Views of a Visionary Economist

Visionary Economist Muhammad Yunus Shares Microlending Success Stories
FOR FURTHER INFORMATION: Helen K. Chang, 650-723-3358, Fax: 650-725-6750
May 2004
STANFORD GRADUATE SCHOOL OF BUSINESS — In Bangladesh, hundreds of thousands of people engage in one of the oldest occupations in the world: begging. They travel from house to house throughout villages each day asking for pennies or small amounts of food to feed themselves and their families. Some are the forgotten of society—the lame, the blind, and the limbless—who perch in strategic spots hoping that passersby will be kind to them. They represent the lowest rungs of the poor, the "hopeless" cases doomed to chronic poverty. Yet one man has come up with an ingenious strategy that is turning thousands of such people into viable entrepreneurs.
That man is Muhammad Yunus, head of economics at Bangladesh's Chittagong University. Yunus described to a rapt audience at the conference on Global Business and Global Poverty how he devised the concept of microlending and came to found the extraordinarily successful microfinancing enterprise Grameen Bank. He also related some of the bank's other entrepreneurial efforts, including the creation of the largest mobile telephone company in Bangladesh, Grameen Phone, and discussed the bank's latest efforts to help the poorest of the poor. So moving and inspiring was his address, and so pragmatically hopeful was his vision, that Yunus received a standing ovation.
The story began in 1974, Yunus recounted, when he could no longer tolerate "teaching about elegant fields of economics" in the midst of people who were literally starving to death all around Chittagong University. Leading students on a local field trip, he interviewed a woman who made bamboo stools and learned that after repaying the usurious middleman for raw bamboo each week she was left with only a penny profit. He compiled a list of 42 such people who suffered similarly at the hands of lenders and discovered that the total amount of money they needed was a mere $27.
"I realized that it was within my capability to solve the problem, so I gave the money, the $27, and got them liberated from the clutches of the money lenders," Yunus recalled. "This created such excitement among the people in the village that I wanted to continue. I said to myself, if you can make so many people happy with such a small amount of money, why shouldn't you do more of it?"
When Yunus was unable to persuade the local bank to loan money to the poor, he offered himself as the guarantor. "I started signing papers, taking money from the bank, and giving it to people for entrepreneurial activities. It worked perfectly," he told the audience at the May 19 conference organized by the Center for Global Business and the Economy at the Stanford Graduate School of Business. "People were paying back 100 percent without a problem." So encouraged was he by the success of the project that in 1983, Yunus set up his own independent institution, Grameen Bank, and continued to expand microlending throughout the country. Today, the bank has 3.5 million borrowers, 95 percent of whom are extremely poor women, and has given out more than $4 billion worth of loans at a 99 percent recovery rate.
"With an average loan of $200, people invest in small businesses and change their lives," he said. Poor women not only gain financial self-sufficiency, they are able to send their children to school and college and thereby break the cycle of illiteracy. Each year, the bank offers thousands of student loans and more than 6,000 scholarships.
Six years ago, when the government decided to liberalize the telecommunications sector, Grameen Bank successfully applied for a license to sell phones. The bank created thousands of small business opportunities for borrowers to sell mobile phones in rural communities without electricity. "Everybody thought it was a crazy idea, but it became a roaring success," he said. Grameen Phone has provided borrowers with an almost instantaneous opportunity to move from poverty to economic sustainability.
Last year, Yunus came up with the idea of helping the very poorest people—beggars—to begin lifting themselves out of poverty, as well. The ingeniously simple plan involves offering beggar women the option of selling merchandise such as food, toys, and knickknacks to homes where they solicit. The women are given a special Grameen identity card—"so that people start looking at them in a different way," said Yunus—and are allowed to borrow merchandise from local stores, sell what they can, and return the rest at the end of the day. The bank covers the loan.
The response has been extremely heartening. By the end of this past April, Grameen had 9,000 beggars voluntarily participating in the program, each operating on a typical loan of $10. Their services have come to be in considerable demand, given that household women are forbidden to shop on their own.
Tacking on one more piece to the project, Grameen has offered stationary beggars—generally those who are blind or missing limbs—the option to sell small foodstuffs at their beggar's bowl. "Since they sit in very strategic places, they already know how to run a business," commented Yunus. "They now give passersby the choice as to whether they want to throw in a penny or buy a soft drink or a banana. All we need to do is put a roof on top and they become businesswomen, right there."
Although Yunus has created a business model in which social good, not profit, is the objective, in 2003 alone Grameen Bank made more than $11 million, proving that the two goals are hardly mutually exclusive. In closing, Yunus briefly mentioned other "social business entrepreneurship" ideas, such as the creation of a "social stock market" in which the primary goal of the shareholder is not to obtain greater dividends but rather to support organizations that are helping reduce poverty, clean up the environment, improve health, and accomplish other worthy goals.
Yunus acknowledged that such ideas inevitably seem unviable at the beginning, but he encouraged the audience to think positively and boldly. "At Grameen, we don't have any legal instrument between the lender and the borrower, and it is a very scary thing when we are lending more than $4 billion," he said. "Everybody asks, 'What will happen if nobody pays back?' I say, 'But everybody pays back, so why should I worry about it?'"
Yunus was an unscheduled speaker at the conference on Global Business and Global Poverty. A change in his travel plans allowed Yunus to join speakers from four continents at the event, sponsored by the new Center for Global Business and the Economy at the Stanford Graduate School of Business. The Center hopes to open new areas of research into issues faced by business, governments, and nonprofit organizations operating around the world. It is codirected by Business School professors John McMillan and John Roberts.