Economic crisis a “gift from the gods”

Professor Muhammad Yunus explains how Grameen Bank became the biggest bank in Bangladesh.

July 9, 2008 – Why are some people poor? Could it be different? What needs to change? These were some of the questions being discussed today at a dialogue in Johannesburg, convened by the Nelson Mandela Foundation in partnership with Women’s Development Businesses.

The dialogue, entitled “In conversation with Professor Muhammad Yunus”, aimed to encourage an exchange of ideas about banking, microfinancing, microcredit and business between Professor Muhammad Yunus and invited members of the South African public.

Prof Yunus is the founder and Managing Director of Grameen Bank and the 2006 recipient of the Nobel Prize for peace.

The first session of the dialogue was dedicated to the practice, benefits and challenges, both locally and abroad, of microfinancing and social business.

The Foundation’s CEO, Achmat Dangor, welcomed the participants before Life College founder and CEO Pat Pillai spoke to Prof Yunus about Grameen Bank and microlending.

Prof Yunus explained that he had started the bank as a small initiative in a tiny village in Bangladesh. It eventually grew into a bank focusing on lending to the poorest people, in particular to women.

Grameen Bank, he said, is now the largest bank in Bangladesh and is owned by the very people who use it. Account holders own shares in the bank, and the bank’s board is made up of elected shareholders.

Prof Yunus explained that while women were often reluctant to begin their own businesses, this was the “voice of history” speaking rather than any inherent inability to run a business. Grameen started with 50% of women lenders initially and now has 7.6-million clients, 97% of who are women.

Moving on to business, Prof Yunus spoke about the need to create “social businesses”, ones that reject the traditional model of businesses as solely profit-making entities.

“What about a business based on selflessness?” he asked. “When I asked myself this, I decided to set about creating social businesses.”

Referring to the global economic crisis, Pillai asked if the Grameen Bank philosophy could fill the holes in the existing system.

“Even if it doesn’t fill that gap,” Prof Yunus said, “this is the opportunity of a lifetime to rework the system to rectify the mistakes that we have made. We don’t want to go back to the old model.”

Prof Yunus reiterated his point from yesterday’s press conference that the technology exists to overcome all the world’s ills, but because this technology is in the hands of businesses, which are trying to maximise profits, it will never be utilised for human good unless the philosophy behind business changes.

“What do you think is the root of poverty?” asked Pillai.

“Poor people are not responsible for their poverty. The system is responsible,” Prof Yunus replied. “The seed of poverty is in the policies we’ve created. Once we remove the seed there will be no more poverty.

“People shouldn’t have to search for food; only animals should have to spend their day looking for food. Food should be automatic, like breathing.”

Prof Yunus said he would like to see poverty confined to history and museums where future generations would wonder how such an ill could have been allowed to continue for so long.

After the interview a panel of guests were asked to debate the question “Can we have a world without poverty?”.

The panel was made up of Trade and Industry Minister Rob Davies, Ruth Kagia from the World Bank, Banking Council Managing Director Cas Coovadia, and Professor Yunus. Dangor moderated the session.

Davies said he believed that unemployment and poverty could be eradicated in South Africa, but only if there was widespread systemic change.

“But even if we are able to succeed in our target of reducing our unemployment by half, which would be a significant achievement, most of these jobs will have been created in the formal sector. We will still need to look at initiatives like Grameen Bank to eradicate unemployment and poverty by creating a system that encourages entrepreneurs,” Davies said.

“The formal banking sector in this country is not designed to fulfil this role,” he added. “A government institution which provides microfinancing has been up and running for three years – the South African Microfinance Apex Fund (SAMAF) – but we are still in the pilot phase of this project and it’s now our ambition to move this forward significantly.”

Coovadia explained that while there had been similar initiatives in South Africa in the past, they had ultimately failed because of the regulatory and systemic environment in South Africa, which still existed today.

“But I think it would be unfortunate if we did not build on the strength of the formal banking sector ... capitalist businesses can still play a role in eradicating poverty,” he said.

“Instead of starting from scratch we should look at the resources that should be going towards alleviating poverty, and the resources that are supposed to be helping people out of poverty, and asking ourselves why they are not working.

“We need to build sustainable businesses that look at their own role in eradicating poverty as part of growing their own business,” he added.

“I am, however, more pessimistic than the professor. I think it [poverty] is a big elephant we have in this room,” Coovadia said. “We need to have a conversation about what part of the elephant we attack first.”

Kagia said that Grameen Bank had helped to shift the thinking on development.

“The two most important things are to give people opportunities and to strengthen their basic assets,” Kagia said.

“It’s like growing a tree: if you nurture the seed you will grow a strong tree, if you just dump it that tree will struggle to grow,” she added.

“Poor people should be viewed not as a burden, but as a potential asset.”

Kagia said that the economic crisis was “a gift from the gods” allowing the world to focus on shared growth.

“Too many times we look for knowledge on how to advance from developed countries, but in doing so we miss a lot of lessons which we could learn from developing countries.”

Dangor closed the panel discussion by saying: “We’ve heard no disagreement on the need for change, so perhaps we need to focus on how we’re going to go about it.”

The session was then opened to the floor.

Participants at the dialogue agreed that lessons would need to be taken from developed as well as developing nations, before asking Prof Yunus about what suggestions he had for Africa to expand microfinancing.

Prof Yunus said that the legal problems meant there needed to be a legal solution.

“The point I try to make to the policy makers is that banking laws are like the architecture of a supertanker that needs to go out to the deepest parts of the ocean. Microfinancers are like a dinghy in shallow waters: they don’t need as much support and they need a totally different architecture,” he said. “Unless these policies are created to help microfinancers, we will never reach the people we need to. You need the backing of the system in order to succeed.”

Speaking of social businesses, he said Grameen Bank made profits and still helped the very poor.

“Our bank is run by illiterate women,” Prof Yunus said.

The Minister was asked how legislation was going to change to assist microfinancers in the future.

“Our banking laws are extremely conservative,” said Davies, before explaining that government would be looking at all regulatory constraints to allow for microfinancing institutions in the future.

Prof Yunus related some of the history of Grameen Bank, explaining why he had decided to start it up.

“We live in an ocean of money, but poor people cannot even take a sip from it,” he said.

The participants and panel discussed the feasibility of social businesses, the legislative and systemic challenges facing the eradication of poverty, the policies needed to encourage social business and the benefits – humanitarian, financial and personal – of social business.

Dangor closed the first session.

Mothomang Diaho, Head of the Foundation’s Dialogue Programme said that the outputs from this dialogue, will be explored further in August in a more focussed dialogue.

Reflections:

“I am very excited by this initiative and it proves that the world needs to work with kinder principles. With these principles things can work out positively.” – Marthe Muller, Manager: Information and Documentation of South African Women in Dialogue.

“I think it’s good having Prof Yunus coming here to highlight what we can do to help develop rural businesses as they are not recognised in the commercial industry. Government is not enough, therefore it is important to discuss issues around savings and how to effectively use and access money locally.” – Ben Nkuna, project manager at Women’s Development Businesses.

“The session was great. The world needs to emulate what Prof Yunus has started. We need to look at ourselves first and have integrated programmes and look at things holistically. We need to sit down and say ‘we have done this’ and stop planning, planning, planning.” – Yvonne Chaka Chaka, South African musician, business woman and 46664 ambassador.