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Nobel Prize Winner Yunus Discusses the Impact of Microfinance

November 22, 2006 at 6:45 PM EST
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PAUL SOLMAN, NewsHour Economics Correspondent: It was in the early ’90s that Muhammad Yunus introduced the NewsHour audience to micro-lending — the idea that won him the Nobel Prize last month — micro-loans to Bangladeshi women of less than $100 each to buy straw to weave baskets, flour to bake biscuits.

We were reporting on an Arkansas micro-lending program based on Yunus’ Bangladesh model, lending to the likes of Jesse Pearl Jackson to buy more hair for her hair-weaving business, and grow the Pine Bluff, Arkansas, economy one small loan at a time.

JESSE PEARL JACKSON, Beauty Salon Owner: I had attitude. Let’s just say it. I had an attitude.

PAUL SOLMAN: And was it an attitude about yourself or about business?

JESSE PEARL JACKSON: My attitude was about business.

PAUL SOLMAN: So every time you have another micro-entrepreneur, you have a little bit more economic growth.

MUHAMMAD YUNUS, Winner of 2006 Nobel Peace Prize: Absolutely. Because once you have a micro-enterprise coming up, you are allowing your person to show his work and her work.

PAUL SOLMAN: And allowing the person to show his or her commitment responsibility. Yunus’ Grameen Bank, born and still based in Bangladesh, had more than a million borrowers in the early ’90s and a loan repayment rate of better than 98 percent.

When our Fred de Sam Lazaro actually went to Bangladesh to see Yunus and his operation in 2001, the repayment rate was the same, but the number of borrowers had passed two million. And Grameen, owned by its borrowers, had branched out into other businesses, like the country’s largest cell phone company, reaching out and touching those long isolated from the larger world.

MICRO-LOAN LENDER (through translator): We are offering a very good service to the village, and people are very thankful for our phone business.

PAUL SOLMAN: Moreover, Yunus and Grameen were arguably transforming poverty-ridden, storm-buffeted Bangladesh. No famines there since Grameen began. The birth rate, down by almost half. The borrowers’ children, according to Yunus, almost all going to school.

MUHAMMAD YUNUS: I would say it’s about 100 percent enrollment from Grameen families today, and many of them are in colleges, universities coming all the way. So that is very different.

The beginnings of Yunus' work

PAUL SOLMAN: And now, five years after that sound bite, Muhammad Yunus, Nobel Prize-winner.

Welcome.

MUHAMMAD YUNUS: Thank you. Thank you for inviting me.

PAUL SOLMAN: So how many borrowers now? Are 98 percent or more still repaying? And is Bangladesh's economy improving?

MUHAMMAD YUNUS: Right now, Grameen bank has 7 million borrowers, 97 percent women. And the repayment rate is 99 percent. Bangladesh economy is changing very steadily. Our growth rate has been 6 percent-plus; our poverty is declining very steadily during the decade of '90s on an average of 1 percent decline in poverty.

So during the decade, we had almost 10 percent decline in the people under poverty line. And during the first five years of 2000, now 2 percent per year decline in our poverty.

PAUL SOLMAN: How much of that do you attribute to your own efforts and micro-lending in general?

MUHAMMAD YUNUS: Researchers will not let me say that it is because of this, but I'm sure that micro-credit has played a very important role, because during this period 80 percent of the poor families have been reached with micro-credit. Bangladesh has a population of 145 million, and half the population is under poverty line. So when you say 80 percent of the families have been reached with micro-credit, it's a giant work.

PAUL SOLMAN: After reading your book, "Banker to the Poor," I wondered if you shouldn't get the Nobel Prize for persistence, as well as peace. I mean, just to review for people, you went to Vanderbilt University...

MUHAMMAD YUNUS: That's true.

PAUL SOLMAN: ... months after it was desegregated.

MUHAMMAD YUNUS: That's right.

PAUL SOLMAN: And you were so shy and prudish, you write, that you wore a full-length skirt in the shower because there was an open stall, right?

MUHAMMAD YUNUS: That's right, yes.

PAUL SOLMAN: Brought up in an Islamic family, and Islam forbids lending.

MUHAMMAD YUNUS: That's right. Not lending. It's interest. Islam forbids interest.

PAUL SOLMAN: OK, so that would seem to be a problem for somebody who is lending. You loaned to poor, Islamic women who weren't allowed to be in the same room with a man. She had to stand outside huts. The women who used as go- betweens were jeered, even attacked occasionally, for riding bicycles from village to village, because that's not allowed or wasn't allowed in Bangladeshi society. You hired ex-Marxist guerilla fighters as loan officers.

MUHAMMAD YUNUS: Right, yes.

PAUL SOLMAN: Banks scoffed. Bureaucrats stalled. Thirty years later, does this amaze even you?

MUHAMMAD YUNUS: It's amazing. It's amazing where we began, because at that time when I began in 1976 in the village next door to the university campus, I didn't have any blueprint. I was not building something. I had no idea what I was doing. All I wanted to do was to get the people out of the clutches of the moneylenders.

PAUL SOLMAN: How much were they charging?

MUHAMMAD YUNUS: Ten percent per day, 10 percent per week. More than interest rate, they make other conditionalities, like a condition, "Whatever you are producing, after you take my money, I will have the first right to buy it. And the price, I decide. You can't come and tell me that I can sell it at a higher price, because I decide now what price I pay you." So I was saying this is a simple slave labor rather than a business.

PAUL SOLMAN: Slave labor?

MUHAMMAD YUNUS: This is slave labor, so this is what I wanted to get rid of. Then I tried to do it in the next village, because it made people so happy. I had no idea that it will grow beyond the borders of Bangladesh and one day to be all over the world.

PAUL SOLMAN: If I had told you or someone had told you back then, "Hey, I think you might win the Nobel Peace Prize for this," you would have said...

MUHAMMAD YUNUS: "Oh, forget it." I mean, this is something -- crazy thing. I mean, you don't even pay attention to such a statement.

Microfinance and entrepreneurship

PAUL SOLMAN: 2005 was the U.N.'s year of micro-credit. People now speak of micro-finance evangelism. Are you afraid that micro-credit might now be promising too much, you know, the alleviation of poverty? The countries that micro-credit operates in -- Bangladesh, Kenya, Bolivia -- are still economic basket cases, by Western standards, certainly.

MUHAMMAD YUNUS: Well, it depends where you stand and what you look at, because Bangladesh is shown as one of the countries where the happiness index -- we're in the top. We are better than the United States on happiness index.

So what is your poverty? We don't know. You say basket case. We don't consider ourselves basket case. Our growth rate is bigger than the United States, at 6 percent on an average. In human development index last year in 2005, China was number one in the human development index, the quality of life as a whole.

PAUL SOLMAN: Improving, you mean.

MUHAMMAD YUNUS: Improving. And Cape Verde is number two, and Bangladesh was number three, better than India, better than Pakistan, better than Sri Lanka. So it's quite a significant thing happening in Bangladesh.

PAUL SOLMAN: A critic of the micro-credit movement, Thomas Dichter, in Forbes magazine recently: Quote, "The large majority of people in the advanced economies are not entrepreneurs, so why do we assume that in the developed economies the poor are?"

MUHAMMAD YUNUS: All human beings are entrepreneurs. When we were in the caves, we were all self-employed. We were finding our food, we're feeding ourselves. That's where the human history began with. As civilization came, we suppressed it and made it into labor. We are all labor.

PAUL SOLMAN: And a labor market.

MUHAMMAD YUNUS: And a labor market. We became labor, because you stamped us, "You are labor." We forgot that we are entrepreneurs.

The social side of microfinance

PAUL SOLMAN: How did you create the level of trust that you did? When you write about your first experiences, farmers cheated you. When you had a guy collecting the repayment, beetle leaf seller, I think it was, people were saying, "Oh, we paid him back already," and lying about that. So it's not as if these were naturally trusting or trustworthy people. How did you turn it around?

MUHAMMAD YUNUS: Well, people are people everywhere, same way. Natural tendency is for people to stay honest. If the system encourages them to go wrong, they take the other route. Then they say, "OK, if everybody is doing it, I'll do it, too."

So we created an environment where everybody remains at their natural state of affairs, which is to remain honest. Because as long as you pay back the loan, the door of the bank remains open to you. You can take more loans and move up.

If you don't pay back, all you have done, you closed down the door. You don't go mad at them. Then she says, "Can I come back? I made a mistake. I had a lot of difficulty. I couldn't pay you back. Can I now pay and come back?" Of course you can come back. You're welcome.

PAUL SOLMAN: Because they've learned their lesson.

MUHAMMAD YUNUS: Because they have learned the lessons, and we know that. And that's what we wait for.

PAUL SOLMAN: So if this is the natural state of people, then why weren't banks doing this before? Why weren't commercial banks doing it? Are they stupid? Are they prejudiced, both?

MUHAMMAD YUNUS: Because they don't trust people. If you look at it in a kind of funny way, you'll say the entire banking system is based on distrust, because you are bringing the lawyer, you are bringing the collateral. You are assuming this guy is going to run away with my money, so you want to tie him up so that he cannot run away with money.

Our system started with trust. We assumed that she was good enough to pay us back and so on. We didn't make any arrangement whatsoever. And in 99 percent of the cases, we are right.

PAUL SOLMAN: Do you mean to say that you think that, if Citigroup and I simply had a trust relationship with each other, it'd all work fine?

MUHAMMAD YUNUS: No harm trying. I tried. It worked.

Private sector enters micro-lending

PAUL SOLMAN: Are you in favor of for-profit institutions that aren't owned by their borrowers entering the micro-lending business, as is now happening? I mean, big banks are talking about it, hedge funds in New York. Private pools of capital are now talking about investing, if they haven't already begun to invest in micro-finance institutions. Do you approve of that?

MUHAMMAD YUNUS: Yes, I invite everybody to come into micro-credit area. But one thing I want to distinguish and also urge them: Don't make it an area to maximize profit. Because when you maximize profit, you minimize the benefit to the people.

PAUL SOLMAN: Why would you expect me, if I were a hedge fund, to take a lower profit than I could otherwise get by attending to other people's social-economic problems?

MUHAMMAD YUNUS: Because people are people, human beings. Human beings are a much bigger entity than money-making machine. People have all kinds of feelings and all kinds of inclinations, all kinds of exciting ideas.

That's why we create foundations. We give away our money. You don't say this is a crazy thing to do, but we all do. Big companies have their foundations. What is a foundation? You give away your money.

So I'm saying, if you can give away your money, why don't you invest to do good to people and get back your investment, do the same thing over again so that your money recycles and again and again, and change the quality of life of people?

PAUL SOLMAN: And so there will be enough investors in the world to invest in these funds to make them continue to operate, even though they're not as profitable as they could be?

MUHAMMAD YUNUS: It was not profitable at all, non-loss, non-dividend companies. That's what the social business is all about. So you came here to do good. It's a clean idea.

PAUL SOLMAN: Muhammad Yunus, thank you very much.

MUHAMMAD YUNUS: Thank you.