Berkeley MF conference: Yunus keynote (11/19/2004)

Muhammad Yunus is the Excutive Director of the Grameen Bank in Bangladesh. He started the practice of microcredit approximately 30 years ago, and has been a tireless advocate and visionary, pushing people to think about what could be done to reach more. Since 2005 has been designated by the UN as the "Year of Microcredit" (see the press release) this was an opportunity for Prof. Yunus to reflect on where we had been as well as what the upcoming goals were.

In 1997, there were about 7.5M borrowers. Yunus was meeting with the President of the World Bank, James Wolfensohn. They were discussing the appropriate goal to set for 2006. Yunus thought it should be 100M. Wolfensohn thought that was outrageously aggressive, but conceeded that 50M seemed about right. Yunus told him, "All right, for you the goal is 50M; for me it's 100M." As of 2003, about 55M borrowers had been served, and 70 - 7M seemed attainable in 2004.

The Grameen Bank itself has about 4M borrowers, making $500M in loans each year. The money does not come from donors, but all from bank deposits. For the typical loan, about 70% of the money comes from the borrower herself, in other long term savings deposits that she has in the bank. This may sound odd at first, but is not terribly different from borrowing from your retirement account. Indeed, Grameen Bank has some retirement account structures, where if a borrower makes regular deposits for 10 years, they are matched by the bank, yielding an effective interest rate of 12%.

Branches are run on a stand alone basis. New branches need to be self-reliant from Day 1, and most are profitable within 6 months. If they aren't within a year, it suggests a management problem, and the management team is replaced.

The market rate of interest in Bangladesh is about 15%. Grameen Bank offers four main loan types:

• Income Generating Loans at 20% interest rate
  
• Housing Loans at 8% for a 10 year period
  
• Student Loans at 5% (no interest while the student is in school)
  
• Beggar Loans (interest free)
  

The blended interest rate on these loans works out to be the market rate. For deposits, the minimum interest paid is 8.5%. The blended rate paid on all accounts is 10%, compared to the 15% they're earning from loans. This spread meant that they were able to earn a profit of $20M in 2004, even paying "government level" salaries and benefits to a staff of 12,000 people. Yunus was clear to point out that microcredit interest rates should be compared to the market, not to moneylenders. 96% of the borrowers are women.

In addition to student loans (which may be up to 100% of tuition), Grameen has 7,000 scholarships, half of which are open to only girls, the other half are open to both boys and girls.

Beggar loans are proof that even the poorest can use money. Grameen had targeted giving 5,000 of these small ($9 on average) loans to beggars, along with training. Since most beggars go door-to-door to beg for handfuls of rice, the Grameen staff members encouraged them to sell things door-to-door, giving people the option of either buying something or making an outright donation. In some cases, the people asked for different goods, in which case the beggar brought them the following day, becoming, in effect, a shopping service for the homeowner.

Grameen has branched out from just being a bank. There are now about two dozen independent Grameen companies, with Grameen phone being perhaps the most successful. It won the mobile license from the governement, and now has 80,000 "phone ladies" (village women who have been given a loan to buy the phone and re-sell time in phone calls.)

Yunus talked about the alternatives to capitalism, saying that in its current instantiation, the interpretation of a business was making as much money as possible. An alternative would be to have a business that maximizes the good it does for people, subject to the constraint that it not lose money.

Given that the UN Millenial Development Goal is to halve poverty by 2015, there's no reason that we can't achieve an equal reduction from 2015 to 2030, entirely eliminating poverty, except in a few museums, so our descendants can see the inhuman conditions that some people used to be subjected to.

"Income is the best medicine for the poor," said Yunus. He pointed to some of the other changes that wealth and self-confidence had made: 24% of the locally elected officials in Bangladesh are Grameen women. He made it sound like the if two "centers" (each about 15 groups of 5?) agreed on the local candidate, they had enough votes to elect the person.

When asked about the constraint of growth for microfinance worldwide, Yunus pointed to the ability to take deposits. Grameen Bank can, and therefore has enough money to make its loans. Otherwise NGO's can't, and therefore don't have the money to make loans. He considered it shameful that multi-laterals (like the World Bank) had put less than 1% of their portfolios into microfinance. He felt that if they increased the number to 2.5%, much of the capital squeeze would be gone.

[It so happened that I was sitting next to Tom Clausen, the former president of the World Bank (1981-1986). He pointed out to those in earshot that the World Bank is expressly prohibited from loaning to anyone other than governments by its charter. It sounds as though he and Yunus did not always see eye-to-eye, though there was a grudging respect.]