@book{yusus2007banker,
title={Banker To The Poor},
author={Yusus, M.Y.A.A.J.M.},
isbn={9780143102915},
url={https://books.google.co.cr/books?id=vk4-9bEBqckC},
year={2007},
publisher={Penguin Group}
}
In openlibrary.
My highlights:
What good were all my complex theories when people were dying of starvation on the sidewalks and porches across from my lecture hall? Nothing in the economic theories I taught reflected the life around me. wanted to teach my university students how to understand the life of one single poor person. I hoped that if I studied poverty at close range, I would understand it more keenly. I learned about the problems that they face from their own perspective. I tried a great number of things. Some worked. Others did not. One that worked well was to offer people tiny loans for self-employment. These loans provided a starting point for cottage industries and other income-generating activities that used the skills the borrowers already had.
If a university is a repository for knowledge, then some of this knowledge should spill over to the neighboring community. Brilliant theorists of economics do not find it worthwhile to spend time discussing issues of poverty and hunger. They believe that these will be resolved when general economic prosperity increases. I encouraged my students to go with me into the village and devise creative ways to improve day-to-day life there.
I proposed an experiment, in which we would all join a new type of agricultural cooperative called the Nabajug (“New Era”) Three Share Farm. The landowners would contribute the use of their land during the dry season; the sharecroppers would contribute their labor; and I would contribute the cost of fuel to run the deep tubewell, the seeds for high-yield crops, the fertilizer, the insecticide, and the technical know-how. In exchange, each of the three parties (farmers, sharecroppers, and myself) would share one-third of the harvest. The poor sharecroppers greeted my proposal with enthusiasm. The relatively well-off farmers reluctantly agreed to give it a try. Some farmers gave me less than the one-third they had promised. But I was still thrilled.
Once the rice was harvested, labor was needed to separate the rice from the dry straw. This mindless, boring work was offered to the cheapest day laborers: destitute women who would otherwise be reduced to begging. These women, many of them widowed, divorced, or abandoned with children to feed, were too poor even to be sharecroppers. It was clear to me that the wealthier the farmer, the more he earned from my Three Share. I realized how important it was to differentiate between the really poor and the marginal farmers. Most definitions of the poor left out women and children. Wherever a poverty alleviation program allowed the nonpoor to be co-passengers, the poor would soon be elbowed out of the program by those who were better off. Unless protective measures are instituted right at the beginning. In such cases, the nonpoor reap the benefits of all that is done in the name of the poor.
Her life was a form of bonded labor, or slavery. People like Sufiya were poor not because they were stupid or lazy. The trader made certain that he paid Sufiya a price that barely covered the cost of the materials and was just enough to keep her alive. They worked all day long, doing complex physical tasks. They were poor because the financial institutions in the country did not help them widen their economic base.
decided to approach the local bank manager and request that his bank lend money to the poor. It seemed so simple, so straightforward. The small amounts you say these villagers need to borrow will not even cover the cost of all the loan documents they would have to fill out. The bank is not going to waste its time on such a pittance. These people are illiterate," he replied. They cannot even fill out our loan forms. We simply cannot lend to the destitute, they don’t have any collateral.
They have every reason to pay you back, just to take another loan and live another day! That is the best security you can have—their life. I was the guarantor and as far as the bank officials were concerned I was the only one that counted. They did not want to deal with the poor who used their capital. I never intended to become a moneylender. I had no intention of lending money to anyone. To my great surprise, the repayment of loans by people who borrow without collateral has proven to be much better than those whose borrowings are secured by assets.
Conventional banks and credit cooperatives usually demand lump sum payments. Parting with a large amount of cash at the end of a loan period is often psychologically trying for borrowers. They try to delay the repayment as long as they can and in the process they make the loan grow bigger and bigger. In the end, they decide not to pay back the loan at all. Such long-term lump sum payments also prompt both borrowers and lenders to ignore difficulties that come up early on; rather than tackle problems as they appear, they hope that the problems will go away by the time the loan is due. I decided to institute a daily payment program. I made the loan payments so small that borrowers would barely miss the money. For ease in accounting, I decided to ask that the loans be paid back fully in one year.
When we discovered that support groups were crucial to the success of our operations, we required that each applicant join a group of like-minded people living in similar economic and social conditions. Convinced that solidarity would be stronger if the groups came into being by themselves, we refrained from managing them, but we did create incentives that encouraged the borrowers to help one another succeed in their businesses. Group membership not only creates support and protection but also smoothes out the erratic behavior patterns of individual members, making each borrower more reliable in the process. Because the group approves the loan request of each member, the group assumes moral responsibility for the loan. If any member of the group gets into trouble, the group usually comes forward to help. Once the group of five is formed, we extend loans to two members of the group. If these two repay regularly for the next six weeks, two more members may request loans. The chairperson of the group is normally the last borrower of the five. It can take anywhere from a few days to several months for a group to be recognized or certified by Grameen Bank. To gain recognition, all the members of a group of five prospective borrowers have to present themselves to the bank, undergo at least seven days of training on our policies, and demonstrate their understanding of those policies in an oral examination administered by a senior bank official.
Those who are better off usually do not find it worthwhile. We want only courageous, ambitious pioneers in our micro-credit program. Those are the ones who will succeed.
Early on, we encouraged our borrowers to build up savings that they could fall back on in hard times or use for additional income-generating opportunities. We required all borrowers to deposit 5 percent of each loan in a group fund. Any borrower can take an interest-free loan from the group fund, provided that all the other members of the group approve of the amount and its usage and that the loan does not exceed half of the fund’s total. If an individual is unable or unwilling to pay back her loan, her group may become ineligible for larger loans in subsequent years until the repayment problem is brought under control. Groups can also request help from other groups in their “center,” a federation of up to eight groups in a village that meets weekly with a bank worker at a predetermined place and time. We decided that all business conducted during center meetings should be done out in the open. This reduced the danger of corruption, mismanagement, and misunderstandings and it kept the leaders and the bank workers directly accountable to the borrowers. They come up with more innovative approaches to preventing and solving problems and find new ways to ensure that each member rises above the poverty line as quickly as possible.
Loans last one year. Installments are paid weekly. Repayment starts one week after the loan. The interest rate is 20 percent. Repayment amounts to 2 percent of the loan amount per week for fifty weeks. Interest payments amount to 2 taka per week for every 1,000 taka of the loan amount. Today, some twenty years later, our loans are still paid in the same way, week by week, though now they are made to our frontline bank workers who meet weekly with borrowers in their villages.
If Grameen was to work, we knew we had to trust our clients. From day one, we knew that there would be no room for policing in our system. We may be accused of being naive, but our experience with bad debt is less than 1 percent. And even when borrowers do default on a loan, we do not assume that they are malevolent. Instead, we assume that personal circumstances have prevented them from repaying the money. Bad loans present a constant reminder of the need to do more to help our clients succeed.
We set a goal of having half of our borrowers be women. This took us more than six years to achieve. The more money we lent to poor women, the more I realized that credit given to a woman brings about change faster than when given to a man. Despite these adversities, it is evident that destitute women adapt quicker and better to the self-help process than men. When a destitute mother starts earning an income, her dreams of success invariably center around her children. A woman’s second priority is the household. When a destitute father earns extra income, he focuses more attention on himself. The first and most formidable opposition came from the husbands, who generally wanted the loans for themselves. The religious leaders were very suspicious of us. And the moneylenders saw us as a direct threat to their authority in the village. What surprised me was to hear educated civil servants and professionals arguing against us. They contended that it made no sense to lend money to women while so many men were jobless and without income. They argued that women would only pass the loans on to their husbands and would wind up even more exploited than they were before.
Unlike other commercial bank workers, our staff members grow to consider themselves teachers. They help their borrowers to explore their full potential, to discover their strengths, to extend their capabilities further than ever before. Only once a branch successfully received the full repayment of its first one hundred loans was it allowed to speed up operations and recruit more borrowers.
We have had to create a counterculture that values women’s economic contribution, rewards hard work, and punishes corrupt practices.
Once they have increased their incomes through self-employment, Grameen borrowers show remarkable determination to have fewer children, educate the ones they have, and participate actively in our democracy.
Today, at every Grameen branch, our members take enormous pride in reciting the Sixteen Decisions:
- We shall follow and advance the four principles of the Grameen Bank—discipline, unity, courage, and hard work—in all walks of our lives.
- Prosperity we shall bring to our families.
- We shall not live in a dilapidated house. We shall repair our houses and work toward constructing new houses at the earliest opportunity.
- We hall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.
- During the plantation seasons, we shall plant as many seedlings as possible.
- We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.
- We shall educate our children and ensure that they can earn to pay for their education.
- We shall always keep our children and the environment clean.
- We shall build and use pit latrines.
- We shall drink water from tube wells. If they are not available, we shall boil water or use alum to purify it.
- We shall not take any dowry at our sons’ weddings; neither shall we give any dowry at our daughter’s wedding. We shall keep the center free from the curse of dowry. We shall not practice child marriage.
- We shall not commit any injustice, and we will oppose anyone who tries to do so.
- We shall collectively undertake larger investments for higher incomes.
- We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.
- If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline.
- We shall introduce physical exercises in all our centers. We shall take part in all social activities collectively.
These decisions are a demonstration that the poor, once economically empowered, are the most determined fighters in the battle to solve the population problem, end illiteracy, and live healthier, better lives.
No matter what cataclysm, weather disaster, or personal tragedy befalls a borrower, our philosophy is always to get that person to pay back his or her loan, even if it is only at the rate of a half penny a week. This discipline is meant to boost the borrower’s sense of self-reliance, pride, and confidence. To forgive a loan can undo years of difficult work in getting that borrower to believe in his or her own ability. If a flood or a famine decimates a village and kills borrowers’ crops or animals, we immediately lend them new money to start up again. We never wipe out old loans, but convert them into very long term loans and try to get the borrower to pay them off more slowly and in smaller installments. In the extreme case where a borrower dies, we disburse funds from the Central Emergency Fund (a life insurance fund for borrowers) to the deceased’s family as soon as possible.We then ask the group or center to adopt a new member from that same family to bring the group number back up to five.
Grameen’s operational procedures in such situations are always the same. First, we suspend all rules and regulations of the bank. The local bank manager and all bank personnel are directed to immediately scour the region to save as many lives as possible and to provide shelter, medicine, food, and protection. Second, the bank workers visit the houses of our members and try to reestablish the victims’ confidence by letting them know that the bank and their fellow members are ready to support them. We then find out what the survivors need and make provisions to provide it. We provide emergency food as well as water and saline solution to prevent dehydration and diarrhea. Emergency seeds for planting and cash for buying new cattle and new capital assets are also distributed. Disaster loans are provided. We want to give our members time to mourn their loved ones, but we do not want them to sink into apathy and lethargy from despair. We want them to start right up again thinking of survival schemes. Because national and international relief is usually late and inadequate, the only way that victims can get through the pain, suffering, and devastation is by rebuilding what they had. During periods of disaster, old loans are rescheduled and a grace period is accorded for repayment. The local center is given the authority to decide how long this grace period should last. We also look into longer-term plans that will make the area safer.
We are handing out cash without any attempt to first provide skills training. I firmly believe that all human beings have an innate skill. I call it the survival skill. The fact that the poor are alive is clear proof of their ability They do not need us to teach them how to survive; they already know how to do this. Often borrowers teach each other new techniques that allow them to better use their survival skills.
Government decision-makers, many NGOs, and international consultants usually start the work of poverty alleviation by launching very elaborate training programs. Training also perpetuates their own interests—by creating more jobs for themselves without the responsibility of having to produce any concrete results. The poor are poor not because they are untrained or illiterate but because they cannot retain the returns of their labor. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty. Why can they not control any capital? Because they do not inherit any capital or credit and nobody gives them access to it because they are not considered credit-worthy. ormal learning is a threatening experience for our borrowers. It can even destroy their natural capacity or make them feel small, stupid, and useless. It should be offered only when they actively seek it out and are willing to pay in kind or cash to obtain it.
I felt credit should be accepted as a human right and how credit could play a strategic role in removing hunger from the world.
We at the Grameen Bank have never wanted or accepted World Bank funding because we do not like the way the bank conducts business. Their experts and consultants often take over the projects they finance. They do not rest until they have molded things their way. We do not want anyone to come and meddle with our system or to tell us how to behave. Hiring smart economists does not necessarily translate into policies and programs that benefit the poor. The assumption is that the recipient countries need to be guided at every stage of the process—during identification, preparation, and implementation of projects. These consultants often have a paralyzing effect on the initiatives of the recipient countries. Of the more than $30 billion in foreign donor assistance received in the past twenty-six years, 75 percent was not spent in Bangladesh. It was spent on equipment, commodities, and consultants from the donor country itself. Most rich nations use their foreign aid budget mainly to employ their own people and to sell their own goods, with poverty reduction as an afterthought. The 25 percent that is spent in Bangladesh usually goes straight to a tiny elite of local suppliers, contractors, consultants, and experts. Much of this money is used by these elites to buy foreign-made consumer goods, which is of no help to our country’s economy or workforce. Aid-funded projects create massive bureaucracies, which quickly become corrupt and inefficient, incurring huge losses. Most foreign aid goes to building roads, bridges, and so forth, which are supposed to help the poor “in the long run.” The only people really benefiting from most of this aid, however, are those who are already wealthy. The direct elimination of poverty should be the objective of all development aid. Development should be viewed as a human rights issue, not as a question of simply increasing the gross national product.
Policy makers tend to equate job creation with poverty reduction and economists tend to recognize only one kind of employment—salaried employment. And economists tend to focus their research and theories on the origins of wealth in the former colonial powers, not on the microlevel reality of poor people in Third World countries. In economic theory, credit is seen merely as a means with which to lubricate the wheels of trade, commerce, and industry. In reality, credit creates economic power, which quickly translates into social power. In both rich and poor countries alike, credit institutions have favored the rich and in so doing have pronounced a death sentence on the poor.
In many Third World countries, the overwhelming majority of people make a living through self-employment. Not knowing where to fit these individuals into their analytical framework, economists lump them in a catchall category called the “informal sector.” The informal sector really represents the people’s own effort to create their own jobs. People’s economy.
Maybe Grameen upsets too many preconceived European ideas. In the developed world, my greatest nemesis is the tenacity of the social welfare system. Over and over, our clones have run into the same problem: Recipients of a monthly handout from the government feel as afraid to start a business as the purdah-covered women in Bengali villages. Many calculate the amount of welfare money and insurance coverage they would lose by becoming self-employed and conclude the risk is not worth the effort. To be legal, the self-employed poor must file documents, petition bureaucracies, and keep accounting books.
In 1992, some four hundred Grameen borrowers were elected to union councils, and in 1996, Grameen borrowers led the way to an almost unthinkable feat—more women voted in the national election than men, which helped to nearly wipe a political party that had taken positions against women’s rights out of Parliament. Over 1,750 Grameen members (1,485 female and 268 male) and 1,570 members of Grameen borrowers’ families were elected to local offices in 1997.
The newly elected government decided to forgive all loans from government banks that were under 5,000 taka (approximately $125 at the time). Though this policy may sound as though it would benefit the poor, in reality almost 100 percent of these loans made by government banks went to land-owning, wealthier members of the population. Because most of our loans were also under 5,000 taka, many Grameen borrowers thought that their loans had been forgiven. It was extremely difficult to explain to our borrowers why the rich people in their villages were getting their loans written off but they were not. We had no choice. Grameen did not survive on government subsidies, and writing off all our loans under $125 would have meant the end of us. It is to be hoped that in the future the Bangladeshi government and all governments in countries with micro-credit programs will think twice before trying to garner popularity by forgiving loans.
We declared a new goal: to make every Grameen branch “poverty-free” within an allotted period of time. After interviewing many borrowers about what a poverty-free life meant to them, we developed a set of ten indicators that our staff and outside evaluators could use to measure whether a family in rural Bangladesh lived a poverty-free life. These indicators are: (1) having a house with a tin roof; (2) having beds or cots for all members of the family; (3) having access to safe drinking water; (4) having access to a sanitary latrine; (5) having all school-age children attending school; (6) having sufficient warm clothing for the winter; (7) having mosquito nets; (8) having a home vegetable garden; (9) having no food shortages, even during the most difficult time of a very difficult year; and (10) having sufficient income-earning opportunities for all adult members of the family.
In Grameen we always try to make a profit so that we can cover all our costs, protect ourselves from future shocks, and continue to expand. Our concerns are focused on the welfare of our shareholders, not on the immediate cash return on their investment dollar.
I believe that government, as we now know it, should pull out of most things except for law enforcement, the justice system, national defense, and foreign policy, and let the private sector, a “Grameenized private sector,” a social-consciousness–driven private sector, take over its other functions.
I also believe that providing unemployment benefits is not the best way to address poverty. The able-bodied poor don’t want or need charity. The dole only increases their misery, robs them of incentive and, more important, of self-respect.
Poverty is not created by the poor. It is created by the structures of society and the policies pursued by society. Change the structure as we are doing in Bangladesh, and you will see that the poor change their own lives.
To me, an entrepreneur is not an especially gifted person. I rather take the reverse view. I believe that all human beings are potential entrepreneurs. Bbuild an economic system that would allow each man or woman to explore his or her economic potential. It would become a matter of personal choice whether an individual wanted to become an entrepreneur or a wage earner.
I propose that we replace the narrow profit-maximization principle with a generalized principle—an entrepreneur maximizes a bundle consisting of two components: (a) profit and (b) social returns, subject to the condition that profit cannot be negative. Social consciousness can be as burning, or even more burning, a desire as greed in an individual human being.
When the government wants to help the poor it usually comes up with a policy of free distribution—free distribution of money, land, or other assets. But along the way from the government to the poor, the free goods rarely reach the poor as more powerful people line up to take advantage of the distribution system.
Borrowers of Grameen Bank at present own 93 percent of the total equity of the bank; only the remaining 7 percent is owned by the Bangladeshi government. The total number of borrowers is 2.6 million, 95 percent of whom are women. Grameen Bank has 1,181 branches, works in 42,127 villages, and has a staff of 11,777. The total amount of loans disbursed by Grameen Bank, since inception, is 174.78 billion takas ($3.9 billion). Out of this, 161.33 billion takas ($3.6 billion) has been repaid, with the recovery rate standing at 98 percent. It finances 90 percent of its total outstanding loan of 13.45 billion takas from its own fund and the savings from its depositors, over 82 percent of whom are its own borrowers. The last installment of donor funds was received in 1998. Grameen’s growing amount of deposits should be more than enough to repay its existing loans and run and expand its credit program from now on.
Grameen Bank provides three types of loans: income-generating loans (with an interest rate of 20 percent), housing loans (with an interest rate of 8 percent), and higher education loans for the children of Grameen families (with an interest rate of 5 percent). Interests are simple interest, calculated on a declining balance method. This means that if a borrower takes a loan of 1,000 takas and pays back the entire amount within a year through weekly installments, she’ll pay a total amount of 1,100 takas.
Grameen believes that education is one of the primary components for moving oneself out of poverty. If current borrowers can educate their families and make their children better prepared to compete in the future, there will be a sustainable improvement for multiple generations.
Basic loan comes with an exit option. It offers an alternative route to any borrower who needs it, without making her feel guilty about failing to fulfill the requirement of the basic loan. A flexible loan is simply a rescheduled basic loan, with its own separate set of rules. The flexibility is something that the borrower is entitled to, and rescheduling a loan is not seen as an offense or something to be disapproved of. This gives the borrower a dignified way to deal with any problem she may face in repaying her loan. Her loan ceiling (i.e., the maximum amount that she can take out as a loan, built up on the basis of her performance over the years) gets wiped out.
GGS allows a staff member to be creative. He can design his loan product to make it the best fit for his client in terms of duration, timing, scheduling the installment, and so on.
GGS requires all borrowers with loans above 8,000 takas ($138) to contribute a minimum of 50 takas ($0.86) each month to a pension savings account. After ten years a borrower will receive a guaranteed amount, which is almost double the amount she has put in during those 120 months. On the last day of every year, the borrower is required to put a small amount of money in a loan insurance savings account. It is calculated on the basis of the outstanding loan and interest of the borrower on that day. If a borrower dies any time during the next year, her entire outstanding amount is covered by the insurance fund. Her family receives back the amount she saved in the loan insurance savings account.
Charity only perpetuates poverty by taking the initiative away from the poor. Social-objective–driven investors will need a separate (i.e., social) stock market, as well as separate rating agencies, financial institutions, mutual funds, venture capital, and so on. Eliminating poverty will become so much easier if social entrepreneurs can take up the challenge of ending poverty and if social investors can use their investment money to support the work of social entrepreneurs. I would like to see that all information be available to all people (including the poorest, the most ignorant, and the most powerless) at all times, almost cost-free, irrespective of distance. All academic and social institutions should be turned into nodal points for the dissemination of information. I would like to see all barriers and protections around world markets disappear. Protectionism is built up in each nation in the name of the poor, but its real beneficiaries are the rich and clever people who know how to manipulate the system. The poor have a better chance in a bigger open market than in a smaller protected market.
A social business is a non-loss, non-dividend enterprise, created with the intention to do good to people, to bring positive changes to the world, without any short-term expectation of making money out of it. Like other businesses, it employs workers, creates goods or services, and provides these to customers for a price consistent with its objective. But its underlying objective—and the criterion by which it should be evaluated—is to create social benefits for those whose lives it touches. A social-objective-driven project that charges a price or fee for its products or services but cannot cover its costs fully does not qualify as a social business. As long as it has to rely on subsidies and donations to cover its losses, such an organization remains in the category of a charity. Rather than being passed on to investors, the surplus generated by the social business is reinvested in the business. Ultimately, it is passed on to the target group of beneficiaries in such forms as lower prices, better service, and greater accessibility. Wherever possible, without compromising the social objective, social businesses should make profit for two reasons: First, to pay back investors; and second, to support the pursuit of long-term social goals.
To attract investors, I propose the creation of a separate stock market, which could be called the social stock market. It will create liquidity, making it easy for shareholders to move in and out of social investments. It will generate public scrutiny and evaluation of social businesses, providing a layer of “natural regulation” to supplement any government regulation that will need to be be created to avoid the usual problems of the market place—deception, false reporting, inflated claims, disguised businesses, and so on.
More highlights: https://archive.org/download/elopio-highlights/2024-07-09-21-03-33-Banker%20to%20the%20Poor.md