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Fighting poverty with $30 loans-Q & A Muhammad Yunus

Muhammad Yunus is a man who changed the world.

• Microcredit was the first time many poor people had access to financial services.
• Today we have 8.5 million borrowers. Cumulatively, we have given out over $11 billion.
• Now every time I want to address a problem, I create a business.

Muhammad Yunus is a man who changed the world. By coming up with a way to lend poor people as little as $30 to start businesses, he reduced poverty so much that he won the Nobel Peace Prize in 2006. Now he is spreading a new poverty-fighting idea that he calls "social businesses." There are already scores of them, including in the U.S. He met last week with USA TODAY's Editorial Board. His comments were edited for length and clarity.

Q: When you founded the Grameen Bank in 1976, what did you hope to accomplish and what impact has microfinance had?
A: Microcredit was the first time many poor people had access to financial services. Previously, they were left to the loan sharks. That's what the world has always known, (and) nobody tried to change it so that people could live in a different way. So when we started, that was the beginning of bringing financial services to the poorest people — particularly the poorest women.

Q: Why did it work?
A: We helped the women develop their own ability to make a living by using loans to create income-generating activity. It gives them the opportunity to explore their own abilities. And they're surprised they can do that. In the world that we're familiar with, the solution for poverty is the creation of jobs. This way, people create their own jobs. They find out their niche.

Q: How many loans have been issued by your bank? What's the average size?
A: Each loan cycle is one year. And today we have 8.5 million borrowers. Cumulatively, we have given out over $11 billion. The starting loan is $30 to $35. As borrowers pay one loan back, they can take another loan that is bigger because they have more business experience. People who have done business with Grameen Bank for a very long time will have loan sizes like $10,000.

Q: How do you get the money you lend?
A: We don't take any donor money. We don't take any money from the government. We take deposits and then lend the money to the poor. The bulk of the deposits come from the poor themselves. Every borrower is required to save a small amount of what they make every week. Today the balance of these deposits for all borrowers reaches to about $1 billion. So out of the $1.5 billion that's loaned out, $1 billion is their own money.

Q: Why are your loans focused so much on women?
A: Why do other banks focus so much on men? That question is never asked, but this question is always asked. The banking system in Bangladesh at the time refused to lend money to poor people, but it also refused to lend money even to rich women. When I decided to start lending money, I decided that half the borrowers in my program must be women.

Q: Were the women instantly willing to accept your offer?
A: The women said, "No, don't give it to me. Give it to my husband." So our job was to peel off the fear of each individual, so that someday one of them would say, "Maybe I should try." And if one or two or three tried and then are successful, others would become curious and it would have a snowball effect.

Q: How long did it take for that to happen?
A: It took us six years to make that happen, to come to the 50-50 level. Then we saw that lending to women brought so much more benefit to their families than lending to men. Today, out of 8.5 million borrowers, 97% are women.

Q: How did you persuade the first women to take the risk?
A: (We told them) that you raise chickens all the time, but you never thought to take money and have a few more chickens. You cook all the time, but you never thought you could cook something and sell. That never crossed their mind.

Q: Are women better credit risks than men?
A: Initially, we had 50/50 (and) there was no difference between the male borrower and the female borrower. Their performance is the same. The point I was explaining previously (is that a woman's) impact in the family is better.

Q: What role is there for microfinance in a prosperous country like the U.S.? And how is that different than in Bangladesh?
A: Basically it's the same. We started in New York City in 2008. We now have six branches and over 12,000 borrowers. All women. What we do in Bangladesh is the same in New York. We actually brought individuals from Bangladesh who had been working with Grameen Bank to run this program here because they're trained. They've never been to the U.S. before, so they do exactly what they do in Bangladesh and it works.

Q: What is the average loan amount in the U.S.?
A: The average loan in New York City is about $1,500, and repayment rate has been so far over 99%. It has become so successful that other cities were inspired to invite us there. The first city was two-and-a-half years back: Omaha, then Indianapolis, San Francisco, Los Angeles and now Charlotte.

Q: What are the lessons you have learned since launching your bank?
A: Once we started making loans among poor women in Bangladesh, we saw other problems. Education problems of the children, housing problems, toilet problems, cooking stove problems. And it gave me an idea: Why don't I try and solve one of those problems?

Q: Where did you start?
A: The first one that I noticed was an ugly health problem — night blindness. We found sad, sweet children who could not see when the sun goes down. So I talked to doctors and they told me there's a very simple cure: "Give them vitamin A and they'll be as good as everyone else. Let them eat vegetables." But I found that the people couldn't afford the seeds to grow vegetables. We started selling one-penny packets of seeds to sprinkle around the house. Our vegetable business grew. So we became the largest seed seller in the country, and in the process night blindness disappeared from Bangladesh. So I thought, "My God. This is so easy. You don't need a doctor. You only need a business to cover the cost."

Q: Has the idea spread?
A: Now every time I want to address a problem, I create a business. These businesses are all focused on problem solving, not on money making. Conventionally, businesses is known for money making. That is what you see in textbooks and practice. But this is a new class of business. So I started calling them "social businesses," non-dividend companies focused on solving human problems while the business tries to just covers its own costs. After that, we started creating one social business after another. Then other countries got involved in making their own social businesses.

Q: What happened next?
A: When multinational companies showed interest, we started joint ventures with them. One is with Dannon, the yogurt company. They agreed to do social business with us, to make an investment to address the problem of malnutrition. In Bangladesh, about 46% of children are malnourished. So we created a special kind of yogurt and made it cheap to cover only the costs of the business. Dannon promised they won't take any dividend. They can take back their initial investment, but nothing else. We're working with Intel and Adidas and others.

Published on:– April 25, 2013
Published By: www.usatoday.com
Source: - http://www.usatoday.com/story/opinion/2013/04/25/muhammad-yunus-microcredit-column/2112371/