Small Business

Bangladesh’s Robin Hood and the concept of social business

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To the big banks, he was crazy. To the poor in the villages of Bangladesh, he was a saviour. Nobel Prize winner Muhammad Yunus started his work with a simple idea – to lend to the poor. His brainchild Grameen Bank, or Village Bank, is an institution that lends money in small amounts, otherwise known as microcredit, without any collateral.

“People always say that’s a very smart thing to do,” said Yunus, speaking at Growth Faculty’s Global Leadership Forum in December. “Actually, I didn’t do it as a smart thing. I did it out of very desperate situations.”

Working at Chittagong University in Bangladesh during the 70s while the nation battled famine, Yunus taught economics and found discrepancy between theory and reality. 

“When you teach elegant theories of economics and you come out of the classroom and you see the stark reality of people – people hungry, people dying – that doesn’t give you a good feeling,” he said. “The village became the university for me because for the first time I saw the real people, the real problems and their real day-to-day struggles.

“I wanted to go out and be with the people with the very simple objective – can I make myself useful to another person? Even for a single day?”

In particular, Yunus was shocked at the loan sharking, whereby a loan was offered to the villagers at an absurd rate of interest they were unlikely to ever repay.

“I took a student of mine and went around the village for several days to collect some information. Who borrows from whom and how much?” he said. “When it was complete, there were 42 names on that list. The total money they borrowed was about $27. I couldn’t believe that people had to suffer so much for so little.”

Yunus gave the 42 villagers the money from his own pocket to repay their loans and when he returned to the village he noticed how he was revered as if what he had done was a miracle.

“I started thinking, my God, if you can make so many people so happy with such a small amount of money, why shouldn’t you do more?”

One of these banks is not like the other

Shortly after, Yunus sought counsel with the banks, asking them whether they could embrace this then-radical concept of microcredit.

“I go to the bank manager and tell him what he should do. He looked at me as if he fell from the sky,” he recalled. “He kept repeating that it cannot be done. The bank cannot lend money to the poor people. Why? Because they are not credit worthy.”

Yunus then took his plea to the senior officials at each managerial tier of the major banks only to be met with similar derision.

“They have 101 excuses why they can’t do it. Finally I found a way. I offered myself as a guarantor,” he said. “Luckily, it worked. The more it worked, the more insistent I got and it kept on expanding. But the more it worked, the more reluctant the bank became.”

And with little luck in convincing the banks to change their ways to directly lend to the poor, the concept of Grameen Bank was born. In 1983, Yunus gained permission to establish his business.

“People ask me how did you figure out all the intricate rules and procedures of running a bank without any collateral? I thought it was very simple,” he said. “I’d just look at the conventional banks, how they did it. Once I learn how they did it, I just did the opposite. They go to the rich; I go to the poor… They ask for collateral, we say forget it. We don’t need collateral because if you ask for collateral, the poor will never get to it.

“We made it simple. We said we’re not interested in the past of the person. We are interested in the future of the person.”

Yunus’ theory worked. Today, Grameen Bank has branches all over Bangladesh, 8.3 million borrowers, and lends out $1.5 billion per annum. Despite holding no collateral, the repayment rate is incredibly high at 97 to 98 per cent.

And, unlike many of the conventional banks in Bangladesh, Yunus set out with the aim to appeal to a completely different demographic so far untapped – women. In fact, today 97 per cent of Grameen’s borrowers are female. Initially though, Yunus found it difficult to get women on board with the concept – many who approached Grameen Bank asked for the money to be given in their husband’s name instead of their own.

“When a woman says no, it’s not her voice; it is the voice of the history that created her,” he said. “Thousands of years she has been told she is no good, she can’t do anything, it’s a man’s job. You have to be patient and go back to her again and again to peel off her fears, layers and layers of fears, waiting for the day when somebody will wake up and say maybe I should try it. And if she tries it and if it works for her, then other women will become excited.”

Grameen Bank’s structure too is unique. Wealthy shareholders and corporate management do not own the bank. Rather, this is the people’s bank in every sense of the word.

“Ninety-seven per cent of the shares of Grameen Bank are owned by the borrowers. They sit on the board, they make the decisions, so it’s a complete circle,” he said. “It makes profit, and profit goes back to the borrowers.”

Yunus also set out to change the habits of the borrowers. Of the money lent out, the bulk comes from the savings of the borrowers themselves.

“Grameen Bank’s rule is such that if you want to be a borrower of Grameen Bank, you have to open a savings account first, start saving tiny little money, whatever you can afford. It could be pennies.

“Today the balance in their deposits, if you put together all of them, is nearly $1 billion,” he said. “It’s almost recycling their own money and earning more money from their other deposits. It changes their life.”

Solving problems, building businesses

“As I see problems, I always try to solve them by creating a business,” he explained. “Whenever I confront a new problem, my instinctive response is to create a business to solve that problem.”

This is why, to date, Yunus has created more than 50 businesses to champion change. Grameenphone, for example, is the brainchild of Yunus and Iqbal Quadir, an entrepreneur inspired by the success of Grameen Bank. The idea was conceived when the government of Bangladesh deregulated the telephone industry in 1996. Before then, there were only around half a million telephones in the country, mostly in the cities, and the average waiting time for connection was three years if you were lucky or had influence with government officials.

“We needed the license to bring telephones to the villages,” said Yunus. “We also proposed that not only would we take it to the village, we’ll put it in the hands of the poor women.”

Like the bankers’ response to microcredit, his idea was met with contempt.

“Government officials were shocked to hear that there’ll be telephones in the hands of poor women as if I’m insulting the whole telephone industry,” he said. “One official asked me, who is she going to call?

“Then he said, ‘didn’t you say she’s an illiterate woman?’ I said yes. Then how is she going to dial those numbers?” he recalled. “I said, look there are only 10 numbers in the world. You cannot invent an eleventh number. If she figures out pushing these numbers brings money, she’ll learn it in 10 minutes. They’re illiterate, but they’re not stupid. They’re very smart women.”

After a long wait, Yunus received the license and Grameenphone was born. Today, it’s the largest telephone company in the country, servicing a majority of the nearly 70 million phones now in circulation.

“Almost everybody has a telephone, no matter where you are or who you are.”

Grameen Shakti, another business in the Grameen family, aimed to bring renewable energy, namely solar power, to the nation. In 1996, at the time it was created, 70 per cent of people had no electricity.

“It was such a hard struggle to sell even five solar home systems in a month. We did it. Then our next target was to 50, next target was 100.” Now, 15 years on, the company sells more than 1000 solar home systems per day.

Grameen also has a number of joint ventures under its wings. One of the first corporations to approach Yunus was Danone, the Paris-based food conglomerate. With the CEO of Danone, Yunus established the joint venture Grameen Danone Foods, the aim of which was to end malnourishment in Bangladesh.

“I explained to him Danone would never take any profit out of it, it can take back its investment money over time but never dividend, just as Grameen will never take any dividend.”

Together they produced a yoghurt, affordable and nutritious, and started selling it to the people of Bangladesh, particular young, impoverished children.

“Today we sell more than 100,000 cups of yoghurt everyday.”

More than 50 businesses and three decades later, Yunus is met with a common question.

“People ask me why do you create all these companies? You must be making a lot of money!

“I say I’m not a rich man. I don’t own these companies, I never wanted to buy a single share of these companies… I do it because I want to solve a problem. These are all problem-solving companies.” 

A new world order

The idea of a business to solve a problem is not a new concept to many charitable organisations. But charity is not Yunus’ intention.

“We could have done it as a charity,” said Yunus of the joint venture with Danone. “Then we are stuck every time we have to go and find money to run it. If it becomes a social business, it covers its own cost. It runs by itself.

“Charity dollar has only one life. It goes out and never comes back. It does the job but only once. If you can convert the whole idea of your objective into a business format, then your social business dollar will be recycled again and again.”

It’s more than building a sustainable business with charitable motivations though. Yunus goes a step further, imploring business leaders to reexamine the skeleton of economic theory.

“Maximising profit is the mission of business,” he said. “It doesn’t make sense to me. Why should there only be one kind of business? I can understand business to make money is a means but I don’t understand that as an end.”

The folly of current economic theory, he says, is to envision human beings merely as money-making machines, as consumers with dollar signs above their heads.

“It’s a very narrow interpretation of human beings,” he said. “As a result, we have made a mess.

“Crisis after crisis – financial crisis, debt crisis, euro crisis, energy crisis. I kept saying these crises are not separate crises. These are separate manifestations of the same crisis. The crisis is in the conceptual framework of economics where human beings are designed to play a very limited role, very narrow, and we follow the theory.”

The current model of business and economics is based on selfishness. This, he says, is too narrow an interpretation of human beings, because for each gene of selfishness is one of selflessness.

“That selfless part was never brought into economics and that’s where it went wrong,” he said. “Why should we miss that part? Why can’t we introduce it into the framework?

“We see the world through profit-maximising eyes. So [when] somebody says, no we can do business without making profit, they can’t believe it because they can’t see it,” he said. “Our theory, our textbook, doesn’t provide that so we don’t see it.”

This ying to the yang of rampant mammonism is what he calls social business.

“Once we bring that in, all these problems can be solved very easily.”

The key, he says, is human creativity and the untapped potential of this is a game changer.

“Human creativity is just unlimited… It’s a machine which can turn around the world but we just do the lawn mowing with it,” he said.

“If you put all the human creativity that exists today on one side, and put all the problems of the world on the other side and let them have a duel, fight among each other, who would be the winner?

“Creativity every time will win.”

The world we know is coming to an end, said Yunus, and social business opens a door to funnel our creativity and technology to create a new sustainable model. The answer is not to demolish the current model of business, but balance it out and make a change, even with the tiniest of steps.

“If you can solve a fraction of the problems, just a tiny bit of the problem, you have created a miracle seed. That seed will now change the world because it will be replicated.

“Nobody should be poor in this society, any civilised society should not have any single person who will remain poor and I keep saying it’s time that we put poverty in the museum, not in human society. It’s not the fault of the people, it’s the fault of the system so why don’t we edit the system?”

Published on: Tuesday, February 28, 2012

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