EDITOR'S note:

What began with a loan of US$27 to 42 women in a small village 33 years ago has grown into a global microcredit movement that has changed the lives of millions of poor people around the world.

Muhammad Yunus, founder and managing director of Bangladesh's Grameen Bank, was the guest speaker at Wharton's MBA commencement on May 17. The following is the second of three articles based on his interview with Knowledge@Wharton. Q: You have spoken about the downside of a globalized economy, referring to it as "a dangerous free-for-all highway whose lanes will be taken over by the giant trucks from powerful economies, even as Bangladeshi rickshaws will be thrown off the highway." Isn't globalization, in fact, desirable?

Yunus: I was giving an image of globalization as like a multi-lane highway. All the products are moving back and forth in many directions, and everybody on the road is getting their merchandise.

Big countries, big economies, rich economies will have more merchandise to carry, and big trucks to carry (it in). They are very powerful and take over the lanes.

The small countries don't have space for themselves because it's all taken over by the big trucks and the big companies.

I said if that image fits into the picture, then we should have traffic rules so that the little company in the little country in the little economy can ... move slowly and safely, and the big trucks don't take over everything.

Just because I have the power - out of 100, I take 99.9 percent and give you 0.1 percent and say this is globalization - I don't think that would be tenable or sustainable.



Q: One effect of globalization we see right now is what's happening in the world banking industry. If you were to look at Grameen's own borrowers, they are not just subprime, but sub-subprime.

In spite of that, Grameen's repayment rates are 99 percent or so, and you have never required a bailout. From that perspective, I wonder how you see this global banking crisis.

Yunus: It's a paradoxical situation right now because 33 years ago - when I was trying to start this program in a city village with a few people and arguing with the bankers that it would be a good idea to give loans to poor people - their argument was that poor people are not credit worthy. They will never pay back and so on.

Today, 33 years later, you can ask the same question. Who is credit worthy? It is the poor who turned out to be more credit worthy than the other category of people, because microcredit programs all over the world still function very well.

Their repayment is very high, whereas the big banks and their big lending operations are (near) collapse. They are falling down.

We have no other way but to redesign the whole system - recognizing the strength in non-collateralized loans for the poor people and the weakness in collateralized loans for the rich people.

Another point I would like to make is that this global crisis is the worst in our lifetime. While we look at the crisis part of it, we forget this is also the greatest opportunity.

When the system is not working, that's the time you unpack and redesign it so that it not only works, it works better than ever before. Unless we do that, we will be committing a big mistake.



Q: What qualities does one need to lead a microfinance institution and how are these different from the qualities needed for another type of organization?

Yunus: We came from the direction of wanting to bring financial services to the poor to help them generate income for themselves and gradually move out of poverty.

Build confidence, build experience, and step-by-step, move on and get out of poverty.

So we would like to keep microcredit in that (mode), not a profit maximization (mode), because then you are not looking at people's condition; you are looking at your own condition.

You want to take out as much as possible to improve your financial strength and so on.

That is the No. 1 requirement for microcredit - that you have the right kind of attitude when you get involved with it, that here I have come to use my talent, my creativity, my management skills to help people get out of poverty without losing money.

Losing money pushes you into another direction. It pushes (you) into charitable kinds of programs. Microcredit is not a charity program. Microcredit is a business program - but business with a social purpose.

So ideally, I would like microcredit to be a social business where profit is zero for the person who is investing, but the company can make profit.



Q: By basing your model on getting funds from the borrowers rather than getting, for example, money from international investors, does that give you enough money to make as many loans, offer as many services as you could?

Yunus: Within Grameen Bank, we are allowed to take deposits from everybody. It's not limited to the borrowers only. It's just like a bank. We can take anybody's deposits.

Each of our branches is required to mobilize enough deposits to carry on all the lending they do so that branches don't have to borrow from the head office and don't have to borrow from another branch. So they are self-sufficient with their money.

On top of that, we encourage them to build up (an adequate) cushion of reserves of the deposits because of the problem of disasters. We have very frequent disasters.

At times of disasters, you can't get your money back, but you need to lend more money than you did before to get people out of the problems they face.

So we want to build up that cushion. Usually we recommend at least 30 percent or 33 percent reserves should be kept within that system.

Today, we have more than 30 percent reserves; 37 percent has been the level of our reserves in all of Grameen Bank.

We have no problem with the deposits. We have enough deposits in the bank. So the question of borrowing outside never occurs to us because we have enough money.

I keep telling people that literally no matter where we live, we live in an ocean of money. But the problem is that poor people cannot take a sip out of it. That's the problem. A shortage of money is not the problem. People have plenty of money to put in the bank. People are very happy that a Grameen branch came near their home because villages don't have bank branches. Banks are all concentrated in the cities.

Having said that, what is the amount of deposits coming from the borrowers themselves?

We lend out over US$100 million a month through Grameen Bank today. Nearly half of that money comes from the borrowers' own deposits. So it's quite a substantial amount of money that the borrowers put in.

That money keeps growing because everybody is putting additional deposits in every week.

(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)