Nobel Laureate Sees Promise in Loans
MICHEL MARTIN, host:
MARTIN: I'm Michel Martin and this is Tell Me More from NPR News. Still to come, for four decades Sesame Workshop has been helping small children navigate their world through its Sesame Street programs. Now it's trying to help kids in military families make sense of the special challenges they have to face, like their parents repeated deployments. We'll have more on that in a few minutes, but first we want to talk about the poverty-fighting strategy called micro-lending.
After success elsewhere, the method is finally taking root in the U.S. with the Grameen Bank. The brainchild of economics professor Muhammad Yunus, the bank was founded in Bangladesh more than three decades ago. It makes small loans to borrowers, mostly women, in more than 20 countries. This once radical idea has given some of the world's poorest people a way to start businesses and find their own way out of poverty. Now a branch of the bank has opened in Queens, New York. Nobel Peace Prize winner Dr. Muhammad Yunus stopped in to tell us about it. Thank you so much for coming.
Dr. MUHAMMAD YUNUS (Founder, Grameen Bank; Nobel Peace Prize Winner): Thank you for inviting me.
MARTIN: You've been doing this so long, and I bet you're bored talking about it but for those who aren't aware...
Dr. YUNUS: Not at all, not at all, I'm always feel encouraged to explain what I do.
MARTIN: How does the bank work and how does it work differently from the way we're used to thinking about a bank?
Dr. YUNUS: Our basic principle is people should not come to the bank. The bank should go to the people. So we always go to the people to do business at their doorstep. Borrower has to form themselves into self-selected, five-member groups. Anyone - someone from their program, from Grameen, will come to do business with them at their place. They make weekly repayments on for whatever loans they have taken. If they have taken three thousand dollars, each week they're paying a bite-size amount, it's very easy to pay back.
MARTIN: Why is that? Why do you concentrate on women?
Dr. YUNUS: In Bangladesh, when we did that, because this was a protest against the conventional banks in Bangladesh where not even one percent of borrowers happened to be women. So I said, when I begin, I want you to make sure half the borrowers should be women. Then we saw that money went to the family through women brought so much more benefit to the family than same amount of money going to the family through men. Children are better taken care of and the woman has a longer vision to improve their life as fast as they can. Today we have seven and a half million borrowers, 97 percent are women and the bank is owned by them. So we follow the same thing here.
MARTIN: There are projects based on the Grameen model in the U.S. I know there's one in Chicago, I think there was one in Little Rock, but this is the first Grameen Bank to open in the U.S. What took you so long? Why did you leave us out?
Dr. YUNUS: No, we didn't leave you out. We thought we let others to learn and do it themselves. So there are more than 700 programs all around the United States right now, but they have different ways of doing that, and most of them don't even lend money. They're just a training programs. Only about two hundred programs lend money but they're not sustainable. They're funded by external sources and so on. So we had kind of taken that initiative, let's try to do it in U.S.A, and hopefully we can be able to demonstrate that it can be done, it can be done in a very sustainable way, and it can reach out to a large number of people.
MARTIN: Do you even remember how this idea came to you?
Dr. YUNUS: Yes, I remember because I was teaching in the university in Bangladesh and the country was going through terrible famine and I wanted to do something helping people in the next door village. So I did a lot of small things and I saw how loan sharks operated in the village, and I made a list of people who were borrowing from the loan sharks. When the list was complete, there were 42 names on the list. Total money they borrowed was 27 dollars. And I was shocked that people have to suffer so much for such a little money.
So I thought I can solve this problem. If I give this 27 dollars from my own pocket and they can return the money to the loan sharks, then they will be free. The moneylenders cannot touch them anymore. So that's what exactly I did and they were happy that it could happen so easily. So I wanted to do more of that.
I went to the local bank to see if bank can lend money as a permanent arrangement. Bank say no, they cannot lend money to the poor people. And finally I offered myself as a guarantor. I said, I'll sign all your papers. You give me the papers and I take the risk and you give the loan. And that's how it began in 1976.
And it worked, so we kept on expanding. Later we thought maybe we should convert the whole thing into a bank by itself, owned by the poor people. So in 1983 we became a formal bank, and it's owned by the borrowers and now it has grown into a big bank. We have seven and a half million borrowers in Bangladesh. And your payment rate is near one hundred percent, 98 percent, 99 percent, and so on.
MARTIN: It is one of those ironies that the poorest people pay the highest interest rates.
Dr. YUNUS: Yes, that's true, they pay the highest interest rate compared to the conventional banks.
MARTIN: But why do you think that we tolerate this?
Dr. YUNUS: Banks have always denied that it cannot be done in a business way.
MARTIN: But it is being done. I mean, one of the points you make is that people have always been lending to poor people...
Dr. YUNUS: Always.
MARTIN: At very high rates.
Dr. YUNUS: Very high rates.
MARTIN: And in this country there's this whole Payday Loan phenomenon.
Dr. YUNUS: That's right.
MARTIN: So I'm just wondering why it is that we are willing to allow marginal people like loan sharks or people like Payday Loans to loan to poor people, but that bigger businesses have not been willing to do it?
Dr. YUNUS: Yes, it's a very paradoxical situation because conventional banks decided that they cannot lend money to the people under a certain income level or a certain business level. So those people are left out, so they have to find their financing from one source or another. And that's where the loan sharks come in. People borrow from the loan sharks at extremely, extremely high rate of interest. And also a lot of other conditions they impose on top of that. It makes it extremely impossible for poor people to survive.
MARTIN: Is the idea, though, that the lending that's traditionally done with poor people isn't meant to be payed back? Whereas yours is that you actually anticipate that people will pay you back and they do pay you back. But is the model that has typically been used for the poorest borrowers is that we really don't expect them to pay it back and it's really a way to seize their assets or to keep them kind of on the hook for a very long time? Because somebody's making money, right?
Dr. YUNUS: Yeah, right. I don't think it's because they don't pay back. It's because you don't make money out of that, that's their argument. If I lend one hundred dollars to a rich man, I make more money than lending hundred dollars to a poor person because in the methodology that we have right now, we have to go many times to collect that hundred dollars, it's a weekly payment and so on. So their consideration is yes, you can recover the cost, but what about my profit because business is about profit maximization.
MARTIN: If you're just joining us, we're speaking with professor Muhammad Yunus. He's founder of the Grameen Bank, which opened earlier this year in the United States. There are a couple of reasons why some people say they think that it's doubtful that this will work in the U.S., or work as well. One is that they say that the loan sizes that are so effective in other parts of the world are almost meaningless here. I mean, loans can be as little as fifty dollars, or as you pointed out, you know, 27 dollars was enough to help a very large number of people in Bangladesh twenty years ago. People say those amounts just aren't viable here.
And the second point that they make is that the "peer-lending model," which has been effective elsewhere, whereas in order to get a loan you have to have a peer group and be part of a peer group that's also engaged in some kind of productive activity, that there isn't the same level of peer pressure here to encourage people to pay the loans back. I know you've heard this, so what do you say to that?
Dr. YUNUS: First of all, about the peer-lending. That opinion is really speculative. You have to do it and then find out if it works of not. If it doesn't work, you come up with another system which works, so I'm not afraid of that. When we have kind of opened a program from Grameen in Jackson Heights, and since generally trying to organize it, there are already 170 borrowers and they're all in peer-lending method that we apply, five-member groups and weekly repayments. And we hear no objection or no reluctance of women joining this group. As a matter of fact, many are waiting to join.
And about the loan size, loan size, yes, in Bangladesh, loan size of course would not apply in the United States. But it depends on who are these people. If it is the bottom of the society, their need is also very small. In Jackson Heights, the loans we have given ranges from minimum of five hundred dollars, maximum of three thousand dollars. So if you look around, the typical loan would be somewhere around 2,500 dollars. So this is the loan size, and in the U.S. standard, this is not big amount. It's a very small amount of loans.
MARTIN: One could imagine that this form of lending is really a challenge to existing thinking, as well as to existing businesses. They're making quite a lot of money with people with very low incomes. I mean, we see these ads all the time, with, oh, I need money for my car, I don't have any money for my car, you know, thank you, Payday Loans. And financial advisors will tell you that that's a terrible way to lend money. That often people wind up signing over, you know, disability checks, social security and things and that they never get out of debt.
Prof. YUNUS: True.
MARTIN: What I'm wondering is if given that, you know, your institution offers such a challenge to that kind of business, one wonders if - well, you see where I'm headed here.
Prof. YUNUS: Yeah, I know, but this is what we did when we began in Bangladesh. Our work was against the local moneylenders. They are very powerful people. We did that, we sustained their opposition and it grew. And moneylenders had to withdraw from this business because there was no room for their business left. So that didn't mean that we couldn't do it because of their power because people loved it. People enjoyed it and it became successful.
Here Payday Loans interest rate starts somewhere around 50 percent, 60 percent and goes all the way probably 500 percent, 1000 percent. So our work would be to address those issues. They can borrow money at very reasonable rates of interest, the market rate of interest and kind of solve their own problems.
MARTIN: So how are you able to do it? Because I mean, the argument that the Payday lenders offer, number one is that they are providing a needed service because it is a fact that sometimes people do need sources of cash and they don't have one the way that, you know, wealthier individuals, you know, have personal lines of credit or maybe they have wealthy relatives who can help them in a time of need.
They'll say, number one, they're providing a service. Number two, they say the interest rates they charge are what is necessary to lend to this population. How are you able to do it without charging those high interest rates?
Prof. YUNUS: It's a question of covering the cost. If they say that they need 500 percent interest rate to cover the cost, I must say that's a very inefficient system. I'm sure they make a lot of money out of it. That's why they are in business. In our case, we are not here to make an enormous amount of money because given the desperation of the poor people to find this small money they will agree to pay anything because of desperation. And somebody should not take advantage of their desperation.
MARTIN: Do you have any thoughts about the subprime mortgage crisis, which is embroiling the U.S. credit market as well as the housing markets? I'm sure if you picked up any newspaper in any city you've traveled in you've seen stories about the foreclosure rate and how the subprime issue is affecting, really, the economy. You have any thoughts about that?
Prof. YUNUS: Oh, you cannot escape from that news because it's everywhere, all over the world. Because what happens in the U.S.A. in the subprime market, it kind of spills over, all over the world. It created such a big crisis in the financial market. Today we are talking about the range of about a trillion dollars write-offbecause of the failure of those loans. And who suffers from that, the trillion dollars has gone down?
People, depositors, probably the owners of the banks, and at the same time, they claim that the government should bail them out. Again, it comes back to the taxpayers. The taxpayers have to bail them out. So this doesn't make sense to anybody, that why when the banks make profit, taxpayers don't get any benefit from that. But when they are losing, then the taxpayers have to go and bail them out.
So we need to find a way which would be two-way relationship, not one-way relationship. And also find out whose fault was it? Nobody is probably talking about it, whose fault was it? So identify the people who were responsible for it, why did it happen? Somebody must be - must have done something terribly wrong to create such a big debacle in the whole banking system. Unless we recognize that, it will have the tendency to recur again.
MARTIN: Your model of lending poses a challenge to the way we traditionally think of lending, which is, you know, you go to the people who you consider to be the most credit worthy, you seek out, you know, higher income people who you think are the most safe and so forth. It makes me wonder whether anyone is considering a challenge to the way we finance housing in this country. Why isn't that kind of radical thinking be applied to this situation?
Prof. YUNUS: That's precisely. I was mentioning that this gives an opportunity to reflect. Can we redesign the whole thing in a way that it is not as vulnerable as the way it has come out? Definitely we should not go back and do it again the way we have done it in the past. So it has to stop right now. And also imagine all those people who lost their homes. We talk about trillion dollar write-off, we're not talking about people who lost their homes. So it's a tremendous amount of pain that has caused to so many people.
MARTIN: When you talk about creating a social business in the U.S., how do people react to that?
Prof. YUNUS: Very positively. I'm amazed. I thought - I was given the impression, people say ah, people are not crazy, to do something without making money. You can't talk like that. Now here when I talk about it they are very enthusiastic. They say, ah, this makes enormous sense. I want to participate in such a social business. How do we do it?
Many are coming forward to start social businesses in this country. Now people will have two choices, whether as they grow up they should join a profit-making company to help them to make more profit, or they should join social businesses to make a difference in the world.
MARTIN: Finally, you've been very generous with your time, your work has changed many people's lives. I would like to ask, how has it changed yours?
Prof. YUNUS: Well, I'm very excited about the results when I see not only the borrowers who took the money and improved their lives. They are feeling much happier than they did in the beginning. Now their children are a very different group of people now. A new generation is coming out. Their parents are illiterate, never been to school, it never happened in the history of their families.
MARTIN: I understand, but I was asking about you.
Prof. YUNUS: Yes, that's what my satisfaction, that's what I'm explaining. I feel so happy that I could have played that role that history has given me this opportunity to see that I could do that and make an impact. It's not an idea. Ideas are great thing, but it's also a practical thing. This is something you can go and touch and feel, meet these people, one by one, and millions of people. And the idea has spread all around the world.
And see a completely new feeling, that yes, we can overcome poverty. We can create a poverty fuel, that's what I'm trying to convince everybody. And I'm totally convinced myself. And then that's when we create that world, we'll put poverty in the museum so that any future generations who would like to understand what poverty is or was in the world, they have to go to the poverty museums to find out how poor people lived.
MARTIN: Mohammed Yunus is the 2006 Nobel Peace Prize winner. He is founder of The Grameen Bank, a branch of which just opened in the United States. He was kind enough to join us from our New York bureau. Professor Yunus, thank you so much for speaking with us.
Prof. YUNUS: Thank you very much for giving me this opportunity.
MARTIN: I look forward to joining you on a tour of that poverty museum.
Prof. YUNUS: I hope so. We'll visit together.
MARTIN: Next week, we will hear about how micro-lending is helping the women of Rwanda rebuild their country and their lives after the genocide that nearly destroyed that country more than a decade ago.
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MARTIN: And in a moment, a popular kids' program takes on the sensitive task of explaining the effects of war.
Mr. GARY KNELL (President and CEO, Sesame Workshop): This is a way of actually talking about the real sacrifices that these soldiers and their families are making.
MARTIN: A Sesame Street DVD for military families, that's next on Tell Me More from NPR News. I'm Michel Martin.