On this last episode, we look back on 23 years of joyous, difficult and always informative conversation.
In 1983 Muhammad Yunus introduced microcredit to the world by making small business loans to poor people in Bangladesh. Today Yunus’s Grameen Bank has nearly eight million borrowers. But the microcredit revolution has been subject to some of the same challenges as regular credit markets, causing many to question the its effectiveness in pulling people out of poverty. Kojo talks to Muhammad Yunus about the future of microfinance.
- Muhammad Yunus Founder of Grameen Bank; 2006 Nobel Peace Prize Laureate; Chairman of the Yunus Centre
MR. KOJO NNAMDIFrom WAMU 88.5, at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. It all began with $27 in 1974 as famine ravaged his native Bangladesh. Muhammad Yunus used that simple small loan to change the lives of 42 poor women.
MR. KOJO NNAMDISix years after that initial microcredit loan, he opened Grameen Bank, which today is a $2.5 billion banking enterprise in Bangladesh with nearly 8 million borrowers. His microcredit model has empowered the world's poorest, many of them women, to get to work and fulfill their own dreams. Microcredit organizations are now in more than 50 countries worldwide.
MR. KOJO NNAMDIThe ultimate recognition of Muhammad Yunus' vision came when he and Grameen Bank won the Nobel Peace Prize in 2006. But as microcredit has grown, so have the challenges that come with lending and with debt. For-profit microcredit institutions have changed the landscape and, some say, the motivations behind eradicating extreme poverty. So is this industry at a turning point?
MR. KOJO NNAMDIJoining us in studio to discuss this is Muhammad Yunus. He is the 2006 Nobel Peace Prize Laureate and founder of Grameen Bank. Muhammad Yunus, thank you so much for joining us.
PROF. MUHAMMAD YUNUSWell, thank you for inviting me.
NNAMDIYou introduced microcredit in 1983 by making small business loans to poor people in Bangladesh. Today, Grameen Bank has nearly 8 million borrowers, but we've seen that microcredit is a subject -- or is subject to some of the same challenges as regular credit markets. How do you see the arc of this microcredit revolution? And where would you say we are in its growth?
YUNUSWell, thank you very much. Just to clarify a little bit, you mentioned that it's in 50 countries microcredit is being adopted and introduced. It's actually throughout the whole world, everywhere in the world right now. Hardly you will find any country which is missing out on that, including in the United States. There are many microcredit programs right here in the United States. We've done a program called Grameen America in New York City.
YUNUSWe have four branches there. And so this is to show that -- how spread out it is. And the problem with my microcredit is different than the conventional banks' problem. It's not the repayment problem. Microcredit doesn't have the repayment problem. It became known for its very high level of repayment and also the fact that it is not based on collateral. It's a trust-based banking.
YUNUSIt kind of amazes everybody. How can you lend money, cash, and you get it back without any papers, without any lawyers behind it to make sure that you pay back? But it works. The problem -- the criticism that currently are about who are using the idea of microcredit for making personal fortune. That's where the trouble began. When we created Grameen Bank back in the '70s, actually -- our work began in 1976. We became a bank in 1983.
YUNUSOur whole purpose is to help poor people, particularly poor women, get out of the problems of poverty and the misery and so on, so that she can create herself employment. And that was the beginning of the whole -- idea of making money out of it never occurred into our mind. But when it became popular, spread out, some people said, hey, this is a good opportunity to make money out of the poor people.
YUNUSWe resisted it. We criticized it. But it still -- it flourished. At least some organizations began...
NNAMDIIs it something that was entirely predictable given the spread of microcredit? Was it not inevitable that people would see a way of making profit out of it? And is that something that you could have predicted beforehand and tried to do something about?
YUNUSI didn't predict it, but I saw the signs of it. I could have noticed it, and I protested it. The first thing came as a formal term, commercialization of microcredit. That word didn't say that somebody wants to make money. Commercialization probably could also mean that you run it as a business and so on, which we did. We created a bank out of it, and we made the borrowers to own the bank.
YUNUSGrameen Bank is owned by the borrowers. So that was the commercial part of it that we thought -- but we didn't realize that there's somebody...
NNAMDIDid you assume that that would be the model that would take hold worldwide?
YUNUSThat's what I hoped that the world adopt this noncollateralized system, along with also the ownership will become the important part of it. Unfortunately, that part was never copied around, only the commercial -- only the part of lending money came into the picture.
NNAMDIIn case you're just joining us, we're talking with Muhammad Yunus. He is the 2006 Nobel Peace Prize Laureate and founder of the Grameen Bank. We invite your calls at 800-433-8850. Have you seen microcredit in action in your life or the life of someone you know? Call us at 800-433-8850. If you have questions or comments for Prof. Yunus, you can also go to our website, kojoshow.org.
NNAMDISend us a tweet, @kojoshow, or email to email@example.com. Muhammad Yunus, has microfinance maybe grown too fast?
YUNUSNo. Our complaint always it's too slow. I never say this too fast because the demonstration part of it has been well done throughout the whole world. The demonstration in country after country showed that it works in every situation because, originally, there were lots of criticism about it, saying that, oh, it can work in Bangladesh. It will never work outside. Some say, oh, this is an Asian phenomenon.
YUNUSIt can work in poor Asian countries, not in rich countries. Oh, it will never work in Africa. They're so dispersely (sic) populated -- sparsely populated that it cannot work like the way in Bangladesh where people are densely populated. So arguments after arguments came. From our side, we demonstrated after demonstration everywhere. We showed that it works in every single situation, religion, culture, kind of terrain, density of population.
YUNUSSo we thought, after all this demonstration, it would move fast. It didn't. It very slow. Our first goal was to reach 100 million poorest families with microcredit by 2005. Actually, we achieved that in 2006 and early 2007. So that was delayed, too. Now, we are hoping 175 million people to be reached by 2015. So that's not a fantastic number. But you said fastest, yes. There are some problems.
YUNUSFor example, India has problems recently. And that is concentration of microcredit in one state. That's where the problem begin (unintelligible).
NNAMDIIndeed, last year, the microfinance industry was rocked when several dozen borrowers from for-profit microfinance businesses in the Indian state of Andhra Pradesh committed suicide after they were subjected to what they say were harsh collection techniques. There have been reports about intimidation by Grameen officers as well. Can you give us your reaction to those reports? And, I guess, we should talk about two different things.
NNAMDIOn the one hand, let's start talking about India first before we get to the harsh collection...
NNAMDI...techniques. What is your view about what happened in India with both the for-profit microfinancing and the allegations of harsh collection techniques?
YUNUSYeah, the for-profit kind of encouraged fast expansion. They thought higher the growth rate, more funding will come, more spread out they will be and so on. And it's all concentrated in a very kind of dynamic atmosphere of Andhra Pradesh. So that's overcrowding, became a problem because there are too many microcredit programs and overspeeding. (sic)
YUNUSEverybody wanted to move fast, build up the growth rate because they thought, even -- when you are in for-profit area, the growth is the key to attract money for yourself. And there was no arrangement for providing funding for this organization from any other source, except going to the investors and so on, so that they have to impress the investors.
YUNUSImpressing the investors, growth is the first kind of indicator and how much money you are making, so that they are interested in doing that. In the process, they brought in matters which were not quite conducive to the idea of microcredit that we promoted and so on. So that led to difficulties and confrontation with the politicians in the state and so on. So all this became a big story and first-page news in many newspapers.
NNAMDIBut you feel that is isolated to India. You would not say that, internationally or globally, microfinance is in any kind of crisis whatsoever?
YUNUSI wouldn't even say India because it's all in one state. India is a big country. There are many states. All you hear is about one state. So it's a peculiar circumstances in one state. So microcredit in the rest of India is the same as any other countries going around.
NNAMDIAnd the rest of the world.
YUNUSAnd the rest of the world, yeah.
NNAMDIThere have been reports, as I mentioned, about intimidation by Grameen officers as well. Can you talk about your reaction to that, harsh collection methods?
YUNUSWell, we have been working in Bangladesh for the last 34 years. And this bank is owned by borrowers themselves. So the question -- and they are in the board. They decide the rules and procedures and the steps. We've never heard -- internally, there is a question of something. Our rules are very easy, very simple. Even if you can't pay back, there's no question of pressuring you because you can extend the loan period.
YUNUSAs long as you're paying, the period doesn't make any sense to us because, after all, you are paying the interest for the amount of time that you're enjoying the loan. There are people who are basically antagonistic to the idea of microcredit. They think for the poor people you shouldn't bring credit. You should be giving handouts and so on and so forth.
YUNUSSo they kind of think that the only way we could get our money back is probably by twisting arms or something like that. But in reality, that's not the situation. We work, as I said, right here in New York City.
NNAMDIOh, we will get to your programs...
NNAMDI...in the U.S. in a second. But I wanted to get back to Bangladesh because they say all politics is local. And in March, the Bangladesh government forced you out of managing director of Grameen Bank in what was largely seen as a politically motivated effort to reduce your influence there. What should listeners take away from what happened?
NNAMDIThe technicality on which you were forced out was that you had exceeded a mandatory retirement age. But, apparently, that mandatory retirement age is of dubious validity.
YUNUSYes, indeed. Because the government was bringing the rules of the government banks, but the Grameen Bank is not a government bank. I mean, the bank is owned by the borrowers. Ninety-seven percent of the shares are with the borrowers of Grameen Bank. So it's a private bank. Within Grameen Bank we have our own rules, and that doesn't have any age limit to the managing director, the chief executive.
YUNUSBut, somehow, government thought we should be following the government rules rather than create our own rules. And they brought it and forced me to retire from Grameen Bank.
NNAMDIIn 2007, you thought -- maybe flirted briefly with the idea -- of founding a political party. Is it possible that your removal was because of your -- a fear of your possible political influence?
YUNUSWell, I will not speculate in public. But the many newspapers and media has been speculating that that probably that is the reason that I tried to form a political party in the very special circumstances of 2007 when there was big political vacuum. There's a tremendous pressure on me to feel that political vacuum by creating a political party. I'm not a politician. I've never wanted to be a politician and create that.
YUNUSBut the circumstances kind of forced me. Finally, I said, okay, I will do that. But quickly, again, within 10 weeks, I announced that, no, this is not my way of doing things. I will continue what I do. I don't want to create any political party or join politics. But this is now being mentioned as a cause for my trouble.
NNAMDIDo you have any future political ambition?
YUNUSNot at all because I enjoy my work, and that's much important than I feel that any other way I can play a role. I want to play the role in social business, which is my mission right now, to spread the word of social business and try to solve the problems that we suffer from everywhere in the world. And social business comes in a very handy way to address that.
NNAMDIWe're going to go to the phones now. Muhammad Yunus is the 2006 Nobel Peace Prize Laureate and founder of Grameen Bank. He joins us in studio. You can join the conversation by calling 800-433-8850. Do you think microloans spark entrepreneurial spirit? Or do borrowers, in your view, become too dependent on that? 800-433-8850. Or go to our website, kojoshow.org.
NNAMDIHere is David in Washington, D.C. David, you're on the air. Go ahead, please.
MR. DAVID ROODMANHi, Kojo. This is David Roodman. Usually, when you talk about microfinance, I get to join you in person.
NNAMDIYou, you're from the Center on Global Development.
ROODMANThat's right. Prof. Yunus, first, I want to thank you for your kind words about my own book about microfinance that I hope will be out in a few months, and maybe we can talk more about it when it comes out. I would also want to say I'm really -- you know, I've been one who is sometimes asked tough questions in public about what exactly is going on in the Grameen Bank.
ROODMANBut I really think what has happened to you in the last half year is a disgrace. And I think one of the people's greatest fears about what -- the way you've been removed from the Grameen Bank is that this was a prelude to government takeover of the Grameen Bank, which could really destroy the institution that you worked so hard to build.
ROODMANAnd yet, since you've been removed, I think -- I guess it was in May -- things seem to have been very quiet, at least for people on the other side of the world who are trying to understand what's going on. And I'm just wondering, has -- does it still look like the government may try to take over the Grameen Bank or reduce its independence? Or have things gone quiet?
YUNUSNo, it's not quiet. It's still on. There's still the doubt that the government may move in this direction. They have now -- they will try to put a substitute for me in my position, the managing director. They're not -- but our position was, and it still is, that the board is the supreme authority to appoint the managing director, not the government because, after all, law gives all the power to the board to decide who should be the next managing director and so on.
YUNUSSo we are looking forward to that. But all the review committee reports and everything indicate that the intention is to increase the share of government share in Grameen Bank so that it can control the Grameen Bank to their shareholding, which will be a very sad thing because we always tried to create the bank as a bank owned by the borrowers only. And now, 97 percent of the shares are owned by the bank -- by the borrowers. So we want to retain that.
YUNUSI think this is something that we want to protect, that the borrower's right to -- the shareholder's right to protect their own shares, rather than give it away to the government. It's not only a matter of just the principle that borrowers should have that. It's also the future of Grameen Bank itself. The history of government owning banks is not a very good history, so we don't want to fall into that thing.
YUNUSEven when we were creating the bank, we are very careful so that it doesn't become owned by the government. We wanted to make sure it's owned by the borrowers themselves. So we are looking forward to see that we can retain that. So the pressure is still on, and we continue to protect the -- continue to make all efforts to protect the right of the owners of Grameen Bank. And thank you, David, for supporting us.
NNAMDIAnd, David Roodman, thank you for your call.
NNAMDIGoing to take a short break. When we return, we'll continue our conversation with Muhammad Yunus. We still have a couple of telephone lines open, so you can call us at 800-433-8850. Have you seen microcredit in action in your life or the life of someone you know? Or, if you have any questions about microcredit, 800-433-8850.
NNAMDIYou can send us a tweet, @kojoshow, email to firstname.lastname@example.org. Or go to our website, kojoshow.org. Join the conversation there. I'm Kojo Nnamdi.
NNAMDIWelcome back to our conversation with Muhammad Yunus. He's the 2006 Nobel Peace Prize laureate and founder of Grameen Bank. Grameen Bank does not profit from the loans it gives out. But as we mentioned earlier, there are now many for-profit microfinance businesses that the poor can choose from. How can we keep microfinance from, well, becoming like the subprime mortgage debacle that we faced here?
YUNUSWell, if you do it the way we originally kind of designed it, to keep it to support the initiatives of the poor people to create their self-employment and improve their economic situation and so on, not trying to use this as a kind of conduit to make money for the investors and so on, we can avoid that because all the subprime think -- because of the profit motive and the exaggerated way that you want to get a big return from your investment in housing and so on.
YUNUSSo that's what leads you to kind of a fantasy world of selling your papers rather than retaining the relationship between the lender and the borrower. That gives you a different route, which it takes you a very different direction. Here in microcredit, it's all based on trust. And the relationship between the lender and borrower is very close.
YUNUSUnless you keep that close relationship, entire microcredit thing will become dysfunctional, so I would say that the microcredit, the genuine microcredit will not be subjected to such situations.
NNAMDII have questions about that from callers. We'll start with Ghiyath in Washington, D.C. You're on the air, Ghiyath. Go ahead, please.
PROF. GHIYATH NAKSHBENDIHi, Kojo. Thank you. And, Prof. Yunus, it's great to have you back in Washington. I'm Ghiyath Nakshbendi. I teach microfinance at American.
NAKSHBENDITo start with, I would say, Ramadan Mubarak.
YUNUSThank you. Thank you. Same to you.
NAKSHBENDIProf. Yunus, over the years, the question about the involvement of the private banks in microfinance -- there are so many banks who have windows in microfinance. I would like you to share with us your assessment of their contributions to the microfinance. And the second quick point is you always maintained, at least last time we met in Washington, that you consider any interest rate above 15 percent is usually.
NAKSHBENDIDo you still maintain that? And have a nice day in Washington.
NNAMDIOkay. Thank you for your call, Ghiyath. Prof. Yunus.
YUNUSThank you. About the involvement of commercial banks, one of the problem that we have been facing, and I've been drawing attention to, that conventional banks are not involving themselves in microfinance. And that's a complaint, rather than complaining about their involvement. Wherever that involvement takes place is a very small kind of involvement.
YUNUSAnd they want to do it in the way they do the commercial or conventional banking, seeing as a kind of investment to bring return to their investors and so on. Again, we debated on that. We discussed on that, that microcredit should not be seen as an opportunity to make money for the investors. It should be seen and designed to serve the poor people so that they can come out of poverty.
YUNUSOnce they come out of poverty, you can make money as much as you want, but not until then. This is the position that we took. And also, the question of their interest rate, the position that I have been promoting, that cost of fund plus 10 percent should give you the right range of interest rate that you want to charge and not more than that. If you can retain yourself -- remain -- keep yourself within this range, you are a true microcredit organization.
YUNUSBut if the interest rate is cost of fund, plus 10 to 15 percent, then you are in the sort of yellow zone of microcredit. You are high, but not too far away. It still can be done as a microcredit. The cost of fund, plus 15 percent and above, we say it's in red zone, meaning that you are no longer within the community of the microcredit. That's the range that we have defined.
NNAMDIFor those listeners who may not be familiar with Grameen's lending process, could you briefly explain how these microloans are distributed and collected?
YUNUSOne basic principle I should quickly draw attention to, that our basic principle is people should not come to the bank. Banks should go to the people. So entire microcredit that have we designed is under sort of a doorstep banking for the poor people. We are not asking them to come to our office, line up on the pavement and the borrowing and so on. Everything is done in front of everybody in their village, talked about them.
YUNUSIt's the staff of the bank who go to the people to do the banking, so this is one special thing, good thing. And there's no collateral needed for them. And all we need to know, how you use the money that the bank lends you. We insist that it should be -- it is lent only for income-generating purpose. So that's another point that we want to underline. Some people have misused this by lending money for consumer loans, buy radios, televisions and refrigerators.
YUNUSThat's absolutely not the intention of microcredit. Microcredit is about lending money for income generation for self-employment. And we made it very simple to pay back. You stay home and pay back at your doorstep almost in a weekly basis so that you don't have to wait for the whole year and then collect all the money together, pool that money and in one shot, you pay back.
YUNUSAnd that makes life very difficult for poor people to retain that money and pay back in one shot. As they earn money, they can pay back. It's so much easy, and it builds confidence in them and so on and so forth. So this is another way. And we create branches, and the branches take care of the people within that branch. Each staff is responsible for, in Grameen Bank case, about 600 borrowers.
YUNUSAnd 600 borrowers served by one staff who goes around and makes sure that everybody's need is fulfilled and repayment is done and so on. So this is basically what I would say. And also, I should add quickly that savings is a very important part of our work. As we lend...
NNAMDIEverybody who borrows also opens a savings account.
YUNUSSavings account. Everybody has a savings account. And, gradually, money become bigger and bigger, and they feel very satisfied that they are having their own money saved in the bank. And all of them are women. Ninety-eight percent of our borrowers are women, so this is another aspect of what we do. It's very woman-focused kind of banking. So these -- and our interest is in a declining principal. And also it's a simple interest rate.
YUNUSThere is no kind of interest on interest, no compounding of interest and so on. So these are basic features that we have. And we also lend money to the children of Grameen Bank for education. So if they want to go into higher education, entire financing is done by Grameen Bank. That way, thousands and thousands of students are now in medical schools, engineering schools and universities, whereas, their parents are totally illiterate.
YUNUSSo you're creating a new generation of young people, coming from illiterate families, becoming highly educated.
NNAMDIOn to Jane in Purcellville, Va. Jane, you're on the air. Go ahead, please.
JANEHi, Kojo. Thanks for having this show and for taking my call. Just a quick clarification to something you started with, Kojo, and that is that you and others often credit Muhammad Yunus with starting microfinance and microcredit. And, actually, Women's World Banking was started in 1979, specifically aimed at microfinance for women.
JANEMy comment that I'd like Muhammad Yunus to comment on is that I was working in country programs on Bangladesh at the World Bank at the time when Grameen Bank was starting up. And we were all very excited about it.
JANEBut having watched it over the years and knowing that Mr. Yunus also has gotten some large grants from the World Bank, one thing that I've noticed is that, while the repayment rate is terrific for most microfinance organizations, they are not sustainable or self-sustaining in terms of the technical assistance support they have to give to their borrowers.
JANEAnd for that, they rely on -- have relied on donations and grants. And I wondered if he could comment on that.
YUNUSYeah, first, to clarify that Grameen Bank never took any money, any money at all, from the World Bank. But Grameen Bank did receive money from donors in the earlier years and did receive it very reluctantly, not because they needed it, because donors wanted to give the money, like IFAD, NORAD, CDC, the Canadian CIDA, KfW, GTZ and so on.
YUNUSIn 1995, we decided in Grameen Bank that we shall not take any money, whatsoever, from anywhere. So since then, we have never received any money from anybody 'cause we take the deposits of the locality in the branch, and we use this money to lend money to the people. And this is what we always recommend the best way to do microcredit. Never take any money from outside for technical support, for any support whatsoever.
YUNUSBecause there's plenty of money out there, all you need to do is to mobilize the deposits and then lend the money. We have -- Grameen Bank has enough money. We lend out over $1.5 billion a year. All this money come from their deposits, and we have more money in their deposit than we can lend. And more than half the money comes from the deposits of the borrower themselves. The savings account that we talked about earlier.
YUNUSSo if you give the chance for people to save, enormous money keeps circulating, right? Nearly about $1 billion savings of the Grameen borrowers that are already within the bank. So it's absolutely wrong to say that microcredit depends on an external support or anything. Initial money that we took is not because we needed it, but because donors were so eager to give us the money because they wanted to participate in that.
NNAMDISo all technical and logistical support that you need comes from the deposits in Grameen Bank?
YUNUSAll the money comes from the deposits from the Grameen Bank, and the technical support comes from the staff. We designed the whole banking, so we don't need anybody else's technical support. We give the technical support to others so that they can do their job in other places.
NNAMDIAnd, Jane, in this debate over who started microfinancing, we've had a lot of broadcasts on this show that says that no idea starts by itself. It generally depends on an idea that happened before. Here's an email we got from Kareem (sp?) in Boston, "My Ismaili community in East Africa set up a microcredit union in the late 1940s. It made small loans guaranteed by creditworthy relatives.
NNAMDI"No loans to those who drank, gambled, neglected and abused family members or indulged in feckless behavior. So no men need apply. So it was a Women's Bank, and up went the levels of jealousies. The men, though, ran it." Thank you very much for your call. We move on to Morgan in Bethesda, Md. Morgan, you're on the air. Go ahead, please.
MORGANYes, thank you. First of all, I want to say I'm very grateful to be able to talk to Dr. Yunus. He's one of my heroes. And I just wanted to ask him, I'm a college student and very interested in being involved in international development throughout my life. And just wanted to know what we can do as young people in the U.S. to be involved in microfinance and international development around the world.
YUNUSYes. A lot of it that's -- you heard the nature of Grameen Bank and nature of microcredit, how it does, and a lot of improvements can be done with the technology coming in. Particularly information technology could be much easier. It's totally based on human labor. It's -- you have to send out, dispatch people to the villages to go house by house to collect money and so on.
YUNUSHow to make it easy for people do the deposits in mobile phones and collect the money of the mobile phones and so on. Today, technology can make a lot more, cheaper, easier and very convenient for people to interact with each other. So those new ideas young people can bring in and work with some of the microfinance organizations to see where they can have new ideas to improve their own performances and how to reach the poorest people.
YUNUSSometimes, poorest people are not being reached in many microcredit programs. There are several down in the middle of the poverty line or at the top of the poverty line, rather than going down the bottom most, like the beggars, like the street people and so on and so forth. So there are plenty of things to do in how to add other things, like healthcare insurance -- health insurances attached to the many insurance programs.
YUNUSStill, all said and done, on the insurance side, it's lacking tremendously, where most of the microcredit programs are concentrating only on the credit part of it, ignoring -- our law doesn't allow them to provide other services, insurance services, even taking deposits, savings, mobilizing savings, so how to remove all these obstacles and how to persuade people.
NNAMDIAnd, Morgan, you should know as Muhammad Yunus mentioned earlier, Grameen has come to the U.S. and has three branches in the New York City area, a branch in Omaha and plans for four more across the country. How are people in these locations using Grameen's America's loans?
NNAMDIAnd I might add a comment that we got on our website from Ronnie in Silver Spring, "What are the unique challenges to implementing an effective microcredit enterprise effort in North America, particularly in large metropolitan areas?"
YUNUSYes. It's the same as we do in Bangladesh. The way we have done it in New York City, is follow the same principles, same ideas as we do. Five women form themselves into a group. They kind of manage their own affairs on their own. They select the person, the loan size and ensure that the payment is good among themselves. And they meet weekly to make the payments to the staff of the Grameen America's program.
YUNUSSo this is exactly the same way that we have done, and the repayment is very good. It's 99.3 percent repayment in New York City for all these years. We began in January of 2008, and it is spreading. Now, fourth branch is coming up in New York City and several other branches, like in San Francisco and Los Angeles, Indianapolis and so on.
YUNUSWe are being requested by those areas to come and open the branches here because people are subjected to a very kind of harsh conditions, like the payday loans. That's the only source you can get to. And payday loans interest rate ranges from 50 percent to 1,500 percent.
YUNUSAnd it's a shame to come to all these scientific developments and business developments and all of the great things that a country like United States has achieved still can not solve the problem of poor people to access very small amount of money $300, $500, $900 and something like that. So this is the thriving business of payday loans.
YUNUSYou open -- in the newspaper you see those commercials and that inviting you take the loan, no conditionalities, but interest rates is phenomenal...
NNAMDIThey generally are predatory loans. But our comment from Ronnie adds, "Do you have any perspective on the microinsurance model in the North American context?"
YUNUSWe are looking at it. We have introduced our own insurance program back in Bangladesh. We have the loan insurance, meaning that if the borrower dies, family doesn't have to pay a penny, no matter how much money she owes to the bank because this is covered by a very tiny little insurance coverage that is put into their loans.
YUNUSAnd then, also, the death insurance in the sense that -- in the funeral insurance basically, where, in the death, all the funeral expenses are borne by the bank. The family doesn't have to pay for it because they are the owners of the bank so we -- to show the respect for that, and such other things, like, we introduced health insurance, still in the experimental stage. We do that to see if you can bring health services to the poor people.
YUNUSWe have a network of health clinics to provide that service because that service is not usually available in those places. So there are lots of (word?) improvising. That's why the idea of social business becomes so important for us (unintelligible).
NNAMDIWanted you -- I wanted to get to that. But first, we've got to take a short break. When we come back, we'll talk about social business with Muhammad Yunus and take your calls at 800-433-8850. Should more corporations dedicate money to solving social problems, like poverty and malnutrition? Tell us what you think. You can go to our website, kojoshow.org. Or send us a tweet, @kojoshow. I'm Kojo Nnamdi.
NNAMDIWe're talking with Muhammad Yunus. He is the 2006 Noble Peace Prize Laureate and founder of the Grameen Bank. Prof. Yunus, one of your main passions right now is social business, which is basically a business driven by solving a social cause or a social problem. Tell us about the causes you are trying to solve with companies like BASF.
YUNUSYeah, this social business is a non-dividend company to solve the problem of the society, whichever problem you choose. In the BASF case, we chose the problem of malaria. So we have a joint venture, social business, Grameen and BASF. We produce mosquito nets, treated mosquito nets, make it very cheap, so that everybody can afford it. Bangladesh is a malaria country.
YUNUSSo we want to see that people can cover themselves with mosquito nets so that malaria cannot be injected into the body. So this is one case of social businesses here. We are not trying to make free distribution of mosquito nets, which is being done in many other countries. We see that the problem of free distribution is that there's a limited amount of money which can be devoted to that. Once that is exhausted, you can't do it.
YUNUSAnd also, it doesn't reach out to the people who really need it. So the market mechanism probably will work much better to doing that, and it becomes sustainable. It continues. If you need as many mosquito nets as you can -- the society needs, you can produce it and sell it. And it's sustainable. It's not for making money for anybody, just to address the need of the people. We also have such joint ventures, like with Danone, Dannon in the U.S.
YUNUSWe have a yogurt company. Grameen Danone yogurt company produces yogurt to solve the problem of malnutrition. All the micronutrients which are missing in the children are put into the yogurt and make it very cheap and very delicious for children. They love the taste, and they buy it as a snack and eat it on their own, rather than mother and the parents insisting that you take this as a medicine. If it is a medicine, children will run away from it.
YUNUSBut they eat, on their own, saying, oh, I want to eat it. If a child eats two cups of this yogurt within a week and continues it over several months, eight or nine months, the child gets back all the micronutrients and becomes a very healthy child. And you can see it as it develops. You don't have to wait for eight months. In four months, three months, you start seeing that the child is changing and is growing.
YUNUSGrowth becomes stunted if you are malnourished. Your mental faculty becomes stunted if you are malnourished. So it's a heavy cost of malnutrition. And more -- almost half the children of Bangladesh are malnourished, and Bangladesh is not the only country with that problem. It's a -- globally, it's a big problem. So we are trying to solve this problem in a social business way.
YUNUSThe company doesn't want to make profit for itself, for the owners. The company makes profit. Profit just stays with the company for expansion of the purpose.
NNAMDIHaving grown up sleeping under mosquito nets myself and hating to take medicine, I identify with both causes.
NNAMDIHere is Chris in Washington, D.C. Chris, you're on the air. Go ahead, please.
CHRISHi, Kojo, thanks for taking my call. My question is about the role of Islamic finance in microcredit. And I was wondering if Grameen or other microcredit groups consider the general prohibition of interest under Islamic law. And, if so, what types of financing are available to Muslims?
YUNUSWell, that's -- whoever wants to do it in whichever way, it's no problem. I mean, if you do it in an Islamic way. Like Grameen microcredit program is done in Arab countries, like in Bahrain, for example, they have created what they call Family Bank, imitating the program of Grameen Bank. And they do it in an Islamic way, so there's no problem with that. So it's a question of how you want to design it.
YUNUSThe basic question is nobody should be left outside the scope of the financial system. And whichever way you want to serve them, you do that. But we are talking about social business, which is a much broader issue. You can solve the problem of the people by designing a business to solve the problem, rather than make money for the investors.
YUNUSAnd it could be in any direction. It could be food. It could be employment generation. It could be education. It could be technology. It could be health care. Whatever the problem, pressing problem you have in mind and you have a creative idea to create something, which will easily solve this in a business way, in a self-sustaining way, that's the whole challenge.
NNAMDIThank you for your call, Chris. Microloans are supposed to be used, as you pointed out, frequently as seed money for small businesses. But do you have any way of telling how the loan money is being used?
YUNUSYes, very much. Because the whole network of microcredit program, as you do, is based on people, people contacting the people. It's a very much human relationship. It's not bureaucratic paperwork or something like that.
NNAMDIWhat if somebody lies to you, that they're going to use it for a business and, in fact, is using it to have surgery for their husband?
YUNUSIt's possible. It's -- money is fungible. And the pressing need of the husband's problem you cannot ignore. People -- poor people have lots of such problems. So they're under pressure to do that a lot, which is not -- simply, you cannot deny that. But we said to open it up. Don't keep it hiding. We want to solve your problem. We are not against you. We are with you. So the more you share your problems, we will try to solve this.
YUNUSAnd that's why we have created a savings program so that, instead of using the money for what you take -- for the business -- don't use it for the purpose that you need for the household. Use your savings money for yourself.
NNAMDIA microfinance think-tank in -- a microfinance think-tank, back in 2009, I think, surveyed about 166 microfinance institutions and found that all of them offered credit. But only 27 percent of them offers savings products. And I'd -- obviously, Grameen offers saving products. How do you try to get that done in other locations? Is that something that can be done by regulation?
YUNUSIt's -- the whole problem is regulation under law. The law prohibits you. Law doesn't encourage you. It prohibits you to take savings because they're coming from the traditional banking thinking, that if you take deposit, you have to be a bank. This is catch-22. You cannot be a bank because, in order to get a banking license, you have to have several million -- $30 million, $40 million in cash to invest, to get a license and so on.
YUNUSAnd you don't have that kind of money to start a microcredit program. You -- a very tiny little budget you do that. So you cannot be a bank. So you cannot take a deposit. Since you cannot take deposit, you can't take the savings. You want to --with -- in Grameen America, in New York, we try to do that because we don't want to kind of abandon that principle of Grameen lending.
YUNUSSo we went to the conventional bank to take the deposits of our borrowers. It was such a big hassle. Only $2 per week -- that's the savings that it would make. No bank would like to touch that $2 a week. It's so small for them. And we ran around to persuade people. Look, this is so important for us. Finally, one bank did that. Citibank did that.
YUNUSBut it still is such a complicated thing to collect this $2 for each bank -- each person to deposit it and the complications of the banking rules and procedures and so on. So you make hurdles after hurdles when it comes to the poor people and then blame the poor people for not conforming to the rules and so on. You are not creating a bank for the poor people. You created a bank for the rich and asking the poor to play by the rule.
YUNUSI said, why don't you create a law for the -- bank for the poor people, make it as simple as it could be for them?
NNAMDIMaybe because poor people don't have lobbyists who can lobby legislators to pass regulations that allow them to be able to deposit $2 in a bank.
YUNUSAbsolutely. Sitting in Washington, that's the first thought you have. It's, unfortunately, poor people don't have the money to get the lobbyists. And that's why you and me and everybody else, to play the role to persuade that the whole sky will not fall if you change that rule that somebody can take this $2 and keep it as a savings for the poor people. It's a simple little law. That's all.
NNAMDIOn to Canard (sp?) in Bowie, Md. Canard, you're on the air. Go ahead, please.
CANARDYes. Thank you for taking my call, Kojo. I would like to say to the professor that I really think it's a very good -- I endorse the program. I've seen it work in Guyana, South America. And my wife was a beneficiary of that program.
CANARDAnd I see how it put the women together, and it gave them a sense of purpose in their lives. Not only that, it was able to -- in some way, because of the commercialization of -- and globalization now, a lot of the indigenous businesses have been wiped out completely. And so it gave them an opportunity to be able to go back and -- you know, take birds and chickens or do an agricultural business or something like that.
CANARDAnd I think it worked, to some extent. The technical support, I think, was lacking, where they did not follow up. The persons who were responsible for lending the money and running the entire program did not follow up to make sure that they have the necessary training that they need to make sure that some of those businesses were successful. And I'd just like to ask a question because it was only geared for women.
CANARDIs that the rules of the program, that men can't benefit from these programs, only women?
NNAMDIThat is the emphasis, is it not, Muhammad Yunus?
YUNUSYes, it is. Thank you very much for eloquently explaining what the microcredit does to a woman. The reason we focused on women more and more is because of the impact it creates in the family. We originally started out with the intention of making 50-50 -- 50 percent women and 50 percent men.
YUNUSThis was a protest against the conventional banking in Bangladesh because there hardly -- even one 1 percent of the borrowers happen to be women. So we thought it is wrong. And nobody complained about it. So we said, why don't we do it in our own way, make 50 percent of our borrowers as women? And we did that. It was hard work because women didn't believe that they can take money and use it and pay it back.
YUNUSSo we had to build a lot of self-confidence in them to handle money. And it worked beautifully. And then we saw money going to the family. The women brought so much more benefit to the family compared to the same amount of money going to the family through men.
YUNUSSo seeing it repeatedly, we changed our policy. We said, let's focus on women because that's the best way to use the money for the family. And that's what we did. Today -- and it virtually became focused on women. And when we'd done the programs in the U.S., it's 100 percent women. And you see the benefits right away...
NNAMDIAnd, Canard, I've heard of that country, Guyana. Where is it?
CANARDIt's in South America...
NNAMDIOh, that's all right. I was kidding. I was born there. Thank you very much for your call, Canard. And from financing to the arts because it is my understanding that Monica is a very accomplished operatic soprano, Muhammad Yunus...
NNAMDI...and I'm wondering where she got that from in her genes. Monica, of course, is your daughter. Are you...
NNAMDIHow are you as a singer?
YUNUSI'm very proud of her. As a singer, I'm a total failure.
NNAMDISo she didn't get it from you.
YUNUSShe definitely didn't get it from me. She got...
NNAMDIMuhammad Yunus' daughter is a very accomplished operatic soprano. She sang with some of the world's finest orchestras and ensembles.
NNAMDIShe gets that, presumably, from her mother.
YUNUSParticularly from her grandmother.
NNAMDIFrom her grandmother, from that side of the family.
YUNUSRight. Yeah, yeah.
NNAMDIMuhammad Yunus, thank you so much for joining us.
YUNUSThank you. Thank you, Kojo.
NNAMDIMuhammad Yunus is the 2006 Nobel Peace Prize laureate and founder of Grameen Bank. He joined us in studio. He heads later on to a meeting with Secretary of State Hillary Clinton. Good luck to you in that meeting.
YUNUSThank you very much.
NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.
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