Muhammad Yunus was awarded the Nobel Peace Prize in 2006 having successfully developed microfinance to address poverty in Bangladesh. Starting with just $27 over 30 years ago, his Grameen Bank has grown to become a multibillion enterprise lending almost exclusively to women. At the IBA Annual Conference in Dublin, he spoke to James Lewis.
James Lewis: The first thing I want to ask you is why you, as a banker, won the Nobel Peace Prize.
Muhammad Yunus: Well, I think the Nobel committee should be able to answer that! I’m very happy that they have recognised the work because this is a bank but a very unusual bank in the sense that it focuses on delivering financial services to poor women and this is a bank which is owned by poor people, poor women. So in that way it’s unique in the whole world. And it gives loans for income generating activity. The basic principle of the bank is that people should not go to the bank; the bank should go to the people. So we are not an office-based bank. Our office is not our place of work; our place of work is the doorstep of the borrowers. Grameen Bank means village bank, we work in the villages. Today we have 2,600 branches over 80,000 villages in Bangladesh so we have covered every single village in Bangladesh. And it has changed their lives, improving their income with their own power of creativity in business and so on. And also we give loans to their children for education. We give education loans so that nobody has to stop their education because they don’t have money to proceed. So, because of that, thousands and thousands of children are in medical schools, engineering schools and universities and so on. Another feature would be it [the bank] doesn’t take any money from the government and it doesn’t take any money from international sources or anything. It generates the money inside the bank by taking deposits and then lending the money to the poor people in the area.
‘When the Millenium Development Goals were announced, I thought this is the best thing the United Nations ever did. It is the best thing mankind as a whole ever did’
JL: Do you see a direct link between poverty and peace?
MY: Yes, there is a very strong link because peace is disturbed when people are disturbed; when people don’t have any means for their survival and they’re suffering and they have no hope for the future they will do anything drastic for society to pay attention [to] them. It’s easy for somebody who is given some money and given a gun and asked to do the job that somebody wants him to do. Because he is hungry, he needs food, he needs a place to live and you are providing that. If you are well fed, well educated, it’s not easy for people just to give money and convert the person and so on. So poverty is the breeding ground for all kinds of tension and instability of society, so why keep that tension point alive? The easy way is to get the people to move out of poverty. It’s something that’s doable; people have the creative power, people have the ways to make their own livelihood, so why don’t we support that? All we need is a kind of institutional support to do that.
JL: It sounds so simple when you put it like that and yet 94 per cent of the world’s income, on some estimates, goes to as few as 40 per cent of the population. What has to change to address that level of shocking inequality?
MY: It has to change because institutions are geared in that direction, so it’s not just somebody inefficient who could not make money and somebody efficient who could make money; the whole system is pushing the money to the top. And the more you have, the more you can get. If you have less you don’t get anything, if you have nothing you get nothing, so you remain in the same situation over and over again, you have no escape route for yourself. So you need something to push you from behind by means of institutions, by policies. But one simple fact is that poverty is not created by the poor people. It’s not because of something lacking in them that they became poor. It’s because of the system which was not available to them. They fell through the system and that’s what created the poverty, and they cannot lift themselves through the system, it’s not there. So we need just that, institutions are designed wrongly, they work for the privileged people, they don’t work for the poor people. Take the example of the banks: banks don’t give loans to poor people, that’s why loan sharks flourish in the world, in every city in the world you see loan sharks under different names. In some countries they call them ‘payday lenders’ in some cities they will be saying something else, but people need money and they provide the money...
‘The law creates the bank for the rich…You need a different kind of legal framework to create a bank for the poor’
JL: ...at punitive levels of interest which are crippling and don’t develop enterprise and all the things that you’ve been trying to do with Grameen Bank. So if you were to change the institutions and the system are there key things you can identify which would be fundamental changes?
MY: Yes, first of all you have to admit that this is a vacuum of the institutions and policies, this is a barren land. So this is where you have to do something, make the institutions work for the poor to get them out of the situation they are in. And also create new legal structure, because you think, all right the bank is there, why can’t you create a bank to do that? But the law creates the bank for the rich. It’s a different kind of animal you create with those laws, it’s a bank for the rich, so you need a different kind of legal framework to create a bank for the poor. People say a bank is a bank. It’s not true: a bank is not a bank, because conventional banks – even after 35 years of microcredit all over the world – still could not open their doors to the poor because their system doesn’t allow them to open the door. So why can’t we create a separate banking system, or a separate breed of bank, which is a bank for the poor as we have done in Bangladesh. So this is why we need a separate structure for that. Those are the kind of things we need: a structure, concepts are needed.
We always think jobs are the solution to poverty, give people jobs, but not many jobs are coming so what will other people do who haven’t got jobs? People don’t think that people themselves can create their own jobs, self employment. You can create self employment and that’s how in most countries people survive: they’re all self-employed, there is no kind of institutional job for them, either in the private sector or the public sector. They make a living by doing something on their own and that’s how they survive. Why don’t they recognise people’s entrepreneurship, why should everything be job oriented, why should everybody be job seekers? Why can’t you also feel you are job givers at the same time? So we can give jobs, anybody can give jobs, it’s a question of institutional arrangements how you do that kind of thing. So those kinds of things have to be changed.
‘Institutions are designed wrongly, they work for the privileged people. They don’t work for the poor people’
JL: So you seem to have a very clear view of how we might lift people out of this terrible situation of poverty where half the world’s population, I think, are living on $2 a day. You seem to have the answers but what’s your assessment of the Millennium Development Goal of drastically reducing that widespread poverty?
MY: I always supported it right from the beginning; when it was announced I thought this is the best thing the United Nations ever did, it is the best thing mankind as a whole ever did to itself. These are very clearly defined laws, there are eight and the deadline is 2015, then you can compare whether you are moving in that direction or not moving in that direction. Year by year you can tell people whether you are on the right path or you are not on the path or above the path or whatever it is. So that’s a fantastic thing as a set of goals. And another fantastic thing about this is all the nations of the world got together in New York City at the United Nations and declared this as the Millennium Development Goal. For all the countries to agree on such a beautiful set of goals is again a remarkable accomplishment, and then we are following it up, who does what. And I’m happy that Bangladesh is very much on par with the progress to make the Millennium Development Goals happen, particularly on goal number one, achieving reducing poverty by half by 2015. We are very much on track right now. If the European crisis had not have happened, the financial crisis hadn’t happened, probably we would be far ahead of the 2015, we would have achieved that. But today still with all those crises, all those difficulties that impose on us because of the crisis in Europe and the United States still we are on track to achieve that goal. And on other goals we are doing very well, except for one goal we are a little behind. [...] So we have to work harder than we did before so that even that can become an achievement. So a country which can achieve all eight millennium goals – that’s a time for celebration for that country.
JL: How has the financial crisis and the five years that have followed affected your view of the way that wealth is generated in general and then distributed, and the consequent growing gap between the rich and poor?
MY: The financial crisis is a very strange kind of phenomenon that took place. It’s almost like an earthquake which shook the whole world but the epicentre of the quake is one country, to be more specific, probably one city. Something happened in one city, it shook the whole world. This shows how vulnerable the whole economic system is. And in that one city there were probably only a few people who made those decisions and turned it around and made everything happen in waves, people lost their jobs, factories close down and economies collapsing and all those kinds of things. So that’s not a very happy kind of thing to see, that all the power is concentrated in a few places or a few business houses or a few people.
JL: On Wall Street.
MY: On Wall Street, this is the whole thing. And you don’t know, you are not a guilty person but you are punished, you didn’t make the problem that’s been created, somebody else did it. But the punishment falls on you and you don’t know why you are being punished through somebody else’s fault. So that’s something that shows in a very raw way how the system is wrong in assigning responsibilities and punishing the innocent and so on. So we need to address that on several levels. Should we have such concentrated economic power in one place or in a bundle of organisations like that? Number two, is this system working globally or is it just a system working for a few people and we’re just dancing around them, that’s the question. As you see, the concentration of wealth and income is with a few people, the rest of the world is not there. They are struggling for a square meal, they are struggling for survival, to get some treatment for diseases or suffering lifelong from diseases for which a simple cure is available but it’s not there. So how to redesign the whole thing.
‘Making money has become an obsession, it is not simply a business that you do for a certain reason, it has become an obsession’
JL: Is it possible to redesign it?
MY: Yes, indeed. One of the things I keep talking about is [how] the whole system of what we call now the capitalist system is based on the fact that business’s job is to make money. And everywhere people are busy making money because that’s what’s defined as the mission of all people and all businesses. Making money has become an obsession; it is not simply a business that you do for a certain reason, it has become an obsession. Even in some cases an addiction and that’s why the financial crisis came, because of an addiction. At that time lots of editorial was written as an explanation of the financial crisis, why it happened, and everybody is saying that the used the marketplace as a gambling casino. They were betting on the chances that they would make an enormous amount of money and they did.
JL: When you started what became Grameen Bank, you did it with as little as $27 in total of loans given to 42 people, and in the three decades since it’s grown to become a multibillion dollar enterprise. Perhaps you can just explain how that’s happened.
MY: Again, Grameen Bank started in a very small way, in a small village, $27, 42 people. I had no idea that it would ever become a bank. All I was trying to do was help people to get off their path of loan sharking businesses, so the loan sharks cannot touch them. And then people liked it and I put more money in out of my own pocket. I didn’t think that this was something where I had to go to somebody else, I could do it myself. So I was not worrying about a big banking structure, nothing.
JL: Your contacts, a high level of trust, you got your money back.
MY: I really didn’t know whether they would pay me back or not. At that time that was totally irrelevant. All I wanted to do was to disconnect them from the loan sharks and this was the only way I could do it, a very simple way to do it. And then I saw the enormous kind of sensation created out of it and I wanted to continue. Then I asked the banks to participate and the banks said no, it cannot be done. I offered myself as a guarantor, I said I will sign all your papers, you give the money and I will take the responsibility, and if they don’t pay back I will pay it back. So in taking the responsibility I was trying to create a system, the first idea of creating a system came so that they would pay back regularly in a very clean transparent way. And it worked. And then we created a separate bank, Grameen Bank. Once we created the bank it was easy to now expand step by step. We started opening branch after branch, now today we have 2,600 branches all over the country and it works the same way. Each Grameen Bank branch is an entity on its own. So if you know how to run a self-sustaining branch of Grameen Bank, which generates its own money and lends the money to the poor then at the end of the year covers all costs and produces a surplus then you know you can produce not only thousands, you can produce millions of these branches all over the world, the same thing. Because that’s the importance of designing a prototype, if we know how to do it as a prototype for a few people then millions and billions is no question.
JL: So you’ve been the head of Grameen Bank since it started basically, and for more than three decades, what’s the position on that now?
‘The financial crisis is a strange phenomenon…it’s not a happy thing to see, that all the power is concentrated on Wall Street…it shows in a very raw way how the system is wrong in assigning responsibilities and punishing the innocent’
MY: Well, Grameen Bank was doing pretty well but somehow we got into a little trouble as far as Grameen Bank is concerned, I was removed from Grameen Bank on the grounds that I am too old to remain as the managing director of Grameen Bank. Their argument is I should have resigned when I was 60 years old because the government banks’ rule is that at 60 years the managing director should resign, retire, and I didn’t do that. I continued until...my age is 71. My position is I offered my resignation for retirement to my board and the board said no, what is the problem, you continue, we want you to continue. There is no restriction in our law why you can’t continue. And when I turned 70 I did the same thing again, the board said we have no limitation, there is no age limitation or anything like that, so you continue, and I did that. The conflict came because government is interpreting Grameen Bank as a government bank, and we have been always interpreting it and operating as a private bank, because 97 per cent of the shares are owned by the poor people. So there is no reason why it should be made a government bank.
Government position is that it is created under a government statute, a statutory body, so as a statutory body you should follow government rules. So we have this difference of opinion. Anyway I resigned, I retired from that. The recent one is a little bit more difficult, government is trying to appoint a managing director by empowering the chairman of the board who is a government appointed chairman. Government bank law doesn’t allow that, government bank law says the board will create a selection committee and the selection committee will nominate some names, suggest some names to the board and the board will approve a person to be the managing director. But the government didn’t want it that way, the government wanted to get directly involved in it and they amended the law, it has already been done, about a month back. They amended the law, empowering the chairman, who is a government appointed chairman, to create his own panel for selection committee and the selection committee will recommend...
JL: Is there a concern, then, if the government gets very involved with Grameen Bank that it will change the whole nature of Grameen and micro finance and the sort of social values and ideas you’ve talked about?
MY: That is my fear, but I’m absolutely sure that if government starts interfering with Grameen Bank’s appointment of managing director and so on the government influence will come through in that and government means political influence. In Bangladesh anything taken over by the government doesn’t have a very good record of management and so on. So the uniqueness, the unique feature of what made Grameen Bank as Grameen Bank is in the world, which brought Grameen Bank the Nobel Peace Prize, that uniqueness will be lost once the government starts interfering and getting involved in appointing the managing director and so on. So that’s what our fear is and I hope whatever action has been taken will someday be re-amended to go back to the original in order to keep the integrity and authenticity of the bank as we created it.