Minds Against Poverty
Dr. Muhammad Yunus and the Grameen Bank: using psychology to empower small businesses
Muhammad Yunus doesn’t draw lines in the same places as other people, for instance between the "hard" issues of business and the "soft" issues of society.
The winner of the 2006 Nobel Peace Prize for the establishment of the Grameen Bank in Bangladesh, Yunus has dedicated three decades of his life to changing the way we think about poverty in one of the world’s poorest and most underdeveloped countries. Yes, poverty is about lack of resources and inadequate education, and what are called structural barriers. But it is also about attitudes, Yunus said. In combating intrenched disadvantage, psychology plays a significant role, for both lenders and borrowers, in helping people materially improve their lives.
To a packed auditorium at Sigmund Freud University (SFU) in central Vienna in late May, Yunus described the idea behind microfinancing, a system of loaning small amounts of money to poor people in developing countries to get them started in cottage industries and thus stake a claim to the future.
"Poverty is not created by poor people. There is something lacking in the system that creates and perpetuates [it]," Yunus said. "Poor people are like Bonsai: Without a base, the Bonsai trees are stunted and cannot grow." Yunus maintains that Bonsai People are unable to grow economically because they have no base. This, he believes, is created by the traditional banking systems.
An economics professor at Chittagong University, Yunus had watched impoverished Bangladeshis being fleeced by loan sharks, who were bleeding them with interest rates of up to 500 per cent. He decided to intervene. With loans averaging as little as $35, people were able to launch small enterprises making bamboo furniture or yogurt. His first loan, consisting of $27 from his own pocket, was made to 42 women in the village of Jobra, each of whom made a net profit of two cents on the loan.
Traditional banks refused to lend to the poor at normal rates as they considered the risks of default too high. Yunus disagreed. In December 1976, he set up a type of credit union with a seed loan he guaranteed himself from the government-owned Janata Bank, to re-lend it to the poor in Jobra. Borrowers became members of the cooperative and would thus share in the profits. This was followed by other loans. By 1982, the credit union had 28,000 members.
On Oct. 1, 1983, the pilot project became a full-fledged bank and was renamed the Grameen Bank (Village Bank) to make loans to poor Bangladeshis.
Another requirement was that prospective borrowers had to organize. Loans would only be made to groups of five or more, and all the members would be collectively responsible for each other’s loan. This combined peer pressure with mutual support – a large reason Grameen would be able to boast repayment rates in excess of 97 per cent.
From the outset he stipulated that 50 per cent of the loans would be given to women, in spite of the women’s own deep reluctance due to cultural pressures and lack of self confidence. It took time and coaching to help change the mind-set of the women, Yunus said, before they would assume an entrepreneurial role that in Islamic Bangladesh was the province of men. Yunus had to break down the barriers of history and peel off the ingrained fears of women instilled in them from birth.
"At first, women are scared to death to try. Peer support and encouragement of Grameen Bankers helps success," Yunus said. He had faced skepticism from even his own students at Chittagong University. "My students did not believe the 50:50 ratio male to female was attainable." In the end, it took six years.
The Grameen Bank loans $100 million each month and today has a repayment rate of just below 99 per cent. Like the original credit union, the Grameen system works like a cooperative and the creditors are part owners. The bank makes a profit and this is paid back as dividends to the shareholders, who are the lenders themselves.
The parallels to psychotherapy were clear in the women’s progress. "If a woman tries, and is successful, it will snowball," he said. Now Yunus can boast eight million borrowers and 97 per cent are women living in an Islamic society. Branches recieve certification to issue loans from the Grameen Bank, which assists regulatory affairs designed to protect the poor from abuses and the so-called loansharks.
Yunus criticizes the conventional wisdom of business and uses psychology to support his view.
"The concept of business is to make money. Human beings are not money-making machines," he said. "Humans possess selfishness but also selflessness. Business is based on selfishness." Yunus proposes a change in focus towards selflessness – giving rather than taking as the priority. To this end, Yunus is promoting the idea of the Social Business Company, with a different set of goals or outcomes.
"We normally ask a CEO how much money have we made," he explains. "With Social Business, we ask: How many people have we helped?"
According to the CIA World Fact Book, Bangladesh is a country of 156 million people, 63 per cent of its labor force working in agriculture and having an average income of just $1,500 per year. Abject poverty is widespread. "The Grameen Bank is the seed to break out of poverty," claims Yunus. One day, he hopes, the story of this suffering will be consigned to a "Poverty Museum," and to the dust bin of history.
"If I can make so many people happy with such little money, we should all do more of this," Prof’ Yunus remembered thinking as the first loans were paid back. "As a human being, I wanted to touch one person’s life."
John Morris is the CEO of the non-profit association Austria for Africa, an initiative of Vienna Bi-Lingual School (GRG23 Draschestraße).