Importance of Social Business in Development

"Is Poverty in the person or Is it Imposed on the person from outside? But seeing the reality of the Day I'm Totally convinced that it is SYSTEM that creates the poverty not the POOR."

These influential words are spoken by Mr. Yunus during a speech at Emory University. 

 This Blog is dedicated to  economist and Nobel Peace Prize recipient Mr. Muhammed Yunus for putting forward an amazing theory of Social Business. But first, Who is Muhammed Yunus?

Life Before Grameen Bank

The third of nine children, Yunus was born on 28 June 1940 to a Muslim family in the village of Bathua, by the Boxirhat Road in Hathazari, Chittagong, in the British Raj (modern Bangladesh). After his graduation, Yunus joined the Bureau of Economics as a research assistant to the economics researches of Professor Nurul Islam and Rehman Sobhan. Later, he was appointed lecturer in economics in Chittagong College in 1961. During this time, he also set up a profitable packaging factory on the side. In 1965, he received a Fulbright scholarship to study in the United States. From 1969 to 1972, Yunus was assistant professor of economics at Middle Tennessee State University in Murfreesboro.

How Grameen Bank Started

In 1976, during visits to the poorest households in the village of Jobra near Chittagong University, Yunus discovered that very small loans could make a disproportionate difference to a poor person. Village women who made bamboo furniture had to take usurious loans to buy bamboo, and repay their profits to the lenders. Traditional banks did not want to make tiny loans at reasonable interest to the poor due to high risk of default. But Yunus believed that, given the chance, the poor will repay the money and hence microcredit was a viable business model. Yunus lent US$27 of his money to 42 women in the village, who made a profit of BDT 0.50 (US$0.02) each on the loan. Thus Yunus is credited with the idea of microcredit alongside Dr. Akhtar Hameed Khan, founder of the Pakistan Academy for Rural Development (now Bangladesh Academy for Rural Development), whom Yunus greatly admired.Thus Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. 

In 1983 it was transformed into a formal bank under a special law passed for its creation. It is owned by the poor borrowers of the bank who are mostly women. It works exclusively for them. Borrowers of Grameen Bank at present own 95 percent of the total equity of the bank. Remaining 5 per cent is owned by the government.

MICROCREDIT

The word "microcredit" did not exist before the seventies. Now it has become a buzz-word among the development practitioners. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders.

Instead of just saying "microcredit" we should specify which category of microcredit.

Classification of microcredit :

A)           Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.)

B)            Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.)

C)            Activity-based microcredit through conventional or specialised banks (such as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)

D)           Rural credit through specialised banks.

E)            Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.)

F)            Consumer microcredit.

Grameen Bank Vs Conventional Banking

Grameen Bank methodology is almost the reverse of the conventional banking methodology. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks. 

Conventional banking is based on collateral, Grameen system is collateral- free. Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a system where one who does not possess anything gets the highest priority in getting a loan. Grameen methodology is not based on assessing the material possession of a person, it is based on the potential of a person. Grameen believes that all human beings, including the poorest, are endowed with endless potential.

Conventional banks look at what has already been acquired by a person. Grameen looks at the potential that is waiting to be unleashed in a person.

Conventional banks are owned by the rich, generally men. Grameen Bank is owned by poor women.

Grameen Bank Today

As of October, 2011, it has 8.349 million borrowers, 97 percent of whom are women. With 2,565 branches, GB provides services in 81,379 villages, covering more than 97 percent of the total villages in Bangladesh.

Total amount of loan disbursed by Grameen Bank, since inception, is Tk 684.13 billion (US $ 11.35 billion). Out of this, Tk 610.81 billion (US $ 10.11 billion) has been repaid. Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over 56 per cent of its deposits come from bank’s own borrowers. Loan recovery rate is 96.67 per cent.

Total revenue generated by Grameen Bank in 2010 was Tk 17.74 billion (US $ 252.05 million). Total expenditure was Tk 16.98 billion (US $ 241.29 million).

Grameen Bank has taken up a special programme in 2002, called Struggling Members Programme exclusively for the beggars. Over 111,296 beggars have joined the programme. Total amount disbursed stands today at Tk. 162.60 million. Of this amount of Tk. 130.89 million (80% of the amount disbursed) has already been paid off. 19,678 beggars have left begging and are making a living as door-to-door sales persons. 10,185 beggars have joined Grameen Bank groups as main-stream borrowers. 

Up to October'11, scholarships amounting to Tk 205.03 million (US$ 3.00 million) have been awarded to 1,33031 children. Students who succeed in reaching the tertiary level of education are given higher education loans, covering tuition, maintenance, and other school expenses.

In 2008 Mr. Yunus founded Grameen America, which provides loans, savings programs, financial education, and credit establishment to women who live in poverty in the United States. All loans must be used to build small businesses.

Social Business - Creating a World Without Poverty

In his Speech Mr. Yunus raises a question: What if we could harness the power of the free market to solve the problems of poverty, hunger, and inequality? To some, it sounds impossible. Much more could be done, he believed, if the dynamics of capitalism could be applied to humanity's greatest challenges.

Now, in Creating a World Without Poverty, Mr. Yunus goes beyond microcredit to pioneer the idea of social business a completely new way to use the creative vibrancy of business to tackle social problems from poverty and pollution to inadequate health care and lack of education. Mr. Yunus in partnership with some of the world's most visionary business leaders has launched the world's first purposely designed social businesses. From collaborating with Danone to produce affordable, nutritious yogurt for malnourished children in Bangladesh to building eyecare hospitals that will save thousands of poor people from blindness, these examples are a glimpse of the amazing future Yunus forecasts for a planet transformed by thousands of social businesses. This offers a pioneering model for nothing less than a new, more humane form of capitalism.

Important Quotes to Mr. Yunus

"Once poverty is gone, we'll need to build museums to display its horrors to future generations. They'll wonder why poverty continued so long in human society - how a few people could live in luxury while billions dwelt in misery, deprivation and despair."

"To me, the poor are like Bonsai trees. When you plant the best seed of the tallest tree in a six-inch deep flower pot, you get a perfect replica of the tallest tree, but it is only inches tall. There is nothing wrong with the seed you planted; only the soil-base you provided was inadequate. Poor people are bonsai people. There is nothing wrong with their seeds. Only society never gave them a base to grow on."

Thanks for reading.