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Remarks by Muhammad Yunus
Founder and Managing Director, Grameen Bank and Professor, Chittagong University

Global Business and Global Poverty Conference
Stanford Graduate School of Business
May 19, 2004

Introduction
In 1974, Professor Muhammad Yunus, a Bangladeshi economist from Chittagong University, led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learned that she had to borrow the equivalent of £15 to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10 percent a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.

Realizing that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent the equivalent of £17 to 42 basket-weavers. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.

Against the advice of banks and government, Yunus carried on giving out 'micro-loans', and in 1983 formed the Grameen Bank, meaning 'village bank' founded on principles of trust and solidarity. In Bangladesh today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages. On any working day Grameen collects an average of $1.5 million in weekly installments. Of the borrowers, 94 percent are women and over 98 percent of the loans are paid back, a recovery rate higher than any other banking system. Grameen methods are applied in projects in 58 countries, including the US, Canada, France, The Netherlands, and Norway.

Muhammad Yunus is that rare thing: a bona fide visionary. His dream is the total eradication of poverty from the world. "Grameen," he claims, "is a message of hope, a program for putting homelessness and destitution in a museum so that one day our children will visit it and ask how we could have allowed such a terrible thing to go on for so long." This work is a fundamental rethink on the economic relationship between the rich and the poor, their rights and their obligations. The World Bank recently acknowledged that "this business approach to the alleviation of poverty has allowed millions of individuals to work their way out of poverty with dignity."

Credit is the last hope left to those faced with absolute poverty. That is why Muhammad Yunus believes that the right to credit should be recognized as a fundamental human right. It is this struggle and the unique and extraordinary methods he invented to combat human despair that Muhammad Yunus recounts here with humility and conviction. It is also the view of a man familiar with both Eastern and Western cultures—on the failures and potential for good of industrial countries. It is an appeal for action: we must concentrate on promoting the will to survive and the courage to build in the first and most essential element of the economic cycle—Man.

Muhammad Yunus was born in 1940 in Chittagong, the business centre of what was then Eastern Bengal. He was the third of 14 children of whom five died in infancy. Educated in Chittagong, he was awarded a Fulbright scholarship and received his PhD from Vanderbilt University, Nashville, Tenn. In 1972 he became head of the Economics Department at Chittagong University. He is the founder and managing director of the Grameen Bank. In 1997, Professor Yunus led the world's first Micro Credit Summit in Washington, DC.

Alan Jolis, co-author of Banker to the Poor, is an American journalist and writer, now living in Sweden.

Remarks by Muhammad Yunus
Good afternoon, I'm delighted to be here. I'll briefly talk about Grameen Bank and then let you ask some questions.

Back in the mid-70s when Bangladesh was going through a difficult time, I was teaching economics at one of the universities in Bangladesh and we were going through a finance situation that sparked something which gradually led to the creation of Grameen Bank. The idea that hit me was that people were dying of hunger and here we are teaching elegant fields of economics that didn't do much good in the situation of starvation. I thought I should be personally trying to be useful to dying people around me. Chittagong University where I was teaching is right in the middle of the villages, it is surrounded by villages, so that is exactly what I did, and along the way I found out how people suffered for tiny bits of money. I went around and made a list of people who borrowed from money lenders, and when my list was completed, there were 42 names on that list and the total money needed was $27. So I thought things are beyond the comprehension of anybody who has gone through the courses in economics; you never talk about $27 and 42 people. And I also thought, this is within the realm of my capability to solve the problem.

So I gave this money, the $27, and got them kind of liberated from the clutches of the money lenders, and that created such an excitement among the people in the village I wanted to continue this because I asked myself, if you can make so many people so happy with such a small amount of money, why shouldn't you do more of it? So that led me to go to the local banker and try to argue with him to lend money to the poor people. The more I argued the more he became defensive of his rules. I didn't succeed, but it led me to start a debate with the higher officials in the bank, and ultimately I resolved this after several months of negotiation by offering myself as a guarantor. So I said, I'll become the guarantor, I'll sign all your papers, take the risk, and you get the money. And that was the beginning of the whole thing. Finally they agreed and I started signing papers, taking money from the bank and giving it to people for engineering activities and so on, and it worked perfectly. People were paying back 100 percent, no problem, without collateral.

Gradually, we aimed at the women, extremely poor women, and still it didn't work very well with the banks because every time they asked many questions, they were hesitant about the viability of the whole thing. So I said, why don't they just set up a separate bank? And it was again a long process, but in 1983 we succeeded, we became a bank, Grameen Bank, and we continued to expand our work through the country. Today Grameen Bank works all over the country, and 95 percent of our borrowers are women. Right now we have 3.5 million borrowers, mostly women. Sizes of loans are really small. An average loan would be $200, and with that money people invest in businesses and change their lives.

One of the things we insisted right from the beginning is that families send their children to school. In the Grameen families most of the borrowers are illiterate, but we wanted to create a second generation within the families who would be literate. It worked, and today almost 100 percent of the children of Grameen families are in school. And that also led to something else. At that time our intention was to make sure they were going to school and staying for at least five years to finish primary school. Now we see that they are not only finishing primary school, they are going to colleges and universities. So about eight years back we introduced the student loan, so that for those who were going to medical school, engineering schools, universities, their entire financing is done from Grameen Bank. Today there are thousands of students who are at the higher level of education.

And we give scholarships to students at other levels for inspiration. Not only children from Grameen families are going to school. The poor families are going to school, they are topping the class in performance, so we give them scholarships. Every year we give more than 6,000 scholarships from our Grameen Bank to recognize those students who were performing very well in their classes.

The kind of activities we have are basically things they are familiar with, but something came that is dramatically different. We set up a mobile telephone company called Grameen Phone, which has nothing to do with Grameen Bank. The government wanted to liberalize the telecommunications sector; they wanted to give licenses and the thought came to us—why don't we apply? Our intention was to bring telephones into the villages of Bangladesh because Bangladesh villages don't have electricity to begin with ; 70 percent of the people in Bangladesh don't have access to electricity. We thought they should at least have some telephone service so they can communicate with each other, and we calculated that it should work as a good business. Our intention was to bring those with phones to be borrowers of the Grameen Bank and finance them to buy a handset and start a telephone business, selling the service of a telephone. Everybody thought it was a crazy idea. This was about six years back. We got the license and we started doing that, and it became a roaring success.

Today Grameen Phone is the largest mobile telephone company in the country. We brought those mini telephones, about 55,000 telephones, into the villages for the Grameen borrowers, so there are 55,000 telephone ladies all around Bangladesh. You can go anywhere in Bangladesh and you can now connect to the whole world and, since there is no electricity, we brought the solar panels to connect to the wire phones so that their batteries are charged. As a business for the borrowers it became a very successful business. It was almost like an instantaneous success for the Grameen borrowers to move over from poverty to non-poverty.

Over the years we have given more than $4 billion worth of loans and had a perfect recovery (at least 99 percent recovery), and it makes good sense because it makes profit. The borrowers own the bank itself; it is not something that is owned by somebody else. So it's a bank owned by the women, works for the poor women, and at the end of the day it makes a profit. In 2003 it made over $11 million of profit and it continues to make profit all the time. So if you want to address poverty, one way to do that is to go the business route. It can be done in a business way and once you design it in a business way, you can expand it as much as you want and the sky's the limit. You're not waiting for philanthropic money or something which is always limited, good money, but a very limited amount of money. But once you can transform it to the business sector, then you are almost limitless in terms of reaching out.

One criticism is that micro business is very good to poor people, but it's good only for the top layer of the poor people; it cannot go all the way to the bottom. And that surprises us because, all too oddly, we had been working only with the bottom layer of poor people. So this year we want to address it once and for all, and in order to do that we are addressing exclusively the beggars. There are plenty of beggars in Bangladesh. In the villages and everywhere you go you see lots of beggars begging for small pennies or some food for survival, so this year we thought we should address the beggars exclusively. The idea was very simple: we dealt with the beggars previously along with many other kinds of people, but this year it was exclusively the beggars. The idea was that we go and talk to the beggar women.

You go house to house to do the begging, get some rice, get some food, and then at the end of the day you can bring all the food and share it with all the family members and survive. We can't change all this over night, but we can offer you an alternative, or an option. While you go house to house begging, would you care to carry some merchandise with you, some food items, some toys, some little knickknacks for the kids and so on? You have both options: you can beg or you can sell, whichever way you find convenient. In some houses you may be selling and in some houses you may be begging; you mix it as you go along and find out. In the beginning we thought maybe beggars would not be interested, maybe they have their own reasons why they do their begging. But the response was a very warm response. We thought throughout the year we would have about 3,000 or so beggars in our program, but by the end of April we already had 9,000 beggars in the program, all taking little money, the typical loan is $10. With $10 she feels like she's a businesswoman.

Then we added one more place, we said we'd take the beggars to the local business owner in the marketplace and tell the business owner that she's our member, a Grameen Bank member and we gave out an identity card, so that people start looking at her in a different way, with a name and address and Grameen logo saying that she is a Grameen Bank member. And we introduce to the business owner that we guarantee up to 2,000 Taka [about $35], so she can take any amount, anything from your shop that she likes, total amount not exceeding 2,000 Taka. If she doesn't pay you a penny, we'll guarantee and pay for her. The deal is between us and the member, not with the shop owner. The shop owner gets her money back. So we tell the person, you choose whatever you think you can sell, and during the day you sell, and whatever unsold product you have you return and settle the account, and that's it. Then you go house to house, you ask everybody what is it that they'd like for you to bring, so the next day you can bring it, because the whole shop is yours. So you become the liaison between the household and the market, because in Bangladesh women can't go out and do the shopping—so even if you needed a match she has to ask the husband to bring the match and the husband always forgets.

Now this person who negotiates between the market and the household can bring everything she wants. If she wants a sari, she can say bring me this kind of sari and I will try to buy your sari. So next day she brings about four or five pieces of sari and says I like this particular piece very well, but could you bring it in green rather than pink? So next day she brings her green and makes her money, so this is also working very well.

Some beggars don't have limbs, they are blind, they are stationary, they don't go house to house, so questions are asked. What do you do with them, our staff was asking me. I said that is very simple. As we said, we don't want to disturb their livelihood, so let them do the begging with the beggar's bowl. We ask them would they like to keep some soft drinks, some bananas, some cookies next to them, and since he or she sits in a very strategic place, she knows or he knows the way to sit to get more attention from people. So it's a good strategic place for selling too, and people have a choice whether they want to throw a coin or buy a soft drink or buy a banana. So, as the business part picks up she can get as much business as she wants. All we need to do is put a roof on top and she turns into a businesswoman right there. Just because one cannot move it doesn't mean one is totally incapable.

By the end of the year we figure there will be more than 25,000 beggars in the program. Our idea is that first round we would like to see how many of them are coming out of begging and shifting to businesses. By the next year, April or May, if we find out all the 9,000 we had this year, many of them have moved out of begging, that is a tremendous success, What else could we want?

There are two kinds of business in the world and we pay attention to one kind and don't pay much attention to another kind. There are businesses for making money and there are businesses for doing good, but the world is made up of mostly businesses for making money. So I am trying to remind people that more businesses could be for doing good, and the people who want to go into businesses for doing good could be called social business entrepreneurs.

We are already familiar with the non-profit organization. What I am talking about in terms of social business enterprises is the non-loss organizations, where you run businesses, but don't want to make losses and you maximize the social benefits of your work. One such organization that we'll need will be the social stock market. Today you go to the stock market to buy the stock that gives you more money, more dividend, more appreciation. When you have the social stock market you'll go there to find out which organization is doing the best for poor women, for sick children, for the pollution free, so forth and so on, so your dollar will be going into the direction where you say, "Ah ha, that is what I want to see happen." So we need these facilities so people can come and invest in those organizations knowing very well that this is doing something that they want to do.

I'll stop here and let you ask questions. Thank you very much.

Question: If you had a magic wand and you could get the big financial institutions to change one or two policies to help microfinance in particular or the poor in general, what would you like to see those institutions do?

Yunus: First of all, build more institutions to address the issues of poverty, specifically in a business way. One item I have not touched is information technology to help poor people get out of poverty, so this is one area that we see. The business opportunities to address social problems are enormous. For example, have a global competition to design social business enterprises, and for those who succeed, let them go ahead and do it. Then publish all other designs that were submitted. Maybe the design was not good, but the idea was excellent. Somebody picks up that little kernel and develops it into a beautiful business the next day or next year, so gradually more and more ideas keep coming.

Question: In many ways microfinance has enabled a lot of other entrepreneurship opportunities and has been an engine for entire industries of growth. How do you see the far reaching effects of microfinance, assuming you reach a goal say of 100 million people out of poverty by 2005 or any of the other goals. Assuming you actually reach that scale, what are some of the social, political, and maybe much more far reaching economic impacts in a much more connected little society?

Yunus: The impact of microfinance on people's lives comes in many ways. When you talk about microfinance we think about the money amount, but as you see, gradually the money part becomes the smaller part of the whole thing. It's almost like getting a tool to explore yourself. Money becomes the first reason why you started finding out who you are, how good you are in business, how good you are in taking responsibility for yourself.

The first women who took the first loan, a $30 loan or $35, she was a very shaky woman. She was not sure because everyone said you are not good, you have no capacity to do anything. Ever since she was born she was told she brought misery to the family, difficulties for the family, but once she started paying her first installment and she sees that she can do it and feels that it is not all black, she has some capacity to handle her life. By the time she finishes her last installment she feels delighted; she felt she was nobody, now she feels she is somebody, and she can conquer the whole world. This is a transformation process, so the money becomes the first step in that transformation process. Then she goes into that second cycle and the third cycle of the loan and her children go to school and they are doing well in school and then she gets a housing loan and builds a house for herself. She never had a latrine or a sanitary latrine—now within the Grameen she gets a sanitary latrine, drinking water; so it's in a full whole dimension that she can address herself. Many of the Grameen borrowers are now contesting in local elections. More than 2,000 Grameen borrowers got elected in the last local elections nationally. These are women who couldn't even stand up straight because they were so shaky and were always looking down, and now they are very confident persons because they know they can handle things. And this is how it spreads in many directions.

Question: I studied your model almost 10 years ago in college and subsequently went into microfinance. It's really exciting to have you here today. My question is specifically with regard to women's improved position in Bangladesh: How much of a backlash has there been against that, and how have you tried to prevent that specifically?

Yunus: There is always backlash when you try to do something new. Particularly what we are doing is so different from "normal" as the people thought. One of the problems was we were defying all of the banking rules because the banking rules require you to go through the legal process of signing legal documents. We have nothing, we don't have any collateral requirements, we don't have any legal instrument, between the lender and the borrower; and it is a very scary thing where we are lending over $4 billion. This year alone we will be giving up more than half a billion dollars, but no legal document between the lender and the borrower. Everybody says what will happen is nobody pays you back. I say, but everybody pays back, why should I worry about it.

So one backlash you get from the traditional way of doing banking and another backlash comes from development. You're just giving money. No development is building roads; development is big investment. You give a $30 loan, $50 loan, $100 loan—that's not development, so that's another backlash. Another one is you're giving money to women. That is totally unacceptable. Women should be staying home, they shouldn't get themselves involved in businesses or anything; this is the traditional way. Then the main opposition transforms into religious opposition, saying that it is unacceptable from a religious point of view. There is political opposition. The extreme left thought this is an American conspiracy brought to the country to bring capitalism to the country at the very grass-roots level, at the very bottom level, so that the revolution never take place in this country. The extreme right thought this was a Communist movement, organizing the poor people. Today they get money and tomorrow they will be looking for political power, and so on. These are the kinds of backlashes, but the important thing is no matter what they say, the people see genuine benefits coming to the people. Gradually you find your way because people see the reality of the situation. So those things start to take back seats, and the reality of the situation is appreciated.

Question: As a trained economist, have you attempted to reduce any of these wonderful ideas to elegant theories and where could we read about them? What are you doing to further the cause of securitizing this? What other forms of equity investments are you currently able to take?

Yunus: Our first instincts come back to the political framework, many of the issues that were neglected before come back into the discussion—not that it got accepted within the broad basic framework yet, but it is at least knocking at the door to get in. One is self-employment, for example; self-employment is a very important thing. Most of the time we talk about poverty alleviation in terms of creating jobs: the more jobs you create the more you help people get out of poverty. When you talk about jobs you talk about wage-based employment; you never realized there is another vast opportunity to create self-employment so that people create their own jobs, you only need to facilitate the financial services and so on. So this is one issue and then the few I just mentioned about the types of business. Business doesn't have to be only for making money, business can also be for business for doing good. The same person can play both ways. I invest in the old style stock market and I also invest in the new social stock market; same person, because in each person there are parts that would like to do business in both ways. Some may invest more in social stock market and some may invest more in stocks for making money. This is a mix that one has to decide how to go, but gradually one part becomes more significant in the marketplace.

On the part of equity, we ask equity for what, what kind of business, business for making money or business for doing social good? For example, if I wanted to set up a company for producing good quality seed—because this I see is very important and I want to do it in a way that farmers can buy the best seed possible at the cost price because my business objective is to help the farmers get the best seed—this is solving and addressing a particular social and economic problem that exists in many countries. Or, I want to provide health service. I was told that in the United States 40 million people don't have health insurance, so I want to build health insurance for the people who are left out in a way that helps them get into the health benefits, and I design my health program in a way that addresses the people who are left out completely. It is a business. I'm not bringing money to throw into it from my own pocket. It's a business, but a business that doesn't bring money into my pocket but that goes around with the money it generates and continues and gives services to the people who never had the services before. These are the kinds of things that we would like to bring into mainframe economics.

Stanford GSB News

Remarks by Muhammad Yunus
Founder and Managing Director, Grameen Bank and Professor, Chittagong University

Global Business and Global Poverty Conference
Stanford Graduate School of Business
May 19, 2004

Related Links

Stanford GSB News

Remarks by Muhammad Yunus Founder and Managing Director, Grameen Bank and Professor, Chittagong University

Global Business and Global Poverty ConferenceStanford Graduate School of Business May 19, 2004

Related Links

Remarks by Muhammad Yunus
Founder and Managing Director, Grameen Bank and Professor, Chittagong University

Global Business and Global Poverty Conference
Stanford Graduate School of Business
May 19, 2004