Microcredit is supposed to describe loans offered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty. Yet today there are many organizations that call themselves “microcredit” programs that offer loans to people who are not poor, that require collateral, and that are used primarily for consumption rather than income generation. There are even “microcredit” programs that are generating enormous profits for investors by charging interest rates as high as 100 percent or even higher!
Under the circumstances, we really don’t know what we are talking about when we talk about microcredit. I think it is time we classify microcredit programs according to clear, consistent categories. - Muhammad Yunus in Creating a World Without Poverty
Last month Muhammad Yunus spoke at George Washington University. He talked about creating social businesses and microcredit. His speech was well timed - It just so happens I'm currently a graduate student at GW and am working with a small team to build a Microfinance Resource System for lenders.
With over 3,000 microcredit organizations, investors face a bewildering variety of options. A lender may want to focus his efforts on a specific country, concentrate on female borrowers, or loan to only the most destitute. He may want his contribution to be tax-deductible or may require his capital be repaid over time with interest while avoiding usurious organizations who exploit borrowers under a ruse of generosity. We hope to solve these problems and the challenges raised by Dr. Yunus in his book.
We recently submitted this project to Dell's Social Innovation Competition. Voting ends today at 5PM CST. We were ranked as high as #4 out of 500+ projects but have slipped due to a flurry of last minute voting. We need to get back in the top 25 to advance to the next round. Please read our 250-word project description, register (takes 1 minute), and vote now.
Update: Thanks LazyMan for helping to promote the project.
Showing posts with label Muhammad Yunus. Show all posts
Showing posts with label Muhammad Yunus. Show all posts
Thursday, March 5, 2009
Monday, February 9, 2009
Microcredit pioneer: Economic crisis is good
Last week at The George Washington University, microcredit pioneer Dr. Muhammad Yunus spoke about the financial crisis and creating a new normalcy that benefits the poor. I just came across this YouTube clip from the World Economic Forum at Davos. Here Dr. Yusus echoes many of the same ideas.
Yunus calls the current economic crisis "good" and "exciting" because it gives us an opportunity to create a "new normalcy." He says we should redesign the whole financial system so it is inclusive for all people. We should also create new types of business to change the world - social businesses. Through this, he believes, we can create a world without poverty, hunger and disease.
Yunus calls the current economic crisis "good" and "exciting" because it gives us an opportunity to create a "new normalcy." He says we should redesign the whole financial system so it is inclusive for all people. We should also create new types of business to change the world - social businesses. Through this, he believes, we can create a world without poverty, hunger and disease.
Thursday, February 5, 2009
Muhammad Yunus speaks at George Washington University (transcript)
Last night Muhammad Yunus spoke to a sold-out crowd of 1400 at George Washington University. Earlier in the day he visited visited with the Federal Reserve Chairman Ben Bernanke and the International Monetary Fund. He spoke about those visits as well as his recent trip to the World Economic Forum at Davos.
Yunus spoke for about 30 minutes then took questions from the audience. The event was hosted by the university and Hooks Books. Yunus' newest book, Creating a World Without Poverty: Social Business and the Future of Capitalism, was just republished in paperback with new material and he stayed to sign copies.
The following are my notes from his speech and the question and answer period which followed. It is not an exact transcript. I paraphrased some and couldn't hear everything, but this should give you a pretty good idea of the tone and content of his message.
Good evening.
I didn’t think there would be such a big audience here.
I thought everyone in this town was busy doing the bailout package. (laughter)
They wouldn’t have time to come here.
I had a good day today. I spent the whole day today here starting out with a meeting with Fed Chairman Bernake. I did that to update him about the work we have been doing in this country.
This is my second visit with him. I met him in October 2007 and at that time I was trying to explain the importance of microcredit to him in the USA. He knew all about microcredit. I thought we should start a microcredit program in this country – a prototype which could be expanded later. And he gave all his support. Go right ahead. Any support you need from us we will give it to you. We talked about creating a legal home so that we can use that legal home to create an organization. It is important that we have the legal ability to take deposits. If we can take deposits then it becomes easy to raise money.
We created a program in Queens last January. [see Jessica's recent report about Grameen America] At the inauguration of the program there were lots of journalists. One journalist asked why we chose New York City instead of the villages like in Bangladesh. My answer was we deliberately choose New York City because it is the capital of world banking. New York City does not, however, bank with its neighbors. The people that live there do not have access to financial services. It is important to have a small example to break fear. We follow the same principles – five women forming a group, weekly meetings. The average loan size is $2200. Repayment is 99.3%. This provides an interesting contrast. The women in New York take loans, without collateral, without any lawyers and they pay back every week. For one year they have been doing it.
Then the big banks. (laughter)
I remember my first encounter in 1976 with the bank manager. He kept trying to convince me the bank couldn’t loan money to the poor because they were not credit worthy. Now I think it is a good time to ask the question – who is credit worthy? (applause)
And then I went to IMF [after visiting with Ben Bernake today]. I also recently went to [the World Economic Forum] at Davos…I took the same message to IMF. The deep [economic] crisis is also exciting. It is an exciting opportunity to create a new normalcy. When we get out of this crisis what kind of normalcy will we have – the old normalcy or something new? Please make sure, today, right now, that we create a new normalcy. People wonder what this new normalcy will be. The financial system will be built in such a way that in this country there will be no payday loans. (applause) People can go to the bank and borrow money without paying 500%, 700%, 1000% interest. It is such a disgrace to see payday loans all over the cities in the United States. What a gaping hole the banking system has left behind.
The new normalcy will be that everyone in this country will have the right to open a bank account. There are millions of people without a banking account. To get a check cashed you have to go to a checking company which takes a large percentage of the check…nobody should be denied service.
There will no longer be a financial apartheid where people are denied service. You cannot say anymore that it cannot be done. Why not create a financial system that works for everyone?
We deliberately created a system that is focused on the beggars. [More on the Grameen beggar program.] We have 100,000 beggars in the program. It is not complicated. All we do is go to the beggars, talk to them, and see how they make their livelihood. We suggest to them –as you go from house to house will you carry some merchandise with you? Some food, candy or toys for the kids. Give people options – let them buy from you. We make it sound very easy – you are going there anyway. They immediately see the point. And we started giving money to them. We started four years ago. In those 4 years more than 11,000 have stopped begging. (applause) They are now successful door-to-door salesman. Some are personal shoppers…the other 90,000 are part-time beggars mixing begging and sales. They are very smart. When you talk to them they explain which houses are good for selling and which are good for begging. They never went to business school but they understand market segmentation. (laughter and applause)
Everyone has an ability. It doesn’t matter if you are a beggar or a big businessman – everyone has an ability. The one who starts at the bottom struggles and cannot move up. Some do not even know they have ability. Everyone carries such wonderful gifts inside of them – gift of creativity, gift of innovation, gift of entrepreneurship…
I talk about this when I see the differences in the families of Grameen members. We give them loans to continue with higher education. We have students in medical and engineering schools. Students whose parents never went to school…
Who creates poverty? The poor do not create poverty. Poverty is created by the system. The system we designed. The system we work with. That’s what creates poverty. It is not nature. It is the exact opposite. It is artificial. People have unlimited potential but we don’t go that way. All these policies and concepts that we promote [create poverty].
Why should financial institutions make up their mind they cannot do business with you? It doesn’t make sense. Let us now decide who is creditworthy.
One concept I try to explain in the book is the concept of business. One interpretation of business is profit maximization. We interpret human beings in such a narrow way, as if human beings are money making robots. Human beings are so much more than that. There is selfishness in us but we also have selflessness.
…Why cannot we create another kind of business? A social business. A business where our goal is to change the world, not to make money. If we give money to charity the money goes and never comes back. With a social business the money recycles and with each iteration produces more benefit at every turn.
We have created several social businesses. We created a plan to create yogurt – a social business. We put the nutrients children need in the yogurt and make it very cheap so everyone can buy it. Experts say if a child eats two cups of yogurt each week for 8-9 months a malnourished child will become a healthy child. In a profit making yogurt company, the CEO would ask how much money we made this year and how we can make more money next year. In a social business the CEO will ask how many children got out of malnutrition this year and how many more children can get out of malnutrition next year.
Another social business [we created is] a water company. Bangladesh has a serious water problem. Almost half the water is poison. We created a company to create safe bottled water. It costs one penny for four liters so everyone can afford it and everyone has safe water. The social objective is to bring safe water to the people.
We recently had a discussion with a major shoe company about how to create a social business. You create a motto. And you believe in it. That motto is that nobody in the world should go without shoes. And make it happen. Yes, you can make shoes for the poorest at a low price. Keep the cost under a dollar with your brand name. That would send a big message. And continue to go down [in price] and never come up again. And make it a green shoe so that no material in the shoe will make any kind of pollution problem.
And another company [that came to us] is a car company. They want to do a social business. We gave them a challenge – why don’t you make a very cheap car. And not only that – base it on a green engine. It will be a multi-purpose engine. You can take it off and use it for irrigation or to generate electricity or to use for a boat. They are working with designers and engineers to see if they can do that.
Health is a big problem – not only in this country but in every country. The bottom half do not have access to health care – private or public. Medical science can be applied to help people have good health. A health care social business could be created to give everyone access to health care.
So, if you change your concepts there is no reason people should be poor. If we block that road it cannot come. Then, no poor.
Poverty does not belong in human society. Poverty belongs in a museum. And that is where we should put it and it will stay there. (applause)
Questions:
Is it harder to implement microcredit in the United States than in Bangladesh?
It is harder in the United States due to the legal structure. Welfare laws require the poor to report each dollar they earn so it can be deducted from their check. It does not make sense. If you make a dollar the government should match you with a dollar.
How do you approach poor women who are reluctant to become involved in microcredit because they do not believe they have the skills or potential to become entrepreneurs?
The real trick is to create an example. You cannot change their mind right away. If you can create one example to break the fear then the others see that. Then everyone becomes curious – how did she do it? I can do better than her.
What advice would you give to a group of George Washington students here who are trying to create a social business?
Young people like you can start a business. If you cannot start one, then design one. Look at the problems and decide which one you want to solve. For example, set a goal to bring 100 people out of welfare. And design a solution to the problem. At first it may seem impossible but you can do it. Microcredit seemed impossible but now it looks easy. If you can get 100 people out of poverty then you can get millions out of poverty by planting that seed.
What abuses do you see in the microfinance system?
You can say microfinance and not do microfinance. Some require collateral. Some due not target the poor. Some microfinance organizations charge exorbitant interest rates – rates similar to loan sharks. Loans should be for income generating activity. Some give loans for consumer goods such as refrigerators and televisions. This is not microfinance.
In your book you propose a rating system to determine which ones help the poor and which ones don’t. In the year since you wrote the book has anyone come up with such a system? [note: this is my question]
Oh yes. A big organization is coming up with that very system. It will tell you exactly what interest rate is charged, conditional fees and so on. Yes, we will start seeing the results of that from this organization.
What is the best way right now to determine the best organizations to contribute money? [my follow-up question]
One way would be to contact that organization to choose which one you want and they will give you the results and then you decide which ones you want to give your money to.
I run a microfinance organization here in DC. It seems the lack of transparency is one of the biggest challenges in our financial industry and particularity in microfinance. I understand Grameen has a very high repayment rate. How does Grameen calculate repayment rate?
If you do not pay back your loan in the period in which it is due then you are overdue. This is all explained on our website. The definition which we use to define overdue is explained there.
What are the edges between commerce and the ecosystem?
We need to figure out how much of our resources are for our generation and how much is for future generations. We need to spread our resources over as many generations as possible.
The real objective is to make the world safer than we found it. And the next generation will make it safer.
Grameen Dannon is a small company. The total investment is less than $500,000. We designed it as a social business. When we started I asked what kind of container we would be using. They showed me. It was plastic. I told them we did not want plastic in a social business. They were surprised. They told me they use plastic all over the world. I told them we want a biodegradable material. They said they did not have a biodegradable material. I told them they better find it. (laughter and applause)
So, about three months later they came back. They were very happy they found a biodegradable material to use in the cups. I asked what it was. They said it was cornstarch and they found it in China. It looks beautiful. I asked if I could eat it. They said why would you want to eat it? I said because poor people are spending money on it. They don’t want to waste money. Why can’t you make edible cups? And put nutrition in it? People will eat the yogurt and then eat the cup. And they could not figure out how that could be. I told them when I get ice cream I get an ice cream cone. I eat the cone. They said this is not ice cream. I told them the scientists need to work on it. They told me it will take a year. I told them they have six months. So, they are working on it.
You have to raise the question. The scientists in Paris are very happy to have the challenge.
Additional coverage: The GW Hatchet
Yunus spoke for about 30 minutes then took questions from the audience. The event was hosted by the university and Hooks Books. Yunus' newest book, Creating a World Without Poverty: Social Business and the Future of Capitalism, was just republished in paperback with new material and he stayed to sign copies.The following are my notes from his speech and the question and answer period which followed. It is not an exact transcript. I paraphrased some and couldn't hear everything, but this should give you a pretty good idea of the tone and content of his message.
Good evening.
I didn’t think there would be such a big audience here.
I thought everyone in this town was busy doing the bailout package. (laughter)
They wouldn’t have time to come here.
I had a good day today. I spent the whole day today here starting out with a meeting with Fed Chairman Bernake. I did that to update him about the work we have been doing in this country.
This is my second visit with him. I met him in October 2007 and at that time I was trying to explain the importance of microcredit to him in the USA. He knew all about microcredit. I thought we should start a microcredit program in this country – a prototype which could be expanded later. And he gave all his support. Go right ahead. Any support you need from us we will give it to you. We talked about creating a legal home so that we can use that legal home to create an organization. It is important that we have the legal ability to take deposits. If we can take deposits then it becomes easy to raise money.
We created a program in Queens last January. [see Jessica's recent report about Grameen America] At the inauguration of the program there were lots of journalists. One journalist asked why we chose New York City instead of the villages like in Bangladesh. My answer was we deliberately choose New York City because it is the capital of world banking. New York City does not, however, bank with its neighbors. The people that live there do not have access to financial services. It is important to have a small example to break fear. We follow the same principles – five women forming a group, weekly meetings. The average loan size is $2200. Repayment is 99.3%. This provides an interesting contrast. The women in New York take loans, without collateral, without any lawyers and they pay back every week. For one year they have been doing it.
Then the big banks. (laughter)
I remember my first encounter in 1976 with the bank manager. He kept trying to convince me the bank couldn’t loan money to the poor because they were not credit worthy. Now I think it is a good time to ask the question – who is credit worthy? (applause)
And then I went to IMF [after visiting with Ben Bernake today]. I also recently went to [the World Economic Forum] at Davos…I took the same message to IMF. The deep [economic] crisis is also exciting. It is an exciting opportunity to create a new normalcy. When we get out of this crisis what kind of normalcy will we have – the old normalcy or something new? Please make sure, today, right now, that we create a new normalcy. People wonder what this new normalcy will be. The financial system will be built in such a way that in this country there will be no payday loans. (applause) People can go to the bank and borrow money without paying 500%, 700%, 1000% interest. It is such a disgrace to see payday loans all over the cities in the United States. What a gaping hole the banking system has left behind.
The new normalcy will be that everyone in this country will have the right to open a bank account. There are millions of people without a banking account. To get a check cashed you have to go to a checking company which takes a large percentage of the check…nobody should be denied service.
There will no longer be a financial apartheid where people are denied service. You cannot say anymore that it cannot be done. Why not create a financial system that works for everyone?
We deliberately created a system that is focused on the beggars. [More on the Grameen beggar program.] We have 100,000 beggars in the program. It is not complicated. All we do is go to the beggars, talk to them, and see how they make their livelihood. We suggest to them –as you go from house to house will you carry some merchandise with you? Some food, candy or toys for the kids. Give people options – let them buy from you. We make it sound very easy – you are going there anyway. They immediately see the point. And we started giving money to them. We started four years ago. In those 4 years more than 11,000 have stopped begging. (applause) They are now successful door-to-door salesman. Some are personal shoppers…the other 90,000 are part-time beggars mixing begging and sales. They are very smart. When you talk to them they explain which houses are good for selling and which are good for begging. They never went to business school but they understand market segmentation. (laughter and applause)
Everyone has an ability. It doesn’t matter if you are a beggar or a big businessman – everyone has an ability. The one who starts at the bottom struggles and cannot move up. Some do not even know they have ability. Everyone carries such wonderful gifts inside of them – gift of creativity, gift of innovation, gift of entrepreneurship…
I talk about this when I see the differences in the families of Grameen members. We give them loans to continue with higher education. We have students in medical and engineering schools. Students whose parents never went to school…
Who creates poverty? The poor do not create poverty. Poverty is created by the system. The system we designed. The system we work with. That’s what creates poverty. It is not nature. It is the exact opposite. It is artificial. People have unlimited potential but we don’t go that way. All these policies and concepts that we promote [create poverty].
Why should financial institutions make up their mind they cannot do business with you? It doesn’t make sense. Let us now decide who is creditworthy.
One concept I try to explain in the book is the concept of business. One interpretation of business is profit maximization. We interpret human beings in such a narrow way, as if human beings are money making robots. Human beings are so much more than that. There is selfishness in us but we also have selflessness.
…Why cannot we create another kind of business? A social business. A business where our goal is to change the world, not to make money. If we give money to charity the money goes and never comes back. With a social business the money recycles and with each iteration produces more benefit at every turn.
We have created several social businesses. We created a plan to create yogurt – a social business. We put the nutrients children need in the yogurt and make it very cheap so everyone can buy it. Experts say if a child eats two cups of yogurt each week for 8-9 months a malnourished child will become a healthy child. In a profit making yogurt company, the CEO would ask how much money we made this year and how we can make more money next year. In a social business the CEO will ask how many children got out of malnutrition this year and how many more children can get out of malnutrition next year.
Another social business [we created is] a water company. Bangladesh has a serious water problem. Almost half the water is poison. We created a company to create safe bottled water. It costs one penny for four liters so everyone can afford it and everyone has safe water. The social objective is to bring safe water to the people.
We recently had a discussion with a major shoe company about how to create a social business. You create a motto. And you believe in it. That motto is that nobody in the world should go without shoes. And make it happen. Yes, you can make shoes for the poorest at a low price. Keep the cost under a dollar with your brand name. That would send a big message. And continue to go down [in price] and never come up again. And make it a green shoe so that no material in the shoe will make any kind of pollution problem.
And another company [that came to us] is a car company. They want to do a social business. We gave them a challenge – why don’t you make a very cheap car. And not only that – base it on a green engine. It will be a multi-purpose engine. You can take it off and use it for irrigation or to generate electricity or to use for a boat. They are working with designers and engineers to see if they can do that.
Health is a big problem – not only in this country but in every country. The bottom half do not have access to health care – private or public. Medical science can be applied to help people have good health. A health care social business could be created to give everyone access to health care.
So, if you change your concepts there is no reason people should be poor. If we block that road it cannot come. Then, no poor.
Poverty does not belong in human society. Poverty belongs in a museum. And that is where we should put it and it will stay there. (applause)
Questions:
Is it harder to implement microcredit in the United States than in Bangladesh?
It is harder in the United States due to the legal structure. Welfare laws require the poor to report each dollar they earn so it can be deducted from their check. It does not make sense. If you make a dollar the government should match you with a dollar.
How do you approach poor women who are reluctant to become involved in microcredit because they do not believe they have the skills or potential to become entrepreneurs?
The real trick is to create an example. You cannot change their mind right away. If you can create one example to break the fear then the others see that. Then everyone becomes curious – how did she do it? I can do better than her.
What advice would you give to a group of George Washington students here who are trying to create a social business?
Young people like you can start a business. If you cannot start one, then design one. Look at the problems and decide which one you want to solve. For example, set a goal to bring 100 people out of welfare. And design a solution to the problem. At first it may seem impossible but you can do it. Microcredit seemed impossible but now it looks easy. If you can get 100 people out of poverty then you can get millions out of poverty by planting that seed.
What abuses do you see in the microfinance system?
You can say microfinance and not do microfinance. Some require collateral. Some due not target the poor. Some microfinance organizations charge exorbitant interest rates – rates similar to loan sharks. Loans should be for income generating activity. Some give loans for consumer goods such as refrigerators and televisions. This is not microfinance.
In your book you propose a rating system to determine which ones help the poor and which ones don’t. In the year since you wrote the book has anyone come up with such a system? [note: this is my question]
Oh yes. A big organization is coming up with that very system. It will tell you exactly what interest rate is charged, conditional fees and so on. Yes, we will start seeing the results of that from this organization.
What is the best way right now to determine the best organizations to contribute money? [my follow-up question]
One way would be to contact that organization to choose which one you want and they will give you the results and then you decide which ones you want to give your money to.
I run a microfinance organization here in DC. It seems the lack of transparency is one of the biggest challenges in our financial industry and particularity in microfinance. I understand Grameen has a very high repayment rate. How does Grameen calculate repayment rate?
If you do not pay back your loan in the period in which it is due then you are overdue. This is all explained on our website. The definition which we use to define overdue is explained there.
What are the edges between commerce and the ecosystem?
We need to figure out how much of our resources are for our generation and how much is for future generations. We need to spread our resources over as many generations as possible.
The real objective is to make the world safer than we found it. And the next generation will make it safer.
Grameen Dannon is a small company. The total investment is less than $500,000. We designed it as a social business. When we started I asked what kind of container we would be using. They showed me. It was plastic. I told them we did not want plastic in a social business. They were surprised. They told me they use plastic all over the world. I told them we want a biodegradable material. They said they did not have a biodegradable material. I told them they better find it. (laughter and applause)
So, about three months later they came back. They were very happy they found a biodegradable material to use in the cups. I asked what it was. They said it was cornstarch and they found it in China. It looks beautiful. I asked if I could eat it. They said why would you want to eat it? I said because poor people are spending money on it. They don’t want to waste money. Why can’t you make edible cups? And put nutrition in it? People will eat the yogurt and then eat the cup. And they could not figure out how that could be. I told them when I get ice cream I get an ice cream cone. I eat the cone. They said this is not ice cream. I told them the scientists need to work on it. They told me it will take a year. I told them they have six months. So, they are working on it.
You have to raise the question. The scientists in Paris are very happy to have the challenge.
Additional coverage: The GW Hatchet
Wednesday, February 4, 2009
Classifying microcredit programs
In Creating a World Without Poverty: Social Business and the Future of Capitalism, Muhammad Yunus laments the return of moneylenders who have ignored the original intent of microcredit – to help the poor.
Here is an excerpt from the book where he describes the problem:
Microcredit is supposed to describe loans offered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty. Yet today there are many organizations that call themselves “microcredit” programs that offer loans to people who are not poor, that require collateral, and that are used primarily for consumption rather than income generation. There are even “microcredit” programs that are generating enormous profits for investors by charging interest rates as high as 100 percent or even higher!
Under the circumstances, we really don’t know what we are talking about when we talk about microcredit. I think it is time we classify microcredit programs according to clear, consistent categories. Here are the categories I would propose:
Type 1: Poverty-Focused Microcredit Programs
These are poverty-focused, collateral-free, low-interest microcredit programs. Grameen Bank was created to provide this type of microcredit. Type 1 programs charge interest rates that fit into one of two zones: the Green Zone, which equals the cost of funds at the market rate plus up to 10 percent, and the Yellow Zone, which equals the cost of funds at the market rate plus 10 to 15 percent.
Type 2: Profit-Maximizing Microcredit Programs
These are programs that charge an interest rate higher than the Yellow Zone. They operate in the Red Zone, which is moneylenders’ territory. Because of the high interest they charge, these programs cannot be viewed as poverty-focused but rather are commercial enterprises whose main objective appears to be earning large profits for shareholders or other investors.
This classification may be adjusted for special situations, such as when high salary costs make operating expenses unusually heavy. And these principles will not apply where the microcredit organization is owned by the borrowers.
However, I think the secretariat for the Microcredit Summit Campaign, which maintains the database of all microcredit programs, should classify programs according to a system like the one I propose. What’s more, I believe that the Microcredit Summit Campaign should include only Type 1 programs, since only these contribute to the campaign’s goal of using microcredit to help eliminate global poverty.
Yunus' book was published more than one year ago. I have not been able to find a rating system such as the one proposed for microcredit organizations. If the Microcredit Summit Campaign has made such information available, I cannot find it. Another organization, mftransparency.org, claims to be the "venue for the Microfinance industry to publicly demonstrate its commitment to pricing transparency, integrity and poverty alleviation." They launched in the summer of 2008 but it does not appear they have any publicly available data.
Does anyone know if the rating information requested by Muhammed Yunus is available on the web in a transparent manner yet? If I get the chance, I'll ask him tonight when he speaks at George Washington University.
Here is an excerpt from the book where he describes the problem:
Microcredit is supposed to describe loans offered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty. Yet today there are many organizations that call themselves “microcredit” programs that offer loans to people who are not poor, that require collateral, and that are used primarily for consumption rather than income generation. There are even “microcredit” programs that are generating enormous profits for investors by charging interest rates as high as 100 percent or even higher!Under the circumstances, we really don’t know what we are talking about when we talk about microcredit. I think it is time we classify microcredit programs according to clear, consistent categories. Here are the categories I would propose:
Type 1: Poverty-Focused Microcredit Programs
These are poverty-focused, collateral-free, low-interest microcredit programs. Grameen Bank was created to provide this type of microcredit. Type 1 programs charge interest rates that fit into one of two zones: the Green Zone, which equals the cost of funds at the market rate plus up to 10 percent, and the Yellow Zone, which equals the cost of funds at the market rate plus 10 to 15 percent.
Type 2: Profit-Maximizing Microcredit Programs
These are programs that charge an interest rate higher than the Yellow Zone. They operate in the Red Zone, which is moneylenders’ territory. Because of the high interest they charge, these programs cannot be viewed as poverty-focused but rather are commercial enterprises whose main objective appears to be earning large profits for shareholders or other investors.
This classification may be adjusted for special situations, such as when high salary costs make operating expenses unusually heavy. And these principles will not apply where the microcredit organization is owned by the borrowers.
However, I think the secretariat for the Microcredit Summit Campaign, which maintains the database of all microcredit programs, should classify programs according to a system like the one I propose. What’s more, I believe that the Microcredit Summit Campaign should include only Type 1 programs, since only these contribute to the campaign’s goal of using microcredit to help eliminate global poverty.
Yunus' book was published more than one year ago. I have not been able to find a rating system such as the one proposed for microcredit organizations. If the Microcredit Summit Campaign has made such information available, I cannot find it. Another organization, mftransparency.org, claims to be the "venue for the Microfinance industry to publicly demonstrate its commitment to pricing transparency, integrity and poverty alleviation." They launched in the summer of 2008 but it does not appear they have any publicly available data.
Does anyone know if the rating information requested by Muhammed Yunus is available on the web in a transparent manner yet? If I get the chance, I'll ask him tonight when he speaks at George Washington University.
Philanthrocapitalism: do well by doing good
Tonight I'm going to see Dr. Muhammad Yunus, microcredit pioneer, speak at George Washington University. [Update: Transcipt of speech] Over the past few days Yunus was at the World Economic Forum and has spoken with numerous journalists. Here are a few of the news articles mentioning Yunus over the past few days.
More than 100 Million of World’s Poorest Benefit from Microcredit (Microcredit Summit Campaign) - "More than 106 million of the world’s poorest families received a microloan in 2007, surpassing a goal set ten years earlier, according to a report released today by the Microcredit Summit Campaign. Microloans are used to help people living in extreme poverty start or expand a range of tiny businesses such as husking rice, selling tortillas, and delivering cell phone services to remote villages. 'This is a tremendous achievement that many people thought was far too difficult to reach,' said Nobel Peace Prize laureate and Grameen Bank founder Muhammad Yunus who was present for the announcement. 'What makes it even more remarkable is that loans to more than 100 million very poor families now touch the lives of more than half a billion family members around the world. That is half of the world’s poorest people.'”
Dr. Yunus' lone voice at Davos reverberates (The Daily Star, Bangladesh) -"His remarks, made against the backdrop of the on-going global recession, drive the point home that for all the bailouts that governments have been planning for global corporate business not much can be expected if the plight of the poor is ignored."
Philanthrocapitalism: Yes We Can (Huffington Post) - "What cause, what movement brings together Tony Blair and Jet Li, Bill Clinton and Bill Gates, Muhammad Yunus and Sir Richard Branson? In a word (albeit a hard-to-pronounce word), it is philanthrocapitalism....philanthrocapitalism is about doing well by doing good. Both Yunus and Branson enthused about how businesses should embrace social causes as a profit-making strategy, because the money earned by harnessing the profit motive can help achieve change faster, and more sustainably than old-fashioned charity alone."
The rich can save the world: we should let them (Times Online) - "Social entrepreneurs such as Dr Yunus tend to find that their bright ideas get nowhere inside state bureaucracies, whereas they can flourish with the support of business and philanthropy."
Microlending: Macro solution? (Cincinnati.com) - "...investment remains healthy in at least one area, a place where you might least expect it - microcredit banks making small, short-term loans to very poor people to help them start small, money-making enterprises and lift themselves out of poverty. It also might be a part of the solution for middle-class America. ...in a conference call Monday with journalists, Yunus and other officials of the Microcredit Summit Campaign announced that they have reached 106 million poor families worldwide. About 97 percent of loans have been to women."
Grameen Bank: Giving Credit Where Credit Is Due (CNBC) - "The problem with capitalism, Yunus tells Fast Money, is its distinction between companies pursuing profit and charities pursuing good. His bank model operates with corporate efficiency, but pumps profits back into social objectives."
World Economic Forum concludes on a sombre note (SwissInfo) - "'It's not just disappointment and frustrations,' said Nobel Peace Prize winner Muhammad Yunus said of the meeting's atmosphere. 'This is the greatest moment we have because things need to be changed, it's as simple as that. We don't want to go back to the same normalcy that we're coming from. We will create a new normalcy which will stay and keep on moving and change the world.'"
More than 100 Million of World’s Poorest Benefit from Microcredit (Microcredit Summit Campaign) - "More than 106 million of the world’s poorest families received a microloan in 2007, surpassing a goal set ten years earlier, according to a report released today by the Microcredit Summit Campaign. Microloans are used to help people living in extreme poverty start or expand a range of tiny businesses such as husking rice, selling tortillas, and delivering cell phone services to remote villages. 'This is a tremendous achievement that many people thought was far too difficult to reach,' said Nobel Peace Prize laureate and Grameen Bank founder Muhammad Yunus who was present for the announcement. 'What makes it even more remarkable is that loans to more than 100 million very poor families now touch the lives of more than half a billion family members around the world. That is half of the world’s poorest people.'”
Dr. Yunus' lone voice at Davos reverberates (The Daily Star, Bangladesh) -"His remarks, made against the backdrop of the on-going global recession, drive the point home that for all the bailouts that governments have been planning for global corporate business not much can be expected if the plight of the poor is ignored."
Philanthrocapitalism: Yes We Can (Huffington Post) - "What cause, what movement brings together Tony Blair and Jet Li, Bill Clinton and Bill Gates, Muhammad Yunus and Sir Richard Branson? In a word (albeit a hard-to-pronounce word), it is philanthrocapitalism....philanthrocapitalism is about doing well by doing good. Both Yunus and Branson enthused about how businesses should embrace social causes as a profit-making strategy, because the money earned by harnessing the profit motive can help achieve change faster, and more sustainably than old-fashioned charity alone."
The rich can save the world: we should let them (Times Online) - "Social entrepreneurs such as Dr Yunus tend to find that their bright ideas get nowhere inside state bureaucracies, whereas they can flourish with the support of business and philanthropy."
Microlending: Macro solution? (Cincinnati.com) - "...investment remains healthy in at least one area, a place where you might least expect it - microcredit banks making small, short-term loans to very poor people to help them start small, money-making enterprises and lift themselves out of poverty. It also might be a part of the solution for middle-class America. ...in a conference call Monday with journalists, Yunus and other officials of the Microcredit Summit Campaign announced that they have reached 106 million poor families worldwide. About 97 percent of loans have been to women."
Grameen Bank: Giving Credit Where Credit Is Due (CNBC) - "The problem with capitalism, Yunus tells Fast Money, is its distinction between companies pursuing profit and charities pursuing good. His bank model operates with corporate efficiency, but pumps profits back into social objectives."
World Economic Forum concludes on a sombre note (SwissInfo) - "'It's not just disappointment and frustrations,' said Nobel Peace Prize winner Muhammad Yunus said of the meeting's atmosphere. 'This is the greatest moment we have because things need to be changed, it's as simple as that. We don't want to go back to the same normalcy that we're coming from. We will create a new normalcy which will stay and keep on moving and change the world.'"
Monday, February 2, 2009
Dr. Muhammad Yunus to speak on microcredit at George Washington University
Dr. Muhammad Yunus, founder of the Grameen Bank and a pioneer of microcredit, will speak at George Washington University in Washington DC on Wednesday. I have a ticket and a bunch of questions I'd love to ask if I get a chance. What would you ask?
Hooks Book Events presents Dr. Muhammad Yunus
2006 Nobel Peace Prize Winner
The winner of the Nobel Peace Prize outlines his vision for a new business model that combines the power of free markets with the quest for a more humane world—and tells the inspiring stories of companies that are doing this work today.
In the last two decades, free markets have swept the globe, bringing with them enormous potential for positive change. But traditional capitalism cannot solve problems like inequality and poverty, because it is hampered by a narrow view of human nature in which people are one-dimensional beings concerned only with profit.
In fact, human beings have many other drives and passions, including the spiritual, the social, and the altruistic. Welcome to the world of social business, where the creative vision of the entrepreneur is applied to today's most serious problems: feeding the poor, housing the homeless, healing the sick, and protecting the planet.
Creating a World Without Poverty tells the stories of some of the earliest examples of social businesses, including Yunus's own Grameen Bank. It reveals the next phase in a hopeful economic and social revolution that is already under way—and in the worldwide effort to eliminate poverty by unleashing the productive energy of every human being.
Muhammad Yunus, a native of Bangladesh, was educated at Dhaka University and was awarded a Fulbright scholarship to study economics at Vanderbilt University. In 1972 he became head of the economics department at Chittagong University. He is the founder and managing director of Grameen Bank, a pioneer of microcredit, an economic movement that has helped lift millions of families around the world out of poverty. Yunus and Grameen Bank are winners of the 2006 Nobel Peace Prize.
Update: Transcipt of speech
Hooks Book Events presents Dr. Muhammad Yunus
2006 Nobel Peace Prize Winner
The winner of the Nobel Peace Prize outlines his vision for a new business model that combines the power of free markets with the quest for a more humane world—and tells the inspiring stories of companies that are doing this work today. In the last two decades, free markets have swept the globe, bringing with them enormous potential for positive change. But traditional capitalism cannot solve problems like inequality and poverty, because it is hampered by a narrow view of human nature in which people are one-dimensional beings concerned only with profit.
In fact, human beings have many other drives and passions, including the spiritual, the social, and the altruistic. Welcome to the world of social business, where the creative vision of the entrepreneur is applied to today's most serious problems: feeding the poor, housing the homeless, healing the sick, and protecting the planet.
Creating a World Without Poverty tells the stories of some of the earliest examples of social businesses, including Yunus's own Grameen Bank. It reveals the next phase in a hopeful economic and social revolution that is already under way—and in the worldwide effort to eliminate poverty by unleashing the productive energy of every human being.
Muhammad Yunus, a native of Bangladesh, was educated at Dhaka University and was awarded a Fulbright scholarship to study economics at Vanderbilt University. In 1972 he became head of the economics department at Chittagong University. He is the founder and managing director of Grameen Bank, a pioneer of microcredit, an economic movement that has helped lift millions of families around the world out of poverty. Yunus and Grameen Bank are winners of the 2006 Nobel Peace Prize.
Update: Transcipt of speech
Sunday, January 18, 2009
Grameen America sees excellent return on investment and paves the way for immigrant family businesses
Americans are defaulting on their loans in record numbers. Credit cards, student loans and even mortgages. As a result, those with low credit scores or self-employment are finding it difficult, even impossible to get the credit needed to maintain their businesses. Enter Grameen America, a branch of Bangladesh-based Grameen Bank, which shared the 2006 Nobel Peace Prize with the father of microcredit, Professor Muhammad Yunus.Grameen America is directed by CEO Steve Vogel and is serving loans in one of the poorest parts of New York City—Queens. Since opening a year ago Grameen America has lent $1.1 Million to 440 women in the borough of Queens. All are self employed and have little or nothing in terms of assets. All are also-self employed and many are immigrants. Remarkably, despite mainstream-America’s credit woes, Grameen is reporting a 99.5% loan repayment rate. These loans, averaging about $2,000 each have been issued with receipts and ledgers and without the benefit of credit checks have performed better than heavily documented mortgages and credit cards.
Grameen America holds all of its own loans, and requires weekly meetings with its borrowers. By contrast, according to an MSNBC article, in more than half of all US mortgage foreclosures, the lender and borrower had no communication in the prior twelve months.
There is a core trust between borrowers and lenders (and peer to peer between the borrowers) that the loans will be repaid. In fact, no loans can be issued until all borrowers in a group are current on their payments—which keeps the borrowers aware of each others’ payment status as well.
Grameen America plans to expand to other low-income communities in the United States. Its published goal is to build a culture of individual responsibility, savings and prudent use of credit for income-generating activities throughout the United States. Once a substantial base of about 10,000 borrowers and savers has been established, Grameen America plans to add loans for other purposes.
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Jessica Ward authored this post. She is a freelance writer, microcredit enthusiast and frequent contributor to this blog.
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