[Published in Fourth Dimension Inc. Towards Integral Management. http://fdi.sriaurobindosociety.org.in/cms/index.php June 2011]
(A case study based on the autobiography of Muhammad Yunus, Banker to the Poor, The University Press. Muhammad Yunus is a Nobel Laureate in Peace and the founder of Grameen Bank, Bangladesh. The present degenerate condition of micro-finance in India should not blind us to the immense potentiality of this instrument for fighting poverty. As Mohammad Younus himself pointed out in a talk the main problem with microcredit in India is that instead of using it to help the poor, entrepreneurs are misusing it to help themselves to become rich. Thus, there is a need at present to get back to the original idea of micro-credit as it was conceived and used by one of the most successful warriors against poverty.)
I first met Muhammad Yunus in February 1997, during a short visit to Dhaka. I found a remarkable man. He not only spoke the greatest good sense but had, against huge odds and in the face of dreadful cynicism on the part of so-called experts, followed his ideas through and made them work.
-Prince of Wales
The success of Grameen Bank in developing micro-finance in Bangladesh as a successful commercial operation has led to global interest in the process. There are variants of the Grameen concept all over the world, including in the United States. The micro finance revolution now has its own global conference every year.
-C.K. Prahalad, Management Guru
Key Perspectives: Compassion in action; nightmare of poverty; birth of a solution; feminine advantage; harnessing the power of groups; business model; poverty, profit and beyond.
Compassion in Action
Most of us are sensitive to the poverty and hunger, which we see around us and feel sympathy for the poor. But there are a few who go beyond feeling sympathy to creative compassion, which means to do something for changing the lives of the poor. Muhammad Yunus, the founder of Grameen Bank is one of them, perhaps one of the most creative and successful. The autobiography of Yunus is an insightful and moving account of Compassion in Action.
Interestingly, Compassion is now recognized as a leadership quality in modern management thought. Richard Boyatzis and Annie Mckee, leading leadership consultants, in their book: “Resonant Leadership” published by Harvard Business School Press, describe Compassion, Mindfulness and Hope as core qualities of effective leadership. Richard and Annie define compassion as, “Empathy in action” and describe its main components as:
Muhammad Yunus displays such an active and dynamic compassion for the poor.
This case study is not an exhaustive analysis of the leadership qualities, styles or strategies of Yunus. The main objective of this study is to examine an important aspect of effective leadership: how a creative idea or solution is born in the mind of a leader, takes form and gets converted into decisions and action. This case study examines this aspect of leadership in the life and example of one of the most successful social entrepreneurs of our age.
The Nightmare of Poverty
The most interesting and poignant part of the autobiography of Yunus is the one in which he describes how the idea behind Grameen Bank germinated in his mind. After obtaining his doctorate in economics from US, Yunus came back to Bangladesh and took a comfortable wellpaid job in Chittagong University. He could have easily settled down and prospered in his job and become a top academic or a Vice Chancellor. But he was shaken to the core by the nightmarish famine and poverty he saw in his motherland. People were dying in the streets. Young and old, woman and children were simply collapsing and dying of starvation while sitting or walking on the roads. Muhammad Yunus describes poignantly with deep feeling in his heart what he saw in Bangladesh.
“The year 1974 was the year which shook me to the core of my being. Bangladesh fell into the grips of a famine. They were everywhere. You couldn’t be sure who was alive and who was dead. They all looked alike: men, women, and children. You couldn’t guess their age. Old people looked like children, and children looked like old people. One could not miss these starving people even if one wanted to. They were everywhere, lying very quiet. They did not chant any slogans. They did not demand anything from us. They did not condemn us for having delicious food in our homes while they lay down quietly on our doorsteps. There are many ways for people to die, but somehow dying of starvation is the most unacceptable of all. What a terrible way to die. It happens in slow motion. Second by second, the distance between life and death becomes smaller and smaller.”
However many might have seen and felt like Muhammad Yunus. But only a few might have converted their feelings into action to do something for the poor. Among these few, only Yunus was able to do it creatively, which had a substantial impact on the lives of the poor, not only in Bangladesh, but in the whole world.
As Yunus saw the grim reality of poverty, his academic mind built around economic theories collapsed. He saw concretely how sterile and useless these theories are for solving actual and grave economic problems like stark poverty. “I wanted to run away from these theories from text books” writes Yunus, “I felt I had to escape from academic life. I wanted to understand the reality around a poor person’s existence and discover the real life economics that were played out everyday in the neighboring village-Johra.”
The Birth of a Solution
So Yunus wanted to study the real world of poverty than theorizing about it. He interviewed one of the poorest in Johra, Yunus describes the simple interview:
“She was in her early twenties, thin, with dark skin, black eyes. She wore a red sari and could have been any one of a million women who labour every day from morning to night in utter destitution.
‘What is your name?’
‘How old are you?’
‘Do you own this bamboo?’ I asked her.
‘How do you get it?’
‘I buy it.’
‘How much does the bamboo cast you?’
‘Five taka.’ That was 22 US cents.
‘Do you have 5 taka?’
‘No., I borrow it from the paikars.’
‘The middlemen? What is your arrangement with them?’
‘I must sell my bamboo stools back to them at the end of the day, so as to repay my loan. That way what is left aver to me is my profit.’
‘How much do you sell it far?’
‘Five taka and 50 paisa.’
‘So you make 50 paisa profit?’
She nodded. That came to a profit of just 2 US cents.
‘And could you borrow the cash and buy your own raw material?’
‘Yes, but the money-lender would demand a lot. And people who start with them only get poorer.’
How much do the money-lenders charge?’
‘It depends. Same times they charge 10 per cent per week. I even have a neighbour who is paying 10 per cent per day!’
‘And that is all you earn from making these beautiful bamboos tools, 50 paisa?’
This interview gave Yunus the insight into what is the real and immediate cause of a large mass of poverty and a solution using microfinance. The Doctorate in Economics from University of Colorado US learnt a great lesson on the economics of poverty from that poor simple, uneducated woman. She taught the learned professor of Economics at Chittagong University that real cause of the miserable condition of people like her is not lack of education or skill or hardwork but lack of unexploitative credit. Sufia may be illiterate but she has the skill to make that beautiful bamboos stool and she works hard all day. What she needs is that five taka! As Yunus describes what he has leant from his interview with Sufia:
“I simply tried to understand why she suffered: she suffered because the cost of the bamboo was 5 taka and she didn’t have the necessary cash. Her life was miserable because she could survive only in that tight cycle – borrowing from the trader and selling back to him. She could not break free of that circle. Right now her labour was almost free. It was a form of bonded labour, or slavery. The trader always made certain that he paid Sufia a price that only covered the cost of the materials and just enough so that she would not die, but would need to keep on borrowing from him. It seemed to me that Sufia’s status as virtually a bonded slave was never going to change if she could not find that 5 taka to start with. Credit could bring her that money. She could then sell her products in a free market and could get a much better spread between the cost of her materials and her sale price.”
In other words Sufia was not able to break away from the circle of poverty because there was no one who can understand her problem lend her the money she needs and support her until she can stand on her own legs. The present source of credit to the poor, the money-lender is exploitative. The traditional banking system, government and private, is in general caters to the rich and not interested in the poor. As Yunus explains further:
“Sufia needed credit because she had no cushion to tide her over the adverse conditions which too often arose in meeting her family obligations, in carrying on her bamboo weaving and for mere survival in times of total disaster. Unfortunately, no formal financial institution was available to cater for the credit needs of the poor. This credit market, by default of the formal institutions, had been taken over by local money-lenders. People were not poor because they were stupid or lazy. They worked all day long, doing complex physical tasks. They were poor because the financial structures which could help them widen their economic base simply did not exist in their country.”
Thus Yunus came to the conclusion that what people like Sufia need to breakaway from the clutch of poverty is a new banking system which is specially taylored to the needs of the poor, which can provide the financial and institutional support that will help them to get self-employed. Another unique feature of Yunus’s approach to poverty is that it views the poor with a healthy, positive attitude. Most of the conventional approaches to poverty look at the poor as helpless, wretched creatures who need constant external support to stay alive and desperately in need of a “job” from an employer to survive. But Yunus looks upon the poor person as a capable, hardworking individual with innate skills, and a potential entrepreneur. A social science like economics, says Yunus, must “enable and encourage human beings to explore their unlimited potential and not start with the assumption their capacity is given and limited.” Commenting further on the present approach of traditional economics to creating employment, Yunus states:
“The whole world agrees on what is the best way to eliminate poverty: it is to be achieved by creating employment. But economists recognize only one kind of employment – waged employment. In their book there is nothing called ‘self-employment’. Economists have created a world for us where we are supposed to spend our childhood and part of our youth working hard to prepare ourselves to be attractive to potential employers. The idea of a young human being working hard to make himself or herself useful’ to an employer is very repulsive to me…It reminds me of the old days when a young girl would be trained by her mother to become attractive to a young man so that she could find herself a husband. A human life is too precious to be wasted in preparing to find an employer and then devoting one’s entire existence to serving that employer. .Opening up opportunities for self-employment by creating appropriate institutions and policies is unquestionably the best strategy for eliminating unemployment and poverty.”
Yunus is a pragmatist but not a narrow-minded one who cannot see beyond its nose. He saw the immediate causes of poverty but without loosing the long-term vision. He saw clearly that the immediate cause of poverty of a large mass of people is what he describes as, “lack of control over capital.” They don’t have sufficient economic freedom to make use of the fruits of their labour to stand on their own legs. They need an understanding, sympathetic and flexible credit system to breakaway from the exploitative grip of the moneylender and get started on the road, which leads to descent living, prosperity and a better quality of life. This is the rationale behind the concept of micro-credit, which has become a potent weapon in our battle against poverty. The great success of Grameen Bank in using microcredit has awakened the development experts and practitioners all over the world to the immense potentialities of this financial instrument in poverty-eradication.
However, Yunus also understands that micro-credit is not the long-term solution to poverty but only an initial ignition to kick-start the growth engine which carries the poor to a better world. He is very much aware that long-term solution to poverty requires a holistic approach which includes education, health, technology and many others. As Yunus sums up briefly his long-term blue-print for elimination of poverty:
“The economic advancement of a poor family needs a broader enabling and sustaining environment. Micro-credit starts up the engine in the family, but that engine now needs refueling, maintenance, expansion of capacity and a good road to make good progress. Reaching the survival point with micro-credit can be accomplished without difficulty. To go much further one needs good a health-care system, education, a pension plan, good communications, market information. If no such support system is developed the economic advancement made by the borrowers may come to a halt or even slide backwards.”
In his autobiography, Yunus gives brief descriptions of the initiatives and plans of Grameen Bank for its borrowers in the area of housing, health and retirement, education, technology, energy, communications.
But in any new project or undertaking, creating the idea or vision is the least difficult par of the enterprise. The most difficult and challenging part is the implementation and execution. It is beyond the scope of this study to analyse all the decisions and strategies of Yunus, which made his Grameen movement a big success. We will confine our discussion to a few major decisions and strategies behind the success-story of Grameen Bank.
The Feminine Advantage
One of the first major decisions of Yunus in his Grameen Bank is to lend only to woman. This is a radical decision which went against the values of the traditional Islamic society of Bangladesh and also the modern secular values of gender equality. But it is a practical decision which is perhaps a major factor behind the Grameen success story. The distinguished management thinker, C.K. Prahalad states categorically “Grameen Bank’s success is based on lending only to woman.” Yunus seemed to have felt instinctively that woman are much more honest, reliable and credit-worthy borrowers than men and his instincts turned out to be true. As Yunus points out, “Our experience with bad debt is less than 1 percent.” In his autobiography Yunus devotes an entire chapter to explain, “Why Lend Woman Rather to Men,” and gives many reasons for preferring woman over ment. Here are some of them:
“From our experience, it became evident that destitute women adapted quicker and better to the self-help process than men.
Poor women had the vision to see further and were willing to work harder to get out of poverty because they suffered the most.
The women paid more attention, prepared their children to have better lives, and were more consistent in their performance than men.
Money going though a woman in a household brought more benefits to the family as a whole than money entering the household through a man.
On the other hand, a man has a different set of priorities which do not give the family the top position. When a destitute father starts making extra income, he starts paying attention to himself. So why should Grameen approach the household through men?
When a destitute mother starts making some income, her dreams invariably centre around her children.
A mothers second priority is the household. She wants to buy a few utensils, literally build a stronger roof and improve the family’s living conditions. One of our borrowers was so excited she grabbed a reporter and showed her the single bed she had been able to buy for herself and her family.”
Harnessing the Power of Groups
The other important part of Grameen strategy is formation of borrowers into a group or a community. Yunus recognized the social power of groups. In Grameen Bank, a borrower is a member of a supportive borrower-community. As Yunus explains the advantages of a group.
“We discovered that the formation of a group was crucial to the success of our operations. Individually, a poor person feels exposed to all kinds of hazards. Group membership gives him a feeling of protection. Individually, a person tends to be erratic, uncertain in his or her behaviour. But group membership creates group support and group pressure and smoothes out behaviour patterns and makes the borrower more reliable. Subtle, and at times not so subtle, peer pressure keeps the group members in line with the broader objectives of the credit programme. A sense of inter-group and intra-group competition helps everyone try to be an achiever. It is difficult to keep track of individual borrowers; but if he or she is a member of a group, it is much less difficult. Also, shifting the task of initial supervision to the group reduces the work of the bank worker and increases the self-reliance of the group.”
Yunus describes an interesting and amusing episode which illustrates the positive influence of group which sometimes goes beyond its members to their families. It is a conversation between Yunus and the husband of a borrower:
“‘Are you happy that she joined? Or, looking back, do you think it would have been better if she did not?
No, no, I am happy that she joined. She used to complain that we didn’t have enough food, but now she does not complain. We have enough for the three of us.’
For me this was like getting good grades in the final exam. I was pleased that things were working well. Both Joynal and I kept walking silently.
The long silence was broken when Joynal spoke out in a negative tone:
‘There is one thing, however. I used to enjoy beating my wife. But the last time I beat her I got into trouble. The women in Farida’s borrowing group came to me and argued with me and shouted at me. I did not like that. Who gave them the right to shout at me? I can do whatever I want with my wife. Before, when I used to beat my wife, no one said anything, no one bothered. This is no longer going to be true. Her borrowing group threatened they will get really mean if I beat my wife again.’
I tried to console Joynal:
‘Well, maybe it is time you left your wife alone. After all, she is working very hard. She needs your support. You can find something else to do to release your tension.’”
In Grameen Bank, this borrower community is not only a social unity but also a cultural entity held together by a system of values which provides a sense of meaning and purpose to its members. There are sixteen values, which Yunus calls as “decisions”, It is a comprehensive document which can be the guiding principles for any community development project. These are the “Sixteen Decision” which each member of the borrower community must try to follow:
The Business Model
Most of the poverty-eradication programmes are philanthropic activities done by charitable or funding institutions or as non-profit activities by government agencies. But in the Grameen model of Yunus poverty-eradication is done on business lines. The micro-credit movement pioneered by Yunus is a market-oriented approach where the institution which lends to the poor borrows funds from global financial market at a low interest rate and lends at a higher rate of interest, generating profit in the process. And this profit is ploughed back to expand further the lending operations.
According to Yunus, without profit the lending institutions will not have the financial resources to survive, sustain, expand and reach out to more and more poor people or invest in the infrastructure needed for enhancing the quality of life or living standards of the borrower, like for example what Grameen Bank is doing in education, healthcare, housing, technology, energy. “If Grameen does not make a profit,” says Yunus, “We will be out of business. In Grameen we always run on profit, to cover our cost, in order to protect us from future shocks and to carry on expansion. Our concerns are focused on the welfare of our shareholders (who are the poor borrowers) and not on immediate cash returns on their investment dollar.”
Thus in the Grameen model poverty eradication is a market-oriented process run on for-profit basis. But in this model profit is not an end in itself but only a means for reaching out to a greater number of poor people and for the economic and social upliftment of the borrower-community.
Poverty, Profit and Beyond
The Grameen model of poverty-eradication, conceived and executed by Yunus, is a great, creative and admirable effort towards solving one of the most challenging problems facing humanity. Many economic, management and development thinkers and practitioners consider this market-oriented model as the most effective path to poverty-eradication. For example, James D. Wolfenson, former President of World Bank states:
“Micro-credit programmes have brought the vibrancy of the market economy to the poorest villages and people of the world. This business approach to the alleviation of poverty has allowed millions of individuals to work t heir way out of poverty with dignity.”
The well-known and distinguished management thinker, C.K. Prahalad in his influential book, “The Fortune at the Bottom of the Pyramid” argues convincingly that market of the rich is now more or les saturated and the future market and the source of profit lies in fulfilling the needs of the millions of poor people in the bottom of the economic pyramid. Many entrepreneurs following Prahalad’s clue, are now venturing into the low-income sector and finding there fertile sources of profit. This has given birth to the notion that poverty eradication need not be left entirely to charitable organizations, NGO’s or government, and business can play an important role in fighting poverty. The advent of business into the field of poverty-eradication is very much welcome. In our modern age business is the most powerful, innovative and creative social organism. So active participation of business in our battle against poverty is bound to have a positive and substantial impact on reducing the poverty and inequality in our society.
However we must not rigidly link poverty with profit. Such a crucially important task as poverty-eradication should not be tied to profit; it has to be pursued with or without profit. We must keep in mind that elimination of poverty requires not only money and business sense but also moral commitment to the task and sympathy for the poor. There are individual who have a great moral passion and vital energy to dedicate their lives for serving the poor. But they may not have the business sense to create a financially viable model. These individuals need constant financial support from charitable and funding agencies to engage their potential in the task of poverty-eradication. On the other hand, there are individual who have the business sense but no moral commitment. They may enter into the low-income sector lured by profit. But they will drop away when the market-condition changes and this Bottom of the Pyramid sector looses its profit-potential. There may also be individual like Mohammad Yunus who can combine moral dedication with business acumen. So for a sustained impetus towards poverty-eradication we must create an environment inwhich every creative, sincere and dedicated effort towards elimination of poverty, with or without profit, can find sufficient financial support to sustain itself in the long-term.
We must also think beyond poverty. As increasing number of people are delivered from the clutch of poverty and move towards decent standards of living, what next? We, Human beings, have a higher destiny beyond economic survival or prosperity. When the basic needs of the body are reasonably fulfilled it awakens progressively higher order needs of our emotional, mental, moral and spiritual being. As the individual strives to satisfy these higher needs, it awakens the corresponding faculties and potentialities of his mind, heart and soul which leads to his higher evolution. So the task beyond poverty is to create a development framework which promotes this higher evolution, with elimination of poverty as an important and indispensable stage in the process.