Professor Muhammad Yunus

I recently had the privilege of being part of the audience for a lecture held by Monash alumni on the 11^th October 2014, and given by the 2006 winner of the Nobel Peace Prize, Professor Muhammad Yunus. He is an angelic visionary whose microcredit banking system lifted millions globally out of abject poverty.

Professor Yunus graduated MA in economics from Dakar in 1961 and taught mostly at universities in Bangladesh, until receiving a Fulbright scholarship to study microcredit at a PhD level in the USA at Vanderbilt University. He became Assistant Professor at Middle Tennessee State University, from 1969 to 1972, while also completing his PhD in 1971.

Microcredit became Professor Yunus’s passion in the early years of teaching economics at Chittagong University. It was 1974 that Professor Yunus led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a negative 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 economics is and needs to place more focus on social science, such as those that inspire people to lift themselves out of poverty, Yunus realized that there was something terribly wrong with the economics he was teaching. So he took matters into his own hands and began lending money from his own pocket. Therefore, with these small loans it becomes possible not only to help some potentially impoverished small business people to survive, but also to create the spark of personal initiative and enterprise necessary to help them pull themselves out of poverty.

Professor Yunus acknowledges that by some prevalent images of microcredit coincide with certain social-economic theories that sound more like fairy tales. Some are very eager to oppose non-traditional theories, believing they don’t actually help people in reality. Such an approach assumes that we should think of human beings as perfectly rational and that their actions are governed by the demands of a particular system.

But instead, to develop his theories concerning microcredit, Professor Yunus decided to reach out to the people rather than assume that they should come to him. Thus he began lending money to people from his own pocket. This increased a demand for food and created a spending-spree among people, as they acknowledged money was not as scarce as it had been in the past. At one point he spoke to a bank manager seeking capital to lend to the poor. The bank refused to lend indicating it would be against the bank’s policies, regulations and rules. After several negotiations, he spoke their language and asked whether it would be allowed for him to be the guarantor in any loan money specifically earmarked for the such loans to poor people.

From there, Professor Yunus envisioned creating a bank on his own. This took him 2 years and was established in 1983. This has today become the world famous microfinance organisation and community development- bank, known as Grameen Bank. How was this bank created? He simply observed what the conventional banks did and proceeded to do the complete opposite. Conventional Banks (CB) go to rich, he went to the poor, CB were located in city centres, while the Grameen bank worked in the village. In Grameen’s philosophy, the more remote you are more attractive you become.

How then does the bank find the poorest person? Well you never talk to your client in your office. You need to go to the client’s house. When a Grameen bank representative goes to the client’s living place, he looks at the dwelling and assesses the client’s ‘poor-ness’, whether they are eligible. He is looking for the extreme poor; no furniture at all and the ‘client’ sleeps on the floor. If the client fits in with the pre-specified criteria then the bank has found the person the bank need to help. Today, there are 8.5 Million clients in Grameen Bank and the bank lends 1.5 billion annually.

If you want to join Grameen Bank, you have to open a savings account and deposit money weekly. These deposits have expanded exponentially today, thus this money is lent out. This year the total money of deposited exceeded the money lent.

The key reason why he got involved in banking was because he knew nothing about banking; not knowing can be a blessing. You learn on your own.

Social Business

Professor Yunus noticed a common ailment working against the young people of Bangladesh. That is, the children become blind when the sun goes down, they suffer from night blindness. So he spoke to doctors and identified that this was caused by a deficiency in vitamin A. The doctors recommended the distribution of vitamin A tablets and the addition of vegetables to the diet.

So Yunus taught and encouraged the growing of vegetables, also, the feeding of children. Professor Yunus made arrangements to bring the seeds for the people for planting, and this, in turn, became a very popular social business. At one point he became the largest seed seller in Bangladesh, as the seeds were of high quality and grew in most environments. This was also understood  as an attempt to put children first in aid.