Bangladesh and the world.

Tackling the 1 % issue

Professor Yunus used a fantastic analogy to share the challenges with the current global economy. ‘When you look at a healthy person you expect that blood will flowing to all parts of the body. However if you think of the global economic system as a body, all of the blood is concentrated to the tip of one finger. That is not a healthy body.’ The fact that 1 percent of people control 99 percent of the world’s wealth is cause for great concern. Professor Yunus warned that this wealth concentration has detracted from our real purpose as humans.

‘It’s like we think that humans were put on this earth purely for profit maximisation. But that is not what we are here for. We have a greater purpose than dollar signs.’

Professor Muhammad Yunus
Professor Yunus discussing poverty, food and finance after his speech at the conference.

Creating Systems Change

‘Poverty is not created by poor people. It is created by the system we built.’ Professor Yunus shared. If these institutions are built purely to make profit, it is easy to see how the most vulnerable people can slip through the cracks. Professor Yunus pioneered the term social business, which according to their website is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.  The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s.

There is often discussion that social businesses are ‘anti-profit’, which is not necessarily true. It is a shift to think beyond profit as the only measure of success. It also eliminates short term thinking as driven by investors as they do not get ongoing dividends. His work is now spreading beyond banking and empowering people around the world to create social businesses that focus on solving social issues through this new business model.

The seven principles of social businesses are:

  • Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization.
  • Financial and economic sustainability
  • Investors get back their investment amount only. No dividend is given beyond investment money
  • When investment amount is paid back, company profit stays with the company for expansion and improvement
  • Gender sensitive and environmentally conscious
  • Workforce gets market wage with better working conditions
  • …do it with joy!

Overall

Professor Yunus’ short speech was one of the highlights of my year. He had the ability to challenge the assumptions we have about how the world works and inspired us to look at social challenges in new ways. He didn’t just talk about problems though, he spoke about the root causes of these issues and found ways to fix them. His bank started off small but he knew it was addressing a bigger change in the system. If we are to truly make long term change we need to understand the problems in the system (in his case the economic system, driven by capitalism) and then find solutions to meet those needs. By starting small and focusing on the problem in the system, he was eventually able to change the whole economic system in Bangladesh.

Professor Yunus has a new book out called ‘A World of Three Zeros.‘ It is next on my to read list!

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