LA Booktour Conversation Jan08 podcast:

Rick Wartzman, Director Drucker Institute Claremont

Muhammad Yunus

I want to talk quite a bit tonight about your new book (title) and this idea ‘social business” as a way that might put poverty where it belongs – as you say a museum. But this concept really grew out of your whole development of microcredit and Grameen’s work – so I want to start with that foundation. What is microcredit all about? Why not tell us what size of loans grameen  makes and what the loans are for

MY

Microcredit are loans for people who never get a loan from a conventional bank. Another way to look at it is for the poorest people, without collateral with any legal papers or anything for income generating activity and which is repaid in small installments weekly or fortnightly. Usually it will be starting from anywhere, it could be as small as $1 – as my story goes it started with $27 given to 42 people. Even today after 31 years of our work, we have loans that start at $10 or 15. It could be bigger as we go along: the average right now at Grameen Bank is $150. We lend out over half a billion dollars a year to over 7 million borrowers

RW and what are these loans typically used for- you talked about income generating activity – what does that mean?

MY

Meaning anything that will make you earn some money. Our borrowers – 97% are women. So we are a very women-focused program. The poorest women get in almost – almost destitute. The only thing she may be familiar with is raising a few chicken : selling eggs so that would be her enterprise – or processing paddy. Buy the paddy from the market, pound them and make clean rice and sell it. She knows how to do it and immediately she gets an income. This is another familiar thing. If she is bold enough she will buy a cow, sell milk and pay back the loan and become owner of assets.

RW To get to the punchline, can you talk about the dramatic difference these loans have made in the aggregate. You have lifted lots of people out of poverty – what do the numbers look like?

MY Well I haven’t lifted anyone out of poverty!  People lifted themselves out of poverty. We try to keep track of the situation so far as her income is concerned and how many of borrowers are getting out of poverty. This is an annual routine. 2006’s figure is the borrowers that have been with Grameen Bank for 5 years or more – 64% of them have crossed over the poverty line.

 So each year each day each month, more and more are coming out. There are World Bank studies that are done multi-year, multimillion dollar research focused on Grameen Bank’s performance and impact of the people – they tell that on average 5% of Grameen borrowers get out of poverty every year. So that’s another way of looking at it.

 Besides we also see whether the children are going to school – so one of he things we tried to encourage right from the beginning : to send the children to school. Because these are all illiterate people, the women who join Grameen Bank are illiterate, their parents are illiterate , their husbands are illiterate. But we wanted to make sure that the generation that will come out after they joined Grameen Bank are literate and go to school. That has happened. Nearly 100% of the children of Grameen families are at school. And many of them are in higher education now. We have encouraged them with scholarships and we give them student loans. Right now there are more than 21000 students in medical schools, engineering schools, universities – several of them have PHDs. So this is an amazing generation coming up from totally illiterate families – families where literacy never entered ever in history.  Now we have a completely different generation  - a new generation  coming up . So this is one aspect  also, not only the income goes up but you create a new generation where the cycle of poverty will not continue as it has been over the years

RW So the catalytic effect of these loans, what it allows people and generations to do- one more bigger picture to talk about is what has it done in terms of overall poverty rate of Bangladesh ..?

MY Bangladesh was known when it was born as a basket case. This country would never make it and get out of rut it was in. It was identified as the poorest country in the world. But poverty has been declining steadily in Bangladesh. It declined on average of 1% year during the whole decade on 1990s – so  10% in the nineties. In the first 5 tears of 2000, the poverty has declined at 2% a year – so at that rate if we continue Bangladesh is right on the track to achieve the millennium development goal  to reduce poverty by half by 2015; but our expectation is that the rate of decline in poverty will be faster than 2% as we go along , so if it becomes faster then we will be reaching millennium goal before 2015.  So that is very exiting thing for us.

RW Grameen has done its banking part while running a successful business – on business terms yes?

MY Again Grameen is owned by the borrowers – meaning that these women who are taking loans from Grameen Bank, they are the owners of the Grameen bank. With the 31 years of the work, only the initial 3 years the bank lost money. Ever since we have always earned profit  so we have no problem of making profit– and profit goes back to the borrowers

RW And you have stopped taking any outside donation?

MY Yes that’s right. We began with our own money. We had never taken money from outside,. First it started with a little money from my pocket. And then I became a guarantor to the banks – i was signing papers, taking risk, taking money from the banks, giving it to the people, and offered myself to help facilitate getting ,money to the bank. So that period continued until 1982

We began in 1976 – so the first 6 years there was no external money or anything. Only in 1982, one agency IFA Intl Fund for Agriculture & Development – they insisted we should take some money. We said we don’t need money – we have plenty of money. But they said we want to participate – its such a great idea what you are doing- so at their insistence we took some money. So that was the beginning of us taking  money from outside. And since them we have taken external money from NORAD, SIDA, CIDA, KfW, ... – then in 1995 we decided not to take money from anybody. And since then we haven’t taken money from anybody because there is plenty of money within the bank because the bank takes deposits – and it lends the money to the people. Each branch actually is independent financially. It doesn’t borrow from head office or another branch, it just mobilises deposits and lends money to the poor people in the same locality. It’s local money going to local poor people and building the local economy

RW Which means that people are not defaulting – they are paying on time regularly – you have a great repayment record?

MY yes our repayment record has always been good – not only Grameen repayment record has been good but wherever microcredit idea goes over the world- repayment is absolutely not a complaint. Its amazing because there is no collateral, no guarantee, no legal papers, and so on but still people pay back

RW and I want to come back to that point as i think it is really crucial and defies a lot of assumptions that people made originally about how the poor would behave

MY not only the poor will behave anyone will behave!

RW yes , I think there were stereotypes

MY look at what happened to subprime!

RW well yes exactly , exactly they could use Grameen’s skill for sure

RW This is a good place to go back to the beginning. It is 1974 – Your home country has fallen into the grips= of a terrible famine, brought on by some natural disasters and the war for independence. You were  teaching economics at the time- but seeing a very different economic reality outside the university’s gates from what you were telling your students in the classroom. Could you tell us a bit about that disconnect?

MY You see the reality of life is so different than the classroom where you have all the elegant theories: every economic problem has beautiful solutions. But you walk out and people are dying of hunger. There are many many ways of dying but the dying of hunger is very unusual because death comes at a very slow pace- each day you are inching towards death and nothing can be done. Other people are eating, enjoying but some people are dying – this is an amazing situation. In that situation, you feel kind of empty, impotent, useless person- you cant be of help to anybody. So I was trying to get out of that feeling that I had- so I thought maybe I don’t know what to do with this whole big problem but I can at least try, try on one person if I can be of some help to one person – that is something I feel comfortable if I  have done something at least for one person. So that’s what  I was doing in the village going round talking to people trying to do something. And then I see the problems of loan sharks- and I try to make the list of people borrowing from the loan sharks

RW Tell me you first met this woman Sofia Begum – tell me her story

MY  She was making bamboo stool. As I walking buy in the village, I saw these beautiful bamboo stools and the woman making them. And the contrast between the beautiful stools and the tattered clothes and the rundown shack behind her – it didn’t match. So I was wondering what happened to her. So I tried t talk to her – it is not easy to talk a woman as a stranger I came form the outside. So anyway I tried to make it easy for her to talk – in the conversation I found that she only made 2 pennies a day. I couldnt believe why anybody should make only 2 pennies a day making such beautiful stools. I tried to make some notes on how much money she spent on making things – I thought she didn’t understand  – but after I had  made the records 2 pennies was still the result, that’s what she gets. Because she didn’t have the money to buy the bamboo, so she had to go to a trade to borrow money from., and the money she needed to buy the bamboo was 25 cents. So the trader gave her money but the condition was whatever she makes she has to sell it to him, and he decides at what price he will buy. So I said this is a situation of converting someone into slave labour, she is really a slave labour. All these transactions sound like business- but are actually something else. So that’s what pushed me to looking into moneylending in the village

RW This was I think a 22 cent loan you made to her as an initial loan .And then you surveyed the rest of the village to see who was using moneylenders. And this is where you found the 40 some people and it took $27 in loans to break this cyvcle

MY Yes

RW Amazing. Its hard for us – I think for me and people sitting out there – to wrap our minds around te depth of poverty you are talking about in a place like Bangladesh and much of the developing world- I mean read about half the world living on $2 a day and a billion people living n $1 day or less. I cant fathom what that means – can you talk about what life is really like in a village – first in the absence of microcredit and then what difference microcredit makes if people can start to lift themselves in terms of amount food, they can get, what kinds of things they eat , the rhythm and what their life is like

MY One way to look at this is that Bangladesh has right mow 150 mn people , when we started we had 75 million people.

RW and this in the area the size of Wisconsin

MY Yes. ..At the start, not many people could own land because its in short supply. Half of the population were landless people. So if you didnt have land, you don’t have a livelihood really because the land provides you the food and you can take care of yourself. Those who do not have land; they have to find other sources of income. So the employment didn’t have that much opportunity for half of the population for the country

So their only survival is whatever odd jobs they could do –and that’s the only way they cold survive- very seasonal agricultural jobs. So life was extremely difficult- so what we tried to do was instead of sitting around see if we could get a little money to start self-employment which we supported with credit –so that we lend money to create your own income generating opportunity. And move on from there – if you are successful in that you can move on hiring other people and start a business

RW You write both in banker for the Poor and in your new book very passionately, and I think persuasively, about the wrong headed assumptions that lots of development officials make in places like the world bank and those running traditional anti-poverty programs that government officials make that most economists make – we were joking today that Peter Drucker (whose work I am involved with) in all recorded history there has not been one economist who had to worry about where there next meal would  come from . I think that’s something you could relate to. Tell us about some of what you call economic blindspots and why they have been so counter-productive in tackling global poverty. We have touched on one that the poor are a bad credit liability - that has certainly proven to be untrue. What else have you run up against as

assumptions that are backward or just wrong?

MY The traditional way poverty is looked at – you create jobs, if you create jobs then poverty will be taken care of. So the question is how do you create jobs. The only way they could think of creating jobs is building infrastructure – investing in highways etc. So world bank and others specialise in infrastructure , big projects –hoping that these projects will build the economy, a lot jobs will be created and the poor will be moved out of poverty. So they singlemindedly pursued that kind of policy, even today they pursue the same policy creating a structural environment but there they don’t look at the people. This is known as trickle down theory you build an economy that gradually reaches down to the poor but in reality the economy moves in a different direction. It is the top people who gain, not the poor people, from the economy moving. They become richer and richer but it doesn’t flow into the poor people. This is the kind of thing that is happening in China right now; China is moving very fast 10-12 %. The top is moving up, the poor moving down, the income gap is getting bigger

RW I know another area that has been pursued a lot and has been a traditional area that has been pursued in this country is jobs training and skill training, and I know you are not a big believer in that. Tell us why

MY Many of the poverty programs look as poverty as part of the work because they assume people are poor because they don’t know what to do, so you have to tell them, train them how to do things. So you come up with great ideas on training this or training that. In most of the cases people go to this training programs, not because they need the skill but because  most training programs also come with some financial benefit –some kind of daily allowance. So people come to pick up the daily allowance. It doesn’t matter what you are teaching them , and they have no use for whatever they have been taught. So you go home and nothing changes because it is not followed up  with something to be supported - by a credit facility  or marketing facility or whatever. So just assuming that you train them and somehow they will change their lives, it doesn’t work out. In contrast, our work started out by saying that people have an enormous amount of idle capacity. They already know what to do but they don’t have a opportunity to translate it to work because the financing isn’t possible. Just this example of the lady who is making the bamboo stool – she knows what to do but she doesn’t have the money to do it. And someone else took advantage of her situation and made the money himself instead of letting her make the money. Many of the things that you see around done are done by poor people . Just one familiar example =- a repair man who repairs car, equipment , ... he know his job very well but the repair shop is not owned by him.. He works for the repair shop and the shop attracts customers because he is there. But the guy who owns the repair shop doesnt know a thing about the equipment, all he does he has the money, runs it, so the profit comes to him. So if this repairman, if he had some money, some sources of financing if he had gone for himself he would have made money himself, but just because he doesn’t have the money he cannot do it.  Many of the taxi cab drivers don’t own the taxis, it is the owner of the taxi that makes the money.. In Bangladesh if you go to Dhaka City you will see hundreds and thousands of rickshaws on the street. It s a very simple gadget – 3-wheeler rickshaw, it costs very little. But the rickshaw puller is not the rickshaw owner. Some guys somewhere owns the rickshaw, the puller is just a daily labourer, he makes a little money out of it and the income goes to someone else. Or he rents the rickshaw, where he has to pay a lot until he has earned enough to pay the rent, he can not touch any of the money, so only above the rent he has to pay, that’s his income. But if someone had financed him to buy the rickshaw the entire income would have come to him, instead of giving it to someone else to pay the rent he could pay back the loan and the rickshaw would be his. So this is how the ability is there ,but he cannot make use of it for his own benefit

RW Why credit should be a human right as you put it ... you are a big believer that women more than men make the best borrowers at least for Grameen and your strategy

MY we had a little controversy with the conventional bankers when i was trying to persuade them to lend money to the poor people. I was arguing with them about 2 things: 1) they were unjust because they refused to lend to poor people,  2) another complaint was that conventional banks rejected women. As evidence I was showing the figures of the borrowers they had -not even 1% were women. SO I said there is something wrong in your system,. So when I began I wanted to make sure that half the borrowers in my work were women because I had been complaining about that issue a lot. When I went to the women  to persuade her to take money she said no: dont give it to me . Give it to my husband, because I don’t know anything about money- literally she hadn’t used money for anything so she doesn’t have any confidence in that. So it took us a lot of effort to build confidence in the women to take the money. And finally after 6 years of our work, we made it to 50 50. then we noticed that the money that goes to the women benefits the family more than the same amount of money going through men

RW why is that it

MY Women have a lot of features which at time I though was Bangladeshi but it is basically universal.. Women paid lot more attention to the children in the family than men do. So this is one finding very clearly demonstrated in our work – for example poor families as a coping mechanism, if they cannot feed all the children in the family they give away the children to other better off families so they can work there, they can be fed by those families in exchange for their work. So they become a kind of slave labour themselves- they work day and night just for food. When a mother takes a loan and starts earning some money, you see in that house these kids start coming back but you dont see that when the father is the borrower. So you can see the difference of the attitude of the mother to the children and the father. Also if you look at the way woman behaves, when she makes extra money and income from the work she is doing, if you look at who should she direct her attention to with this money that she got – if you  make a list it will start always with children , children becomes first beneficiary of whatever she earns, then household, the  others and so on and if you see whether she is in the list herself – probably she will be the last item on the list, But if you look at the men’s list it will start with him, and goes down the other way. It’s a kind of quality of self-sacrifice that is built into woman unlike men; men doesn’t behave the way woman behaves. Even the way money is used after it is received. Traditionally, when a man receives a wage cheque the first thing he does is  go to the pub , enjoys himself. In the same situation women don’t do that.

Also women have a longer vision of some kind to get out of poverty. Men were more casual about it, men didn’t think about tomorrow, they more enjoying today.  Women wanted to get out of the situation  because poverty weighs much more heavily on the woman in the same family as it does on man. So women wanted to get out of situation as fast as she could and she wants to build up something, she is looking forward to reach some place which you don’t see in men. So seeing all these things coming up, we changed out policy and asked ourself what’s so good about 50 50, and focused more on women – as a result we now have 97% women

RW Does microcredit have a role in the US – eg New Orleans after Katrina, and if so why hasnt it caught on more here? Are there institutional barriers

MY Katrina is a disaster situation so of course you need all the help you can get, and microcredit can be very helpful in building houses and livelihoods all over again. But in general if you look at the US situation, millions of people in this country dont have bank accounts because bank will not accept your account because you are too small. They dont want to handle small accounts, so you are out

RW Payday loan racket?

MY Yeah. And if you receive your cheque from your employer and if you want to cash it you cant put in your account and get the money because you dont have a bank account. You go somewhere else , and that’s why you have the cheque cashing companies all over the country and they rip you off. Even a government cheque which is as good as money,you  cant get $1000 dollar cheque, you get much less because somebody else makes money. So you need something – this is a microcredit situation meaning that the banks don’t give you the service- you have to find another way of building that banking. And the payday loans you just mentioned, you need a small amount money between your two payday cheques- nobody will give it to you so you go to the payday people who will charge you an enormous interest, typically 40%. And you see pawn shops everywhere, huge big signs in any big city. So this indicates the system doesnt work at the bottom, very clearly very loudly, boldly but nobody notices because those who matter they  have their bank accounts so they dont have to pay attention to it. This in the richest country in the world, the most sophisticated banking system – for whom, millions of people dont get to it.

RW But there are some problems with microcredit , why it doesnt take off here? institutional barriers about deposits?

MY  What I would say that microcredit problems operating in the States have problems because they are not allowed to take deposits – because NGOs are not supposed to take deposits. This is the same law everywhere not just the USA. So you need to have a banking license,  a new banking law to create microcredit banks. People say why dont you take the usual banking law and create a bank and lend money to the poor people. My point is yes you can do that but to create a bank in the USA you need a huge lot of capital requirement that is buitt into the law itself. So the conventional bank is like a supertanker , it can go into deep sea carry lots of cargo that’s a huge thing, but microcredit is like a dingy boat! It goes into shallow water. So if with the architecture of a supertanker you build a dingy boat , it wont work , it wont float, it will go down. You need a new architecture. You need new piece of legislation so this can be done.

Then another problem is the welfare law. Welfare law extends right into the middle of it. You cannot lend money to a welfare recipient – these are the people you want to reach, so that they can get out of welfare. But the law says no way you can’t do that. The law requires that if the welfare recipient earns a dollar, he has to report it to the welfare authority so that the dollar will de deducted. Its a funny law- you are supposed to encourage people to earn money when you are on welfare so you get out of welfare. But the law is made in such a way that they want to keep you there, they have no interest in getting you out

RW Let’s move on to your broader concept of social business – Grameen has expanded  is much more than a bank now – you have expanded into a network of 26 companies, is that right?  Gotten into all kinds of things: Healthcare , education , fish farms. fabrics – there is one venture that I think is particularly interesting because it underscores the importance of info technology  and its power in helping the poor lift themselves out of poverty and that is Grameen Telecom – could you touch on what that company is about and has been able to achieve

MY I was very enthusiastic supporter of bring information technology to the poor people. I was arguing that microcredit was very important to poor people to change their life because it creates income , creates their saving habits and so on. At the same time the new technology that is flooding the world and changing the whole world could be very effective for changing poor peoples lives if we could bring the technology to the poor people in the right manner. While I was arguing that I had no way I could demonstrate it, and really test it out.  One opportunity came when the government of Bangladesh was issuing licenses for private companies to provide cell phone service. So we applied we thought why not, let’s apply for a cell phone licenee and we will cerate a new company. So we applied  and called our company Grameen phone. Our idea was to bring cell phone in the rural areas because at that time when we applied the only telephones you had for the city, and then only half a million phones in the whole country. So we will create this cellphone company and bring the cellphones to the villages, and give loans to Grameen borrowers to buy herself a cellphone and sell the service of the cell phone and she will make money. Everybody said this is crazy.  These women never saw a telephone in their life ...who she’s go to call!

RW  Ha! Again a lot of assumptions – right! So who she call?

MY So I was trying to convince them I am not doing it for her to call someone. I am creating it so that others will need to come to her as she’s the one with the phone.  And she will make money This will be her new cow!, her cash cow! Nobody believed that!  Anyway finally we got license and started the work in 1997, and immediately it became a big success. It became a roaring success for Grameen borrowers to have a telephone- once you have a telephone you get out of poverty in a couple of years. Absolutely guaranteed because you make so much money renting out the telephone. The telephone service expanded very rapidly because of people’s eagerness to communicate. Today Grameen phone is the largest cell phone in the country – it has over 17 million subscribers.

RW You were told you would sell about 250,000 telephones- that’s what all the experts predicted?

MY Yes when a consultant was hired to estimate its potential – he estimated 250,000 subscribers by 2005. In reality we reached 8 million by that time – so that’s the kind of consultant’s imagination. So today Grameen phone is very successful, telephone is everywhere, and also today Grameen telephone is also the largest taxpayer in the whole country so you can imagine how big the company is

RW Fantastic – so let’s talk about social business- what is a social business and how is it distinguished from  this whole notion of Corporate Social Responsibility -what’s different about your idea?

MY The idea i was arguing for is : now in economic theory  you have only type of business- business to make money, and the mission of this business is to maximise profit. That’s what the theory talks about – there is no other kind of business in the whole world. The first objection i had that theoreticians that built this theory had assumed that all human beings are some kind of money making machines . Otherwise, you wouldn’t have only that theory

RW One dimensional!

MY But the real human beings are different, real human beings  multidimensional, there are so  many things one wants to do , achieve enjoy not just making money. Making money is important part of human life but there are other things you want to help other people, you want to change the environment you live in ,.... those things are not considered within the business framework. I am saying this has a very narrow interpretation of the human being which has distorted the entire economic structure of the whole world

...and that’s why we have created a lot of problems. If we are to include the totality of human being – as real human beings are, I am arguing we need at least 2 types of business;  One business to make money, profit maximisation; another business to do good to people, and to do good to the planet -this can be another type of business because this in your heart the way you think: this will be non-loss, non-dividend company with a social objective. The profit maximising business is all for serving yourself, the person who runs the business- its all aimed at oneself. The other one is aimed at the others, nothing to me but everything to the others- in that way it is completely the opposite system. So we can create non loss non dividend company to address all kind of social issues. Like the poverty – microcredit is a good subject for social business- microcredit is not an area where you want to make money – you dont want to get rich like the moneylender who is maximising his profit instead of letting Sofia Begum make a living. He wanted to maximise his profit so in the process he didn’t let the borrower get any benefit of it. That’s the profit max principle What i am saying microcredit should be a social business: a business to help people get out of poverty not to make money for myself.  It could be a water company , there are many countries where safe drinking water is not available, -polluted waters, in Bangladesh, there’s arsenic contaminated water. So we can create a water company which brings safe drinking water at a very affordable price so every body can drink safely and avoided diseases and health hazards. So this is what I an arguing

RW But this social business is a business?- it’s non loss so lets’s start there : it needs to be self-sustaining, it needs to makes money, and if its a water company it needs to compete against any other water company that may be a profit maximising business – correct , so its a level playing field

MY Its a level playing field- you are giving more options to people, you are bringing more competition in the market – you are fulfilling all the conditions of the free market, and at the same time you are addressing the issues that remain unaddressed by the profit maximiser. There are many things that the profit maximisers will never do.  For example, there are many vaccines available for very important diseases but these are not produced because profit maximisers dont find them attractive enough in terms of making money, so they dont produce that vaccine, and people die. So there is a case where you can create a social business where you produce the vaccine to save the people and you run it a business

RW You produce it profitably, you just dont produce it as profitably as Wall Street might demand – and in terms of no dividend: so all the money you do make instead of being paid out (though if you are an investor, your initial investors get their money back) but once they are even everything goes back into the business. Fascinating. This is like all your things more than theory; you have started a joint venture with Danone- the yogurt company – can you talk about that as an example of a social business at all the levels it works on – from where you have located your factory, to the supply chain and so on

MY When I was arguing about that, people didnt understand- very difficult to touch it what it is that i am talking about. So I was trying to demonstrate cases – one of them was an interesting one that started with a chance meeting with the chairman of Danone in Paris. He invited me to lunch and brought his top officials. He wanted to know about Grameen bank – he was very curious so I answered all the questions. Then I asked him about what does Danone do –so he explained what Danone do . So he explains what Danone does globally. He wanted to know about Grameen , I wanted to know about Danone.

Then I said well why dont we create a company with the name Grameen Danone in Bangladesh. He said to do what? I said you said your yogurt is very delicious everybody loves it – why dont we produce yogurt. The idea is that millions of malnourished children in Bangladesh – we can produce this yogurt and bring all the micrornutrients which are missing in the children –the iodine, vitamins, iron – fortified yogurt and then we sell it to the poor children and make it so cheap that they will find it a very attractive snack. He immediately agreed, let’s do that. I said i am not finished yet. I said it will be a social business. He said what is a social business? So i explained you invest and we invest it will be a joint venture – over time we can take back our investment money but no dividend after that because it will be all for the achievement of the goal that we have set which is to bring nutrition to the children and have healthy children. He immediately said i agree. Then i thought he didnt understand my English! So I sent him an email elaborating everything i said. And he wrote back right away, and said i understood everything,, we agree let’s go and do it.

And we did it. Now that company is operating and that plant has been set up. And we wanted to have a very small plant set up in the village. And the designer of the plant was shocked because he had designed all the big plants in Brazil and Indonesia, mega-plants in China and India – huge pants. So i said make the smallest possible plant because we want to have a tiny coverage area. He couldn’t understand why i am saying that. He was unhappy , spent a few days in Bangladesh, and suddenly he appeared to me – and said Dr Yunus I did it and I am so happy it is acute little le plant _ I have fallen in love with this plant, because i have used all the state of the art technology into this plant that I have not even used it yet in a big plant – so this will work beautifully. And it is working beautifully

RW Why did you want it small?

MY  I wanted it small for several reasons:  so that the area of coverage is small, it will be the local milk going back to the local children, and so that they know the whole process. The economy has become so disconnected, where the milk comes from where the chicken comes from you dont know , you just buy it , you dont know each other and so on. Another thing is the smaller the area of service,  you avoid the cold chain which is a very expensive thing. So you have yogurt you can consume in 48 hours and you dont have to spend a lot of money keeping it cool. And iw as insisting te cups be biodegradable. So they found something from China. I said ca I eat it? They said no you cant eat it. I said no we should have something we can eat – an edible container. I gave the example of ice cream – I said when I buy ice cream I eat the come and I love the cone. Why cant you do that because after all the poor people are paying for it- why should they have to pay for something that they have to throw it away. So you have to look at all possible ways where you cut down the cost- if you are a profit maximiser you are into frills, the more frill you add the more profit come- so you dont bring simple things, you are always adding colour, flavour, container or something big – the real thing is so small but you spend so much on the frills of it so people are paying for that. In case of social business you dont have to because you are doing it to serve the people to address whatever the social goal is.

Qs 56.55

Q My question has to do with the loansharks – I am sure as you developed microcredit opportunities for women, they must have objected –can you tell us more about that

MY Yes they objected , they didnt like it, they spread rumors – but the loan sharks were not the only ones who objected to our work so in the whole crowd they got lost- there were s many who objected to us! Men objected to us - because we lent to women – that was quite aggressive. Then it took a religious shape. Religious people saying that what you are doing is against religion – it must be stopped.  That became stronger than the moneylenders, stronger than anyone else. So we had to go on arguing with the religious people, and we had to draw on the history of Islam and what Islam was all about –how women did everything in ten original period of Islam. And also to remind them that the Prophet Muhammad, he started his career working for a business woman. He worked as an employee of a business woman and later he married her. So I said if you want to be a good Muslim , you look for a business woman. So we had to go through all these kinds of things. Academicians didn’t like it- this isn’t development – giving tiny loans you are fooling everybody, you are destructing things. I said look I am not taking anyone’s money away, this is a business- why are you objecting to it? So the moneylenders were just one of the pieces of the opposition we had to move.

Q Is charging interest a problem in an Islamic country? Has the bank expanded outside Bangladesh? What do you mean when you say the owners of the bank are the borrowers?

MY Yes the bank charges interest and there was opposition because of the conflict with religion. But that didnt last very long since all banks in Bangladesh charge interest so we were not the new ones in charging interest. But since we do it in the villages – banks dont work in the villages – we can close to the people who were very sensitive to the religious issues. Then we had help from many Islamic scholars they said dont worry about this accusation because what you are doing is perfectly all right with Islam. So I said can you explain how we defined ourselves. They said very simple because Islam is opposed to interest as an instrument of exploitation. But what you are doing is not an  instrument of exploration because this bank is owned by the borrowers. The owners cannot exploit themselves. So no matter what its called in the eyes of Islam yours is not the interest that the religion bans. So you are completely safe, the interest is entirely inside. It is not somebody exploiting from the outside. Many people who are a great fan of Grameen bank they will still whisper can you change the name: interest – call it something else, because they feel very sensitive to their religion. On ownership: Yes the borrowers buy the shares. Within Grameen bank  not only we lend money, we collect savings. Even a tiny penny whatever it is. Every week as you pay your installment put a little penny or whatever you can into your saving account. And that grows al lot. When you have more than a dollar fifty cents – as that’s our share price – whenever you have a dollar fifty cents in your saving account you may authorise us to buy yourself a share. It is up to you- you are entitled to a share, you may take it or not –its up to you. But it because so popular to buy one share because it gives a lot of prestige, facility and so on.- so everybody buys  a share. So we have 7.5 million shareholders. They elect their board members – that’s one of the occasions they see how important they are because they elect their members out of themselves – and she can become a board member. That’s a very important position – you are running the biggest bank in the country coming from the village, and our board consists of those borrowers who got elected by the borrowers who voted for them . There is a big contest every 3 years to elect the board. So that’s how they become owners of the bank.

Yes the Grameen Bank idea has spread all over the world. There are many cases where people wanted our help to do it. We have a program called : Build Operate transfer. You give us a contract: we go to the country where you want to set up the Grameen program. We send our staff from Bangladesh to set it up as if we are opening another branch in Bangladesh, we do it, set it up, let it run and bring to a profitable level, and then you tell us who do we hand it over. Or you can let us continue with it.  Run in 7 different countries the build-to-operate. And now many other countries are approaching us to set it up. China has become the most important and very eager country to have build to operate. Each province in China is allowed to negotiate with us. So the idea has spread, and is spreading more and more

Q I want to know where you get the idea – is it spiritual one – because you talk about giving tge person the tools where she can feed herself for life but social business sound like a terrible thing in the United stares so i want to knw if you see it as working in the states where socialism and other isms dont work

MY This one will work! This is just the beginning. We are talking about it and I am sure some =one will start a social business here. There is so much scope here.  Like in my book I mentioned warren Buffett who donated some 36 billion dollars to the Bill Gates Foundation. I was saying before he decided to give this money to the Gates Foundation, I wish I had a chance to talk to him. I will talk him out of it and say why dont you keep at elast some money a and start a social business. And this social business will be to address al the 47 million Americans who dont have health insurance. Because you are insurance man, you know the ins and outs on insurance. So while you are doing a good job, why dont you design an insurance program with your money, start it, and then be remembered in history that you started something that nobody else could do, not even a government could do – you did it. So this is the kind of opportunity available and this could be a beautiful social business to provide health insurance to 47 million Americans

RW With the creation of social business , there is still a role for philanthropy?

MY I am not taking away anything. Just ading one more piece. If you are interested you can take advantage of it . It come from the business side, business people can create social business . It could come from the philanthropy side, foundations can create social business. I am encouraging foundations to create a social business fund within their foundation so that can support wherever social business comes from .

Q Will you talk about your beggars program?

My This is a program we started about 4 years up because there was  lot on controversy on one issue saying that microcredit is a fine idea but that it only works for the entrepreneurial poor. This is one statement I can never stand. Because to me all human beings are entrepreneurs. So there is no entrepreneurial poor and non-entrepreneurial poor. All human beings, rich, poor, or anybody are entrepreneurs because it is part of human being- you cannot take it out, because that’s how we came to this planet- that’s how we survived on his planet – our entrepreneurial capability, creativity.

So we wanted to demonstrate it. One way we thought we could demonstrate it by lending exclusively to beggars. So we started a separate program to lend to beggars. So we sat down with the beggars, talked them and find out at what point he or she became a beggar. What was the tipping point because after all she was a normal human being living her life, at on point she was pushed and pushed and became a beggar, and stretched her hand for survival and taking care of her kids or whatever. Once we went through this stuff, we made one suggestion: as you go from house to house begging would you care to take some merchandise with you and sell. And it appeals to them because we made it clear we are not asking for anything extra. You do it anyway, you go to houses to beg. All you do carry a little basket, a little bag carry candy, sweets, toys for the kids whatever people will like. And people will have options – they will not just shoo you away- sorry I cant give you something to day; you can say i have got something to sell would you care to have a look at it.  Then give them an option maybe people will lie something. And the beggars started liking this Initially we thought we would have 2000 beggars in the program. And we will see what happens to those beggars: can they really run the business? People say you know you’ll need to train the beggars they dont know want a business is. I  said look I am not a training guy, I am not interested in training – so let’s see what happens. It became very popular not only among the beggars but among our staff. We have 27,000 staff –everyone wanted to serve beggars. So i said no only one beggar per person – because at that time I had no idea how this was going to work out. I didnt want to mess up the whole thing because everybody wanted to go for the beggars. But there is a tremendous pressure coming in: they want to have 10 persons per beggar. I said no ten is too many but I started to yield one , two, three now four – now we have come up to four so we have more than 100,000 beggars in our program. And in the last 34 years, what is amazing more than 10,000 beggars have given up begging completely – they have just become door to door salesman. And some of them became very successful personal shoppers because women in Bangladesh cant go to the market, so they ash their husbands to bring this bring that and husbands are husbands they always forget, they cant remember” oh i see tomorrow I will bring it tomorrow, and tomorrow he forgets again. So now it has become very convenient, you just tell the personal shopper bring me this and you pay her and she brings it. The remaining 90000, I would say they are just about part –time beggars because they are mixing selling and begging at the same time. My colleagues are getting very impatient: why cant they join like the other10000 have done – stop begging and concentrate on the selling. I said look they are trying to close down their begging division, they are in the process of restructuring their business , they need to strengthen their sales division so give them time. Amazing thing the loan they ask for – typical 10 to 15 dollars- with 10 to 15 dollars if you could change the live of a beggar into a dignified a salesman that now you are not afraid because you are selling something – I ask when I meet the beggars how does feel to you – one common answer I get , they get very excited not about the money now when I knock on the door, they immediately open the door and let me in. When I was a beggar nobody would open the door, they will just give whatever they give through the window. Now they give me a stool to sit, that changes completely now I am a respected person, and the kids come around and ask what did you bring today, they want to see what they can buy because it is a person who is coming with things they like. And I am also reminded by this, that if Grameen Bank gave $15 to all these 100,000  beggars as a grant as a charity – we could do this buy what would have changed anything? Nothing. They would probably enjoy some food, and a couple of weeks, hey would come back and ask can we get some more. They will still remain beggars, but we designed it as a loan, we said this is an interest free loan.  You don’t have to worry, This money will never grow the 10$ will always be 10$. And there is no time limit, so you dont have to worry about paying back in a month or a year.  Its up to you, the condition is you pay it back you can take another bigger loan – whatever you want, the door is open. All the money we have lent out in the last 4 years – more than 60% of it has been paid back. So this is really something to see how people can take things seriously and challenge themselves.

LSE Talk

1 MINDSETS : THIS GENERATION’S BIGGEST RISK

I will not go into the details of Grameen bank. We started back in 1976. The only thing I would like to mention is I was not a banker, no training in banking of any kind, ..I was teaching in Chittagong University, teaching economics, but I was gradually drawn into it –without any kind of background in lending money or banking – that was the circumstances which pushed me into it, I never designed it that way, people think about their future in terms of what they would be – as a child we do that we want to become a pilot or a filmstar or a firefighter but not even as a child  did I think I would be a banker, and of course when I grew up that thought never came into my mind.

But this is what I became, people introduced me a banker, so here I am., But what we did could be done because I knew nothing about banking..if I knew about banking probably I wouldn’t have done that. So this is one consolation for people who don’t know things...there is a great future waiting for you.. This is an advantage- sometimes a real advantage not knowing – because if you know things you inherit a  mindset. And once you have that mindset you cant breakthrough that mindset. And this is our biggest problem in life : breaking through the mindsets. And institutions of higher learning where all these mindsets are really formulated; and once you go through it, you thought you received knowledge giving you a very clear vision to see the world; in reality it may be the other way, you lose your vision, the freshness of your vision is lost, because we try to imitate, fall in line with the existing thoughts.

This is the most unfortunate part of the educational process - the way I felt all along :in the process of education we become the mini-professor; the professor who taught us and we follow the professor so closely we turn out to be a tiny image of that professor. That’s we have such a school of thought and such a school of thought – how come in that school of though some other school of thought does not penetrate. Because everybody follows that procedure.  I mention this because the greatest battle I have to fight is mindsets. People tend to think the way they are trained to think- they cannot get away from it. So this is a change for academic systems – how to retain freshness of mind whilst bringing knowledge to students.

2 TALES OF 2 BANKING SYSTEMS – WHITHER SUSTAINABILITY INVESTMENT?

 If you look at Grameen bank for example – if you raise the question how did you decide on the procedures that you gave created in Grameen bank, how did you design these things, where did it come from whatever you have done- my answer would be a simple one – it is not exactly what it is but it describes what it is-  in a lighter vain I can say whenever we need a little procedure in  a specific case of in doing our work in Grameen bank in the early years we just looked at the conventional banks, what  do they do in such a situation, and once we figured out what they do, we just do the opposite. So if you take piece by piece almost you will see the reflection of it. Everything we do - almost the opposite of what the conventional banks do. So sometimes people think that microcredit means giving tiny loans, which is true but they don’t see how the whole system works – then the real microcredit will come out. The basic principle of banking is : the more you have the more you can get. That’s the basic principle. You have to have a lot to get lot. The corrolary of it:  if you have less, you get nothing

And we reversed that basic principle. Our principle sis: the less you have the higher attention you get from us. If you have absolutely nothing then you get the highest priority. So we started from that basic premise and built the system on that.

Conventional banks look at your position/ your wealth and against that they give you new money to accumulate more. We dismissed that on day one: we said that if you want to do business with the poorest people to ask for any position – and design system on base of that – is useless and ridiculous. So we don’t have any collateral in Grameen bank or microcredit programs – so no collateral , no guarantee, no lawyers, we don’t have any lawyers. And these are the basic features of the conventional bank. You cannot go to a conventional bank and do business with them without lawyers looking over everything you do. So we said it would be useless to have all those things – and we designed something that does not depend on that. So basically it is a trust-based banking, and funnily enough it works. And its particularly amazing at this moment when you see the subprime crisis where you have the collateral, the  lawyers, everything but it didnt work – you are now ready to write off some 400 billion dollars.

3 FAMILY IS CULTURAL CORE OF HEALTHY SOCIETY COMPOUNDS STRONG ECONOMY NOT VICE VERSA

And microcredit is going on with us for 31 years, and many more orgs for lesser time, but is a globally operating system. One common thing you hear about MC is a very high repayment rate 98-100% despite the fact that you are doing business with the poorest people. And conventional banks want you to have lots of experience in the business for which you are borrowing money.  You are supposed to be an expert in your business. We go to women to tell her what Grameen bank will do , encourage her to take a loan and get into some income generating activity; and her answer is always please dont give me money I dint know anything; she will repeatedly mention I dont touch money, I never touched money in my life- give it to my husband. But we dont walk away. In the beginning my students, who were working with me were frustrated – why dont you forget about women? – they say they dont know anything , how can you give something to people to do to use money when they say they dont know  anything about what to with the money. So repeatedly i needed to talk to them... that when the women say they no I dont know what to do , dont take it as their answer this is not their voice; this is the voice of the history- the history that generated fear after fear in them and made them believe that they are nobody; they have no capacity to do anything except to take care for the children and the family. So that’s how when you come with the money , they kind of get scared, something terrible will happen to them, so our job is to peel off that fear, layer by layer, so that one day we can build enough courage in them that one or two will say: well let me try. So that’s the day we will be waiting for- so dont give up. We had to work for 6 years to bring the level to 50-50 –because this was our initial decision that half of our borrowers must be women. Because I was complaining against the conventional banks – not only are they wring by rejecting the poor people from their system, they are also wring and unjust to reject women for their system – all kinds of women any levels of income., I pointed out that not even 1% of their borrowers were women. This was mid 1970s when I was complaining. Today in 2008, you can almost repeat same compliant in Bangladesh. The situation has not changed. So when I began I wanted to make sure half the borrowers in my system are women.  So that’s why we try to encourage women for 6 years. Once we achieved that we saw that the money that went through to the family by women brought so much more benefits than the money that went to the family through men. So we started asking the question what is so good about 50:50? Why stick to 50:50, why mot open up and concentrate on women if it is so good with them. So we did –and we started focusing women as a result we moved from 50 to 60 to 70 to 90% .

Today we have 7.5 million borrowers in Bangladesh – 97% women. And they own the bank- this bank is owned by the borrowers themselves.

We encourage the children of Grameen families to go to school. So we came up with a system where we finally succeeded in nearly 100% of children being n school. Then we started giving scholarships because some of these children not only went to school but they were at the top of the class- This is a kind of a thrilling experience to see  - not only for first time in the whole history of their family did someone go to school, but he or she is top of the class.  Every year we have a little ceremony in the village honoring the new recipients of scholarships and recognising their parents and invite all the important people of the village so the family and the child feels tall that they have achieved something. Last year we have given 51000 children scholarships for their performances in the schools.

4 FREE MARKETS FREE WOMEN  (or whomever history has discriminated against whereas conditional aid spins white man’s burden)

Then we saw these students gradually moved into higher education -; so we introduced education loans, we have 21000 students on education loans going to medical schools, engineering schools, universities, some of them completed phds some scholarships in international institutions – and now we are offered scholarships from Harvard, York College n NY, MIT is considering offering scholarships to children coming from Grameen families. So this is an amazing kind of thing that you notice. When I go to the villages meeting these women who have been working so hard to make a difference in their life, it is an amazing experience being with them.  And now I see a new phenomenon coming, added to that, when I visiting the daughter from the city comes in having just finished her degree in medicine. She is a doctor practising now- so I see the mother and the daughter standing side by side , one is an illiterate person who joined Grameen bank 15 years ago, took tiny loans started her life, sent her daughter school , now she’s a doctor- so you can not escape the though entering your mind looking at these 2 ladies standing next to each other that her mother could have been a doctor too. But society never gave the chance to her mother – all we have done through Grameen bank allowed her to improve her income and the capacity to send her daughter to school and ... to become a doctor. Our mother must have the same elements in her- there is no reason why she should have less than what her daughter has. ...

5 POVERTY IS A SYNONYM FOR FAILED SYSTEM

The conclusion you come to is that poverty is not in the person, it is created by the system. So if you want to address the issue of poverty, it is not rushing to her but rushing to us – what did we do wrong, where did we go wrong, fix it up – if we can pick up the seeds of poverty that we have put inside all the institutions , policies, concepts we have built, nobody in the world will be a poor person., There is nothing wrong in the human way. We messed it up and them blamed them – ah these are lazy people or whatever!

Sometimes I describe poverty by comparing with the bonsai tree- the little tree that you grow in a flower pot. If you take the best seed of the tallest tree in the forest, and put in a flower pot, it doesnt grow at all , it grows this big. And you wonder what happened to this tree, why doesnt it grow,. There’s nothing wrong with the seed, we picked the best seed. Thing that went wring was the base we allowed that seed: the flower pot; so it couldnt get the nourishment to grow as tall as the tree we saw in the forest.  And I try to explain that the poor people is bonsai people, there is nothing wrong with their seed, only society never allowed them the space to grow. So its not their fault. The fault is not in the seed but the base we provided to the seed. So if we change the base they will be as tall as anyone else. So that’s the challenge : how to change the base so people can grow

6 POVERTY CAN ALSO BE A PLACE WITH MOST TO GAIN FROM LIFE-CRITICAL INFORMATION BEING OPENLY NETWORKED

In Grameen bank. We encourage the children to go into education, to create a completely new second generation because getting out of poverty is just simply crossing the line. In a country like Bangladesh, crossing the line doesnt ensure you remain out f poverty. Because we are a country with all kinds of disaster happening all the time. Flood is a very common phenomenon – last year we had 2 major floods and then on top of it we had a big cyclone at 250 km per hour speed  ; it blew away peoples possessions, then a tidal surge came and washed away - killed people,  eliminated their livelihoods and so on. So that’s the environment where we live. So we thought if we can concentrate on the second generation - to grow into a different kind of persons - so that they will be far far away from the poverty line, so that even if a disaater comes they will not be pushed back into poverty- so that’s our effort to make sure we can do that

7 GRASSROOTS SYSTEMS LIKE GRAMEEN ARE HI-TRUST SERVICE FRANCHISES

Several features that I will quickly mention illustrated by what we practice at Grameen bank. We have 2500 branches all over the country –each branch is graded by a 5* evaluation system,  like hotels. Our branches are always looking at number of stars shows level of accomplishment they have reached. Green star means 100% repayment record for the whole year. Blue star means they have enough surplus of deposits over loans they give.  Each branch has to find its own money , monyt does not come from anywhere else not from head office, not from neighboring branch. When we open a new branch, literally we literally give an address to the branch manager. Here is the place you are supposed to open a branch, go and open the branch. We dont give you any money. He goes to the address, finds it where its suppose to be, his job and colleague who accompany him to start the branch is to mobilise deposits as a bank. He still doesn’t have an office yet, but he starts mobilising deposits. As he starts mobilising deposits his task is to organise poor women in village so he can start lending them money because hen the income starts coming in. So he must rely 100% on the deposits of his branch to lend out money and then create a cushion, a surplus so thgat in emergency situation still he doesnt have to borrow any money. So if branch gets such a surplus it gets another star.  Our basic principle is when you open a new branch, not only you run branch with money you mobilise in locality  you must get to a break even point within 12 months. And they do that within 12 months they come to a break point – and get another star the brown one. The fourth star comes when all the children of Grameen  borrowers are in school.  Not a single child is missed. Then you get a violet star. On average a branch has 4500 borrowers (with 10000 children) so this is quite a tough task, They work very hard to see why anyone is left out, why someone has dropped out and how to get them back in school, its a continuous cycle but when you have ensured that you get the star.  And when you have all these 4500 families out of poverty, not a single family in poverty, you get another star. S when a branch has 5* this is quite a significance achievement for anybody. I tell my colleagues if I ran the country, I would give 5* a state honor because after all helping people get out of poverty is what the state is trying to do but you have done that with no cost to taxpayers, you have done it on your own, the money came for the locality, donors didnt help you out, its all yours. So having a 5* branch – you have solved the problems that you set for yourself

If you ever visit a Grameen branch, first questions to ask are how many stars have you got and what colors. Then you know what they have done – if they say they have 3 stars then most likely they will say we will get our fourth start by April this year because everyone is planning when their next star is . When I meet 100 village staff, the traditional pattern is the 5 stars sit at the front, 4* in the next row back and so on. And those in the front sit with pride- we dont give any financial benefit to 5*. I have always said that financial benefit will take away their pride –its not something you convert in money, you stand tall you have done the work, this is your pride you have contributed to your society. And when I meet someone with no stars, I always hear somebody saying dont worry the next time you come next I will be at the front. He knows he has to earn a lot of stars, he’s assuring he’s working on it. That kinds of energises the whole system that you are doing something you take pride in – important thing that you do

8 ENTREPRENEUR IS THE CREATIVE TALENT UNIQUELY PACKAGED INSIDE US AT BIRTH

And in connection with that I will mention something else relating to pride. One of the criticisms often made of microcredit is : one has to be really entrepreneurial person to benefit from microcredit- so only the entrepreneurial poor benefit form microcredit. Whenever I hear that it really burns me up, because I firmly believe all human beings are entrepreneurs. No exception This is a package in which all human beings were born. It is not something that can be taken away still you call a human being. That’s how we came to this planet, survived on this planet, and that’s what we are. Some may have discovered it, others may not have discovered  it - the talent inside them – because society never allowed them to discover it – so the wonderful gift of creativity , entrepreneurship and energy and innovativeness that each human being is born with – not every person is lucky enough to unwrap that gift – you got the gift, but nobody introduced you to that gift and ever allowed you to unwrap and have a peep at what you have got, you dont even know you die without ever knowing what you could have been, That is not her fault, not his fault, its the fault of the society that never allowed that opportunity.

9 FEMALE BEGGARS- DEVELOPING WORLD’S NUMBER 1 ENTREPRENEURIAL OPPORTUNITY FOR SOCIAL ACTION

 So after repeatedly debating this, about 4 years ago we said let’s demonstrate this. Let’s create a separate program where we exclusively lend money to beggars. My argument is you cannot be poorer than beggars and if they can show entrepreneurship, then you have made a point.  So we started doing that – go to the beggars sit down with them spend hours talking – our first question: at what point in life did she become a beggar.? Its an important point : society has pushed and pushed and finally brought her to the tipping point –and she couldn’t take it any more and stretched out her hand:  please help me I cannot survive anymore, help me to survive and feed my children. By understanding this process you understand the whole society, how ruthless it is to push a person to that level. After we go through this process, we said well : we can do something if you want to. As you go from house to house begging, would you like to carry some merchandise with you – some candy, some cookies, toys for the kids whatever people would like –if you’d like to do that we will be your financing.  That will be your business and we will be your financier. And people started liking it, why not?  And we encouraged thee and said after all you are going there anyway. This is no extra work for you. So give people option- and they may like to buy something from you or they might t lie to give you charity – and they have 2 options. It became popular with the beggars, but what is amazing it became extremely popular with our staff. I didnt expect that . I thought they would be grumbling we already have enough work. Instead they kept pressuring that they wanted to make more beggars into the program because I had made the rule that nobody can take more than 1 beggar to serve. They became so involved in it that they wanted to take more beggars. I said no just one beggar. My idea was if you have too many beggars with you will probably not pay attention to them ; so if there’s one you will pay attention. This is addition to their regular work – so they will be doing everything, this is additional responsibility, optional responsibility, nobody required to do it. We