Moment Research Consultancy – Few individuals cast a longer shadow in the world of social enterprise than Nobel Laureate and Grameen Bank Founder Muhammad Yunus. We were grateful for the opportunity to interview him at the 17th Microcredit Summit earlier this month.
In the course of our brief conversation, Yunus wasn’t shy about disagreeing with some of the approaches being discussed and promoted at the summit. For instance, the conference dedicated quite a bit of favorable coverage to the sector’s efforts to regulate itself. Yet according to Yunus, “Self-regulation doesn’t really work, because if you are in the same business, you are doing things in your favor. So you need some external body to look at what you do. … If people start charging an unreasonable interest rate, a regulatory authority should be able to control that.”
Similarly, though a number of summit panelists spoke of efforts to facilitate investment in the sector, Yunus was unequivocal about his concerns with this approach. “Asking for investors to come is the wrong direction completely. … If you’re inviting investment from the market, they are looking for their return. That’s the wrong message. Microcredit should not be presented to investors as a ground for making a lot of money out of the poor people – that’s a shame.
“Grameen Bank never invited any investors to invest. We kept them out, saying, ‘No, it’s none of your business.’ We’d just take deposits and lend money, and borrowers themselves built up huge amounts of deposits. Today the total savings of the borrowers exceeds 1.5 billion dollars, and the actual loans that they take from the bank is less than that amount. So in reality, what has happened to Grameen Bank is that the bank has become the borrower, and the borrowers became the lenders. That’s the possibility of microcredit.”
Yunus regularly returned to the experience of Grameen Bank as a model for the sector – one that proves that pro-poor microcredit can work. Yet as he considered the industry that he and Grameen pioneered, he seemed surprised by how forcefully commercial interests have asserted themselves. “We created microfinance to help poor people – we had no intention of personally benefiting in any way,” he said. “When it became popular and respectable, some smart people thought, ‘Ah, we can make a lot of money out of the poor people.’ So they started making businesses to lend money to poor people and make money out of the poor people. I’m very shocked by that. This was not the intention of microcredit. If we can keep one dollar extra in the hands of the poor people, that’s what we should do.”
Recognizing that the reality of microcredit has often failed to live up to that vision, Yunus and others at the conference spoke of redefining the true meaning of the term – or “reclaiming the brand,” as Grameen Foundation President Alex Counts put it. “There are many who have been noted for making large amounts of money by lending money to poor people,” Yunus said. “And I say whatever they do, it’s not microcredit. This is not the thing that we made popular, made respectable. So they should put a different name for themselves, rather than use the word ‘microcredit.’ From our eyes, they are in the direction of loan sharking. So we need a line of division.”
In our interview, Yunus laid out his familiar framework for the interest rates that should form that line of division between acceptable microcredit and profiteering. He also offered a response to the criticism that microfinance is based on a fundamental misconception: that encouraging microbusiness is an effective way to lift people out of poverty. You can view our Q&A below. It’s the first part of a new series of video interviews we’ll be running in the coming weeks called “The Future of Microfinance,” in which some of the top thought leaders in the sector share their views on the challenges, trends and innovations that will define microfinance in the coming years.