Nobel-Prize Winner on the Power of Microcredit

Years ago, a group of prospective business owners approached Bangladeshi banker Muhammad Yunus for a small loan, and he made it happen. Yunus talks about his book, Banking to the Poor, Micro-Lending and the Battle Against World Poverty, and winning the Nobel Peace Prize.

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NEAL CONAN, host:

This is TALK OF THE NATION. I'm Neal Conan in Washington. Thirty years ago, Muhammad Yunus made a loan of $27 to some villagers in his native Bangladesh and changed the world. In the three decades since, Yunus issued tiny amounts of credit - micro-loans he calls them - to more than 16 million people, most of them women and all of them too poor to qualify for traditional bank loans. As founder of the Grameen Bank of Bangladesh, the economist turned conventional banking and conventional capitalism on its head, and his goal is nothing less than the elimination of poverty worldwide.

For his 30 years of work, Muhammad Yunus and the Grameen Bank will receive this year's Nobel Peace Prize next month in Oslo, Norway. Muhammad Yunus joins us in just a moment.

Later, Garrison Keillor remembers film director Robert Altman, and Leroy Sievers returns to talk about life one year after his cancer resurfaced and about what he's thankful for this year.

But first, Muhammad Yunus and the Grameen Bank. If you'd had experience with micro-credit, what was it like? And is the idea practical in this country? Give us a call. Our number here in Washington is 800-989-8255. That's 800-989-TALK. The e-mail address is talk@npr.org. Muhammad Yunus joins us now from Chicago. Welcome, and congratulations on the Nobel Prize.

Dr. MUHAMMAD YUNUS (Founder, Grameen Bank; Author; Winner, 2006 Nobel Peace Prize): Thank you very much. Thanks a lot.

CONAN: I wonder, there's no short list for the Nobel Peace Prize. How did you find out you'd won it?

Dr. YUNUS: Well, I got a call from a Norwegian television station saying that today, the prize will be announced. Are you waiting for any news? I said no, I'm just getting on my daily work. They said, now we are hearing that you are one of the top contenders, so maybe you should get ready.

CONAN: And did you get ready? I mean, is that something you could possibly prepare for, the Nobel Peace Prize?

Dr. YUNUS: Well, he said keep the line open. If your name comes up - you'll hear the announcement very soon. If your name comes up, we'll be the first one to interview you. I said okay, that if that's what you want, I'll do that.

CONAN: Well, when you heard, it must have been...

Dr. YUNUS: It's amazing. I had no idea, because I was not ready for that announcement. I thought this year, it's not going to happen. People have been talking about it for many, many years - 15, 16 years now that you are going to get a Nobel Prize. So I said anytime it happens, it will happen. So I don't have to wait for it. I carry on my daily things.

So this is the year where I was doing the routine things, and I was not expecting anything. But suddenly it came, and the whole nation suddenly stand on their feet. Everybody was so excited, and people started flooding into my house and my compound, my office space, everywhere - hundreds and thousands of people kept coming. I said my God, this is really something. And cameras all around, and all the flashes going out and all the TV cameras coming from all around the world. This is an amazing experience.

CONAN: Yet at the core of it, there must be some wonderful feeling of vindication that this thing that you started 30 years ago and more, that this thing was right.

Dr. YUNUS: Oh, indeed. Because the Nobel Peace Prize kinds of makes very - a lot of things very clear for us, and a lot of endorsement for our work. Like, it clearly says poverty's a threat to peace. Anybody who is working for getting poverty eliminated in the world is working for peace. So micro-credit is helping getting poor people out of poverty, and that is helping bringing us closer to peace.

That message has been loud and clear through this award.

CONAN: And interestingly, of course, the Nobel Peace Prize, not the Nobel Prize for Economics.

Dr. YUNUS: Yes. I have been hearing about this all these years - some people saying that it's for the peace, some people saying it's for economics. And people, I'm sure, nominated me on both sides. So it's the Nobel Peace Committee which came out with their decision first.

CONAN: Maybe they had a fight. Maybe they had a fight over you. I don't know.

(Soundbite of laughter)

Dr. YUNUS: I don't know about that.

(Soundbite of laughter)

CONAN: Let me ask you. This is - you're a capitalist at heart, no?

Dr. YUNUS: Well, I think free market is a wonderful thing, but the concepts that we are using in the free market is very restrictive. Like, for example, banks. Banks don't open their door for all the people, but about two-thirds of the world population don't have access to the banking services. So this is, again, restricted. So everybody cannot participate in that free market.

And the concept of business itself is restrictive, because business the way we have been defining it, practicing as a business to make money. Profit maximization is the mission of business, and I think that's very wrong. That's very restrictive. Human beings are much more bigger than just being moneymaking machines.

The human being wants to do a lot more things besides making money. Making money is fun, making money is excitement, and there are many exciting things in the world we can do through business. And one business I talk about is doing good to people without expecting any return on the investment. So these are the social businesses - nonloss, nondividend companies.

I started social business to address a social problem, like helping poor people get out of poverty, bringing pure drinking water for the people who don't have drinking water, bringing health care, and not for making money out of it. So if the company makes any money, it remains with the company. It doesn't come to the investor. Investor gets the investment money back, and it dissolves a problem of the world. And that, also, is a business in the free market. We'll be competing with each other, among the social business and between the social business and the profit-maximizing business.

So you widen the area. Once we can do that, the real impact of free market will come out.

CONAN: Here's an e-mail question we have from Webster in Honolulu. Business Week magazine reports that the usual interest on a micro-loan is 35 percent, which the magazine says is lower than rates at other lending institutions. Since the micro-loan delinquency rate is relatively low, the return on investment for micro-credit institutions would seem to be far better than it is for conventional commercial banks in the West, raising the question of how much of the interest money goes to overhead and how much is reinvested in micro-loans and how much goes to other projects? Please explain.

Dr. YUNUS: Let me explain what the Grameen Bank does. Grameen Bank is a bank which is owned by the borrowers. We have nearly 7 million borrowers - 97 percent women. And our repayment rate is 99 percent. And our interest rate -the maximum interest that we charge is 20 percent. And we have housing loans, interest rate is 8 percent below our deposit rate.

And we give student loan for children of Grameen families who are pursuing higher education, and interest rate is 5 percent during the academic year. So you don't pay any interest, it's interest-free. But after you finish your school, then you pay 5 percent interest on that, which is way below the deposit rate that we give. And we also give loans to the beggars - interest rate is zero.

So we have four interest rates: with 20 percent, which is above our deposit rate; three others, 8 percent, 5 percent and zero percent, are below our deposit rate.

So that's the structure of our interest rate.

CONAN: There are also when - loans, at least in the beginning when loans were made, they were sort of made to groups of five people who were not formally -but they sort of looked out for each other to make sure there was a social network to enforce payment.

Dr. YUNUS: We still follow the same principles of a five-member group, but it has nothing to do with banking. It's more on the social issues. We address many social issues, like there are something called 16 decisions. Those decisions relate to their lives, like we shall send our children to school, make sure they stay in school. This is one decision. Another decision: we shall grow vegetables all year round and eat plenty of it and sell the surplus. That's another decision. We shall not take any dowry, we shall not give any dowry -this is another decision.

So we have series of decisions. These are the things which make it happen because you are together in it. And also, it teaches - the groups teach themselves the democracy. You elect your chairperson of the group. You elect your secretary of the group. And a bigger group, which we call center, you elect a center chief. You elect a deputy center chief. As a result, today, many of these women are contesting in local elections, and many of them are getting elected. More than 3,000 of Grameen borrowers got elected in the local bodies because they have been trained in the system of Grameen Bank.

We could have given loans to individuals. You still can. And still, the performance would be as good, because we don't need any collateral. We don't need any group guarantee. We don't need any joint liability. We don't have any legal instrument, so we don't need any of this. Still, it works. So the groups come for a different reason than just to ensuring getting our repayment.

CONAN: Okay, let's get a listener on the line. And by the way, if you'd like to join us: 800-989-8255. E-mail is talk@npr.org. And let's go to Aaron. Aaron's on the line with us from Brookline, Massachusetts.

AARON (Caller): Hello.

Dr. YUNUS: Hi.

AARON: I was on the staff of an international conference in 1963 where I first heard about the Rural Development Academy in Kamila(ph) in what was then East Pakistan, where they were also doing a micro-credit system. I wondered if you had any contact with that?

Dr. YUNUS: Oh, yeah. We know them all because it's in Bangladesh. It's known as a famous Kamila cooperatives. The cooperatives are the cooperatives of the farmers - farmers who get together and join in a cooperative and they get loans and loans come from government resources and so on and so forth. And our cooperatives didn't do very well. It became corrupt. It became badly managed. So it never got off the ground. Dr. Hamid Kanid(ph) did wonderful work, but gradually it kind of remained a club of few people, so - and it never reached to the poorest people, the kind of people that we wanted to reach out to.

And in Grameen bank, our focus is on the poorest and on the women, and it's their money, it's their bank. They need to change their own life.

CONAN: You had - and thanks very much for the call, Aaron. You had a lot of difficulties to overcome in getting women, first, to apply for loans and then well, there are a lot of societal restrictions against women in Bangladesh.

Dr. YUNUS: Oh yes, very much, because women themselves didn't think that they should take the money. They're always pleading with us when we approach them: oh, don't give the money to me. Give it to my husband. He's the one who knows how to handle money. I don't know anything about money, and I don't know if you give money what to do with the money. So why give it to me? And it will make my life more complicated than it is right now. I don't want to create trouble in my family by taking loans and not being able to pay back, so please spare me.

That was their message. But we didn't do that. We told ourselves that this is a fear that has accumulated around them for centuries. That fear is speaking, not the real person. All we have to do - be patient and get fear peeled off layer by layer so that finally, the person feels a little bit of courage to say yes. And once she does that, then she will discover it herself. So that paid off. We were patient. It took us six years to bring women into our work so that it becomes 50/50 between men and women. Then we saw money going to the families through women brought so much more benefit to the family, rather than money going to the family through men.

So we changed our policy. We said if the result is so much better with women taking the loan, so why don't we just concentrate the women? We did. As a result, we became soon 90 percent, 95 percent women. Today, 97 percent women.

CONAN: We're talking with Muhammad Yunus about the bank he set up, his goal to eliminate poverty and the 2006 Nobel Peace Prize, which he'll receive in December 10th. If you have questions for Muhammad Yunus: 800-989-8255, 800-989-TALK. E-mail, talk@npr.org. We'll be back after the break. I'm Neal Conan. This is the TALK OF THE NATION from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. We're talking today with Muhammad Yunus, winner of the 2006 Nobel Peace Prize and author of Banker to the Poor, Micro-Lending and the Battle Against World Poverty. We've posted an excerpt from the book at npr.org/talk. And in a few minutes, Garrison Keillor will join us to remember the film director Robert Altman.

But first, if you have experience with micro-credit, we'd like to hear from you. Would this model work in this country? 800-989-8255. E-mail is talk@npr.org. And we'll begin with David, David calling us from Newport in Oregon.

DAVID (Caller): Good morning, Neal.

CONAN: Good morning.

DAVID: Yeah, the reason I was calling in - you mentioned about experience with micro-credit, and I am a community banker out here on the Oregon coast. But I've sat for a number of years on the board of a SBA-certified development company, and we have been administrating a micro-loan program with SBA funds we borrow and we lend it out at a higher rate, and it has created a revolving loan fund. As we get repayment of those loans, it creates funds to make additional loans.

CONAN: SBA is Small Business Administration?

DAVID: Small Business Administration. And our experience with that is that these are primarily individuals who are entrepreneurs. They're taking their first shot at doing their own business and they need 5, 10, $15,000 - the maximum is 25 - to get the equipment for a lawn maintenance service, commercial sewing equipment, printing equipment to run their own business. And we have really remarkably low default rates given the risk that you're dealing with in a little start-up business.

But the most amazing thing is after a number of years of this is we've got folks that have done more than one, and they're growing their business to the point where they're now looking at actually purchasing a building to expand into. They've created employment. This has gone from just employing themselves to employing others, and they're taking advantage of the other SBA programs that are built to help them acquire these larger assets.

But it's been very successful in the rural markets here in Oregon that we serve at Cascades West Financial, so it's...

CONAN: Well, Muhammad Yunus, the amounts are quite different from yours, which average about $200, but I wonder if you see the principles being the same?

Dr. YUNUS: Principles are the same. It's just the economy is different because in Bangladesh, $200 is a lot of money. Here, $5,000 still is the small money. So the principle is the same. SBA a program I'm familiar with. Congratulations for your success, and keep up the good work.

DAVID: The one thing I'd like to add, too, by way of a little lobbying, is that the SBA has been diminishing the amount of technical assistance grants that they provide to these certified development companies to help get the loan officers out and in front of these small micro-enterprise and entrepreneurs. And it would certainly be a shame if that type of assistance went completely away because, of course, it's part of what makes it possible for us to have those folks doing that instead of just trying to make loans that generate the most revenue.

CONAN: David, thanks very much for the call. Appreciate it.

DAVID: Thank you, Neal.

CONAN: Bye-bye. Let's turn now to Ed. And Ed's with us from Berkley, California.

ED (Caller): Hi. I'm - just by yesterday, I'm 35. I'm a retired scientist, and what I'm enjoying to get into now is finding little pieces of things that would be nice to put together and doing it. And I'm very concerned about the gas pollution - gasoline pollution in the state, and our governator's been helping along.

CONAN: And the question here?

ED: And What I've come across is a woman who is disabled and lives in a house with other disabled people. They're sort of a collective, and they're trying to - they have an electric car, and they want to install photovoltaics on their roof. And there's another person who's done that here, and I'm interested in trying to facilitate that to happen and to resolve with a (unintelligible) that we could transport the other towns and whatnot to help the poor people be able to cut back on ecology instead of having the gas-burning cars.

So I was wondering of the Grameen Bank - we were looking for grants, but maybe the Grameen Bank would be a good thing. I don't know what the profit scheme would be. I know it would be less...

CONAN: Well, why don't we ask Muhammad Yunus what he would think? Is the Grameen Bank available in Berkley, California?

Dr. YUNUS: Not - unfortunately, not Grameen Bank. I'm sure there's some micro-credit programs around you. You can look at it. What we do in Grameen Bank on the energy side, we have created a separate company for Grameen energy, promote solar energy. So we have right now 80,000-plus solar home system in Bangladesh, provided with the market towns. And that number is increasing, 200,000 solar home system very soon, and our aim is to reach 100,000,000 - I'm sorry, one million solar home system by 2010.

So we are trying to promote solar energy in our households, houses, because the electricity is not easily available in Bangladesh. Very few people have access to electricity in the villages. So there, we bring the solar energy. Now, recently, we're talking about producing biofuels so that we don't have to depend on the fossil fuel. And we have been discussing this with the people in the United States, if they would like to do business with us jointly producing biofuels in Bangladesh.

So we are trying to see how to cut down the dependence on fossil fuel and nonrenewable energy and move gradually unto renewable energy. We have plenty of sunshine. We have a lot of possibilities with biofuel. We do the biogas with the cow dung, produce gas for a cooking, gas for lighting and so on. So we are very active on that front.

CONAN: Here's a couple of questions about international aspects of this as well. Rita in Arizona says do you think micro-banking might have the same impact in Latin America?

And Nelson in Salinas, California writes, more importantly than using it in this country, can this help women in Iraq and Afghanistan?

Dr. YUNUS: There are micro-credit programs both in Afghanistan and Iraq. And there's a large number of programs in very extensive programs in Afghanistan. There are several programs in Iraq. And, of course, it works very well in Latin American countries. I've visited many Latin American countries to watch them, to be close to those programs. These are small programs that didn't come up big one yet, like the way it has been done in Bangladesh.

In Bangladesh, 80 percent of the families, poor families, have been reached with micro-credit. And our aim is to reach 100 percent of the poor families, reach by 2010. This is nowhere near in Africa and Latin America. That's why we are now concentrating our attention and encouraging governments and NGOs, everybody, civil society - because anybody can do micro-credit. Usually, we say government shouldn't get involved with it because it's an area where citizens could show their strength in providing micro-credit. And it runs as a businesses, so all we need to do is to kind of create those environment where a micro-credit can take up, pick up their work.

Within USA, of course, there are more than 700 programs already out working. But one of the problems in the USA that it's not cost effective. It's not sustainable in the sense that the cost of operation is higher the revenue, generally, because the business volume is small, but the operational cost is high. So we have to find a way how to reduce the operational cost and how to increase the revenue, volume of the business to increase. Once we do that, it becomes an exciting business area.

CONAN: Here's another e-mail, this one from Yana(ph) in Denver. I've studied micro-credit programs in India such SEWA, working women's forum etc. Now, the government of India is pushing micro-credit in a big way through self-help programs. I'm concerned that there's an assumption that credit is the only thing needed to successful to - for successful micro-businesses. Can you talk about the other guidance - training, marketing etc. - that Grameen provides?

Dr. YUNUS: Well, yes. Nobody will believe that anything alone can do all kinds of miracles. One has to be really, really one-sided to think that way. You need everything. And our appeal is do everything in your capacity to bring to the poor people to change the position of the poor people. Get them out of poverty, because poverty doesn't belong to human civilization. It has been imposed on them as an artificial way. Poverty is create - not created by the poor people. It's created by the system that we have around us.

So amend the system so that they can come out of poverty. So what we are saying that whatever you do, do it as strongly as good as better as you can do. But don't forget the micro-credit, because this is a financial service. It makes everything else works much better. You need help. You need education. You need marketing. You need information. You need information technology - everything that you can think of. Whatever we need, who are not poor, they need the same thing. So there's no question about that.

Yes, Grameen has been helpful to bring technology. We brought information technology, as much as our capacity gives us. We don't have all the capacity in the world. So along with the work, we have created a company called Grameen Phone, to bring mobile phone in the country - to bring mobile phone system to give coverage to the rural areas. Then we give loans to the women of Grameen Bank to buy herself a cell phone to sell the telephone service in the village and make money, and village getting their telephone service. That thing picked up very well.

Today, there are more than 10 million subscribers of this company, Grameen Phone. And there are more than 300,000 telephone ladies selling the villages and their telephone services is spread all over Bangladesh.

So this is one way we brought information technology, and yet encouraging the children to stay in school. We mention about the 16 decision, sending children to school, to the 100 percent of the children that are in school. We focus on the children and their education. And we give student loans to make sure they can go into higher education and become doctors and genius, professional people, IT people and so on.

And there are more than 12,000 children now in the business school, in the medical schools, in the (unintelligible) schools. And we provide all the expenses needed to be done. And they are coming out. So we have a new generation of young people coming out of totally illiterate families. So we tried, and we have health insurance programs so that we can bring health services to the poor people.

So whatever we could do, we are doing, that a lot of more things can be done.

CONAN: Muhammad Yunus, again, congratulations. Thank you so much for being with us today.

Dr. YUNUS: Thank you very much.

CONAN: Muhammad Yunus is author of Banker to the Poor: Micro-Lending and the Battle Against World Poverty. There's an excerpt you can read at npr.org/talk. He's also the winner, along with his Grameen Bank, of this year's Nobel Peace Prize.

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Excerpt: 'Banker To The Poor'

In the year 1974 Bangladesh fell into the grip of famine.

The university where I taught and served as head of the Economics Department was located in the southeastern extremity of the country, and at first we did not pay much attention to the newspaper stories of death and starvation in the remote villages of the north. But then skeleton-like people began showing up in the railway stations and bus stations of the capital, Dhaka. Soon this trickle became a flood. Hungry people were everywhere. Often they sat so still that one could not be sure whether they were alive or dead. They all looked alike: men, women, children. Old people looked like children, and children looked like old people.

The government opened gruel kitchens. But every new gruel kitchen ran out of rice. Newspaper reporters tried to warn the nation of the extent of the famine. Research institutions collected statistics on the sources and causes of the sudden migration to the cities. Religious organizations mobilized groups to pick up the dead bodies from the streets and bury them with the proper rites. But soon the simple act of collecting the dead became a larger task then these groups were equipped to handle.

The starving people did not chant any slogans. They did not demand anything from us well-fed city folk. They simply lay down very quietly on our doorsteps and waited to die.

There are many ways for people to die, but somehow dying of starvation is the most unacceptable of all. It happens in slow motion. Second by second, the distance between life and death becomes smaller and smaller, until the two are in such close proximity that one can hardly tell the difference. Like sleep, death by starvation happens so quietly, so inexorably, one does not even sense it happening. And all for lack of a handful of rice at each meal. In this world of plenty, a tiny baby, who does not yet understand the mystery of the world, is allowed to cry and cry and finally fall asleep without the milk she needs to survive. The next day she may not have the strength to continue living.

I used to feel a thrill at teaching my students the elegant economic theories that could supposedly cure societal problems of all types. But in 1974, I started to dread my own lectures. What good were all my complex theories when people were dying of starvation on the sidewalks and porches across from my lecture hall? My lessons were like the American movies where the good guys always win. But when I emerged from the comfort of the classroom, I was faced with the reality of the city streets. Here good guys were mercilessly beaten and trampled. Daily life was getting worse, and the poor were growing even poorer.

Nothing in the economic theories I taught reflected the life around me. How could I go on telling my students make-believe stories in the name of economics? I wanted to become a fugitive from academic life. I needed to run away from these theories and from my textbooks and discover the real-life economics of a poor person’s existence.

I was lucky that the village of Jobra happened to be close to the campus. In 1958, Field Marshall Ayub Khan, then president of Pakistan, had taken power in a military coup. Because of his fear of rebellious students, he decreed that all new universities be situated away from urban centers. His fear of political agitation meant that the new Chittagong University, where I was teaching, was built in a hilly section of the rural Chittagong District, next to Jobra village.

The proximity of Jobra made it a perfect choice for my new course of study. I decided I would become a student all over again, and the people of Jobra would be my professors. I vowed to learn as much as possible about the village. Traditional universities had created an enormous distance between their students and the reality of everyday life in Bangladesh. Instead of traditional book learning, I wanted to teach my university students how to understand the life of one single poor person. When you hold the world in your palm and inspect it only from a bird’s eye view, you tend to become arrogant — you do not realize that things get blurred when seen from an enormous distance. I opted instead for "the worm’s eye view." I hoped that if I studied poverty at close range, I would understand it more keenly.

My repeated trips to the villages around the Chittagong University campus led me to discoveries that were essential to establishing the Grameen Bank. The poor taught me an entirely new economics. I learned about the problems that they face from their own perspective. I tried a great number of things. Some worked. Others did not. One that worked well was to offer people tiny loans for self-employment. These loans provided a starting point for cottage industries and other income-generating activities that used the skills the borrowers already had.

I never imagined that my micro-lending program would be the basis for a nationwide "bank for the poor" serving 2.5 million people or that it would be adapted in more than one hundred countries spanning five continents. I was only trying to relieve my guilt and satisfy my desire to be useful to a few starving human beings. But it did not stop with a few people. Those who borrowed and survived would not let it. And after a while, neither would I.

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