The Man who invented social business -EY interview

The Man who invented social business (EY interview)

The modestmoney-lending scheme that Muhammad Yunus launched four decades ago to support villagers in Bangladesh has sincebecome a global force for good. The Nobel Prize winner explains how microfinance turns the traditional economic system on its head and puts power in the hands of the people.

The best-known anecdote from the long and storied career of economist and social entrepreneur Muhammad Yunus is the one about the extremely modest beginnings of the microfinance movement he launched.The first loan was worth just US$27, split between 42 women in a single Bangladeshi village.

What is less known is how close it came to never happening.Yunus, then aged 35 and a well-regarded university economics professor, was investigating – “purely for my own knowledge,” he says – the operations of loan sharks in his native region of Bangladesh.

“There was one specific woman who captured my attention,”he recalls. “She handmade small stools out of bamboo, and she did so with borrowed money from a loan shark. There was a tremendous contrast between her poor, rundown shack and the nice stools she made, and I became curious. I wanted to know more about how she worked: How much money did she borrow? What were the terms? How much did she keep? How was the money used?”

But there was a big problem: the woman refused to discuss it with him.

“As a woman and with no man at home, she couldn’t talk to me; I approached her and she just ran away,”Yunus explains. “It took some time and effort to persuade her. I was with two students and we chatted in the local dialect, and all the while she remained in her small hut with us outside, speaking through the door. Over time, we convinced her we meant no harm.Thankfully, she eventually relaxed and told us her story.”

And her story was shocking: the woman, who was in her early 30s, bought the bamboo she needed for the stools with borrowed money and repaid it by giving the stools she made to the loan shark. He paid her just 10 cents a day for her efforts, around a fifth of what she estimated she’d earn if she sold the stools herself. “She spoke about it as if it was her job, but in reality, she was a slave laborer,” Yunus says.

The set-up trapped her, and many others like her, in an inescapable spiral of poverty and debt.

Yunus and his students began collecting similar information from other artisans in the village. After gathering the data, Yunus was stunned by what he discovered. Some 42 women in a single village were being held in abject poverty for an average debt of around 65 cents each.

“We coined the term ‘micro-credit’for the solution we came up with, but we probably should have called it ‘nano-credit,’ because even ‘micro’ is too large,”Yunussays. He was amazed at how little it would cost to change the destiny of these women. When the concept came to him, it was, he says, “like a shock wave.”

It hit the world like a shock wave as well, though that part took several years. The microfinance movement Yunus launched has helped improve the lot of at least 165 million people worldwide, and it happened with surprisingly little money when measured on a per-capita basis.

Along the way, Yunus became an iconic figure as an author, lecturer, advocate and visionary. He won the Nobel Prize for Peace in 2006 and has also been awarded the US Congressional Gold Medal and the Presidential Medal of Freedom – the two highest civilian honors the United States can bestow. In 2008, he was ranked second on Foreign Policy magazine’s list of the top global thinkers. He has given counsel to business leaders, heads of state and government, and even to Pope Francis, who shares Yunus’s worry about growing income inequality worldwide.

That first meeting in Bangladesh took place nearly four decades ago, but Yunus’s passion and enthusiasm remain as strong as ever. Even today, he leans forward in his seat and the rhythm of his speech quickens when he discusses the issues closest to his heart.

“It takes a dollar to catch a dollar,” he says, repeating one of his most quoted remarks. “An empty hand cannot catch it, and there are millions and millions of people in the world trying to do it with an empty hand. Nobody gives them a way to get started. That’s where we come in.”

As with most conversations with Yunus, the remarks eventually turn into a critique of capitalism.

“In the capitalist system, nobody does anything unless it benefits that person,” he says. “At its worst, capitalism is a big sucking machine that takes juice from the bottom and cycles it to the top. At the top, life is good. But at the bottom, it is desperate and there is no margin for error. Sadly, those at the top don’t act to help the ones at the bottom.”

Yunus had first-hand experience of that phenomenon early on. Back in Bangladesh in the 1970s, his first steps into the world of microfinance quickly outgrew his ability to finance his project from his own resources. But established banks were hesitant to fill the gap.

“At the start, it was easy because I didn’t have to ask for permission from anyone,” he recalls. “Some people worried that I wouldn’t get all the money back, but it didn't matter too much. I didn’t keep detailed records. When someone paid me back, I just put the money in my pocket. But eventually, what we were doing spread from one village to another and to another, and soon I couldn’t afford it.

“So I went to the loan manager at my local bank,” he continues. “He was not a stranger to me. I had my own account there and he knew I was a professor at the university. I explained what I was doing and asked him to loan me money so I could help more people.”

But the loan manager balked, saying he could not help because the bank would not lend money to poor people.

“The manager told me, ‘They are not credit-worthy,’”Yunus recalls. “I told him to try it and I promised the bank would get its money back. I said I would guarantee all the loans. Eventually, the bank agreed to try it on a small level, but the bankers remained concerned they would not get their money back.”

Meanwhile, as the initiative spread, Yunus’s loans were getting larger and larger.

“Eventually, the bank set a cumulative credit limit for me at US$300,” he says. “But that was far too low. For a while, I tried to disregard the limit, but they insisted. I would point out that the money had been repaid so far, but they kept thinking failure was right around the corner. They delayed the paperwork and did everything slowly. Sometimes the loan would be approved, but the money would not be made available for months.”

It didn’t take long for Yunus to realize that a business model that relied on traditional banks was too limited, and so he decided to set up his own bank. In 1983, seven years after his first micro-loan, he established Grameen Bank – the name means “Bank of Villages” in Bengali.

The world of microfinance – and Yunus’s life – would never be the same again.

The concept was as simple as it was revolutionary. Borrowers are required to form groups of five, and a borrower committee screens the loan proposals of the members belonging to the group.

“If someone wants to borrow money, they go to the chair of the committee, not to the bank,”Yunus explains. “The would-be borrower says he wants, for example, to buy some chickens, and the committee helps work out a plan: How many chickens? How will they be fed? How will the plan work? Then they approve it or they don’t. In the end, the loan is between the bank and the borrower. But the committee makes the decision.”

Grameen Bank has now grown far larger than Yunus could have ever imagined, operating across the world – including in the US, where the system is used to help the urban poor.

“I never thought about making it big,” he says. “The plan was just to help a few people, then a few more, then another village and then another. My strongest attribute is that I am stubborn: I kept seeing how we could reach more people and it grew and grew.”

While Yunus is still passionate about micro-credit, his focus has slowly shifted to a new area he calls “social business”– economic enterprises launched with a social objective, rather than profit, as their top priority.

“There was a study that showed that the 85 richest people in the world have more wealth than the bottom half of the world’s population, or 3.5 billion people,”Yunus says. “This is not a problem that can be solved by tinkering with the system. You need a counter force in order to reverse that trend. That is where social business comes in.”

The first multinational company to get involved in social business was French yogurt maker Danone, which developed a special kind of yogurt with nutrients to help poor children at risk of malnourishment. Now there are more than 60 such companies, including France’s Veolia Water, which provides clean drinking water to poor areas, and BASF, the German chemical giant that developed low-cost mosquito nets to help prevent the spread of malaria.

“These are new kinds of ventures, because they don’t make money for shareholders,”Yunus says. “Some are very profitable, but the profits are reinvested. Backers can recover their initial investment, but no more. The world is tiring of the current system, and so these businesses are expanding globally.”

As is the movement Yunus founded. According to the latest figures, Grameen Bank now employs 23,000 staff to run nearly 2,600 branches of the bank covering all the villages of Bangladesh, serving 8.5 million borrowers, 97% of whom are women. And one thing that links them all is “16 decisions,” defined early on by Yunus and Grameen borrowers.

The “decisions”– including participants vowing “discipline, unity, courage, and hard work”; promising to produce their own food and otherwise improve their living conditions; keeping families small; and educating children – has taken on an almost scripture-like role among Grameen dependents. Those applying to participate in committees or work for one of the Grameen companies must memorize the 16 points and be able to recite each decision by its number.

“We started out with four back in 1984 and added two more and then two more,” Yunus says. “We decided to stop at 16, because otherwise the list might never end. It’s very impressive that people who cannot read or write can memorize this list. It’s serious, but also very popular, and it shows the dedication of the people involved.”

The Grameen methodology has spread to almost all countries in the world, whileYunus’s idea of social business has expanded into industries as diverse as telecoms, healthcare, nutrition, textiles, renewable energy, fisheries and software.

Now 74, Yunus would be excused if he decided to rest a little. But he goes forward with the same energy that has always driven him: lecturing, writing and otherwise spreading the word. And he also allows himself to look back and reflect.

Does he ever think about what might have happened if he hadn’t made that first contact in 1976?

“It’s difficult to say,” he modestly offers. “Maybe something similar would have come along anyway.”

Do the frustrations he endured along the way add up?

“Sure, there are frustrations, but it’s worth it because of the good that gets done,” he replies.

And, finally, what is he most proud of? Yunuspauses for a moment to consider the options, because the culture that spawned the micro-credit movement was profoundly changed by it. In particular, women’s role in Bangladeshi society is radically different.

“I couldn’t go inside that first house because of the traditional role of women,” he recalls. “Now that isn’t so. Women participate in almost every part of life. When you go to Bangladesh today, the women are open and ask questions: Where are you from? What do you do? Is your family worried about you being so far from home?

“We helped foster many transformations, but the empowerment of women may be the greatest.”

The Man who invented social business -EY interview-
By: Rachel Palmer
Description: EY Magazine Interview
Published: January-June 2015