|
Our economic framework is wrong, it must change |
|
Jun 15 2010 |
INTERVIEW: Muhammad Yunus: Nobel laureate & Grameen Bank founder
Our economic framework is wrong, it must change
Rajiv Tikoo
Going by the response to his just-released Building Social Business, Nobel laureate Muhammad Yunusis on the verge of ushering in a social business wave to address problems like poverty. After launching Grameen Bank, which offers microcredit to poor women in particular, and profitable social businesses like Grameen Danone Foods to produce fortified yoghurt for malnourished children, Grameen-Veolia Water to treat contaminants like arsenic in drinking water, Grameen Intel to offer online solutions in healthcare and agriculture, and BASF Grameen to produce chemically-treated mosquito repellent nets to protect people from malaria, he is working overtime to add other building blocks like social investment funds and social stock exchanges to complete his vision of a global social business ecosystem. In the process, he has spread the Grameen footprint from Bangladesh to America, Europe and Africa. In an exclusive interview with FE’s Rajiv Tikoo, he says once India gets going, it will do so in a big way. Excerpts:
Your last book, Creating a World Without Poverty, fuelled a lot of curiosity about social business. How is the response to the new book, Building Social Business, which elaborates the concept?
The first book generated a lot of interest and curiosity. It came out when people were not prepared for the concept of social business. But people were positive. Since then, we have set up a few more social businesses in Bangladesh and many people have come forward to engage with us. People are more aware now. The response to the new book is much better and there is a lot of interest from people because they are not satisfied with the existing economic system and are looking for alternatives. They want change.
Though you are calling for a transformational change in the way businesses are conducted, you expect the initial capital for social businesses to come from sources like CSR budgets of mainstream businesses and charities. How sustainable is this?
Social business is, by definition, sustainable. If each (funding) business is sustainable, then there is no reason why social business as a concept can’t be sustainable. CSR is a part of corporate charity. Charities in the US alone earn annual revenues of more than $1 trillion. Besides, there is the donor amount of $60 billion, which goes around in foreign aid. Social businesses don’t need all this money right now. But potentially this money can be diverted to social businesses. Even if a fraction of this money is invested in social businesses, it can make a big difference. The recipient countries would benefit. The donor too would be happy because the money would be used in a transparent way and it will be recycled. I don’t think money for social businesses should be a problem.
You have succeeded in setting up many companies as social businesses because today you are a big brand yourself. I presume aspiring social businesspersons face the same stumbling blocks that prompted you to set up Grameen Bank in the seventies. So, how do they get going?
I agree. People know me. They find it easier to trust me and enter into partnerships with us. While others would not find it as easy as us, at the same time, they would not find it as difficult as we did it when we had started out.
Your presence ranges from Bangladesh to America. You are also expanding from Europe to Africa. Why have you not really focused on India?
We are making progress now. I have held talks with some people in India in recent times. A couple of social investment funds are being set up in Mumbai. Talks of setting up a social stock market in Mumbai are also on. One will hear an announcement this year. Once India gets going, it will do so in a big way and give a fillip to the social business movement.
There are already a number of social funds all over the world, but they have remained confined to select pockets. How are the new social investment funds in India going to be different?
There is a difference between existing “social” funds and the ones I am talking about. The existing so-called social funds are like any other fund. They don’t give up the objective of making money for their investors. The social funds I am talking about are not promising the investors any monetary return at all. They are promising social impact that will be made by these investments. Investors would like the idea of social business and invest in them for solving social problems.
You have been reported to be against SKS Microfinance going in for an IPO. What is the alternative route for microfinance institutions to reach more people in a short span of time and enable them to come out of poverty?
SKS presents a case of a mission drift in microfinance. When you use microcredit to make profits for investors, you are following in the footsteps of loan sharks. That’s why I am opposing the SKS IPO. The solution is not in bringing IPOs to the market to raise money, but in giving them a legal licence to take deposits and use that money for lending. We lend more than $1 billion a year. All our money comes from our deposits.
Your journey from microcredit to social businesses has been a long one. What are the other missing pieces in your big picture of a sustainable social business ecosystem?
When we started to talk about microcredit, it sounded outlandish to most people. But the concept of social business did not sound outlandish to most people. There is more acceptance of social business than in the case of microfinance. But these are only pieces in a larger picture. There are other issues vying for attention. There is a financial crisis. There is a food crisis. There is an environmental crisis. There is an energy crisis. There is also a social crisis, amongst others. It is all because we have a wrong architecture of economic framework. We need to build the architecture in a different way. That is why I am trying to bring my ideas of conceptual redesigning. Others can bring their ideas. But the present architecture must change. There is no escape from this.
http://www.financialexpress.com/news/our-economic-framework-is-wrong-it-must-change/633705/0
|
| |
|
Social Entrepreneurs Must Drop the Balancing Act |
|
Jun 09 2010 |
|
(An excerpt from Muhammad Yunus' new book, Building Social Business, says entrepreneurs seeking to solve social problems cannot also maximize profits)
By Muhammad Yunus
For-profit social entrepreneurs try to blend profits with public benefits. As business expands, the goal is to create value for shareholders as well as the environment, the local community, or other stakeholders. In his new book, Muhammad Yunus, Nobel Prize-winning founder of microlender Grameen Bank, challenges the "not only for-profit" model that many social entrepreneurs embrace. Instead, he argues, businesses should be dedicated strictly to social causes such as helping the poor—without owners or investors taking a profit. Unlike charities, the companies he calls "social businesses" sustain themselves with earned income that proceeds to further the company's mission.
When you mix profit and social benefit and say that your company will pursue both goals, you are making life complicated for the chief executive officer. His thinking process gets clouded. He does not see clearly. In a particular situation where profit and social benefit need to be balanced, which way should the scales be tipped? What if it is possible to increase profit greatly by cutting social benefits just a little—is that all right? How should one judge? What about in times of economic stress, such as a recession—is it all right to eliminate social benefits altogether in hopes of helping the company to survive? Why or why not? The idea of a "mixed" company offers no clear guidance on questions like these.
In practice, profit tends to win out in struggles of this kind. Most often the CEO will lean—perhaps unconsciously—in favor of profit and exaggerate the social benefits being created. And if the CEO is a little unclear about the real priority, we can imagine that the middle managers and line employees will be even more uncertain. Over time, the social goals will gradually fade in importance while the need to make money becomes more and more deeply ingrained in the company's culture.
FOOD BANKS' LOSS: "UNSELLABLE" ITEMS
Here is a small example. In the U.S., many poor people rely on local food banks to stave off hunger. These food banks in turn rely on donations from individuals, as well as companies, to keep their shelves stocked with food that can be donated to hungry families.
In recent years many food banks have been supported by grocery stores that donate outdated, dented, or mislabeled packages of food that they can't sell. Hungry people are happy to receive these "unsellable" items, and the grocers get the benefit of being good community members. It's a fine example of how corporate social responsibility is supposed to work.
In the fall of 2009, however, many food banks in the U.S. began reporting a shortfall in donations. One reason is that a new business has emerged, by which middlemen buy "unsellable" merchandise from grocers for 30¢ or 40¢ on the dollar. These middlemen in turn sell the goods to low-price stores, which sell them to consumers at a steep discount from the usual price. It's a new source of profits to the grocers—but it means that the once-unsellable food is no longer available to be donated to the food banks.
I can't really blame the grocers for taking advantage of this new avenue of business. Their job is to maximize profit in any way they can. But this example illustrates the danger in leaving the needs of the poor to be served through the generosity of profit-maximizing companies. When profit and human needs conflict, profit generally wins out—which means that people lose.
Social business gives a clear, unambiguous mandate to management. There is no balancing act involved. Every decision the company makes can be measured against a single yardstick: What will enable us to provide the greatest possible benefit to society? This doesn't mean that the decisions are always easy—creative problem-solving is just as difficult in social business as in profit-maximizing business. But at least the manager isn't forced to juggle two sets of mutually contradictory objectives.
Excerpted from Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs by Muhammad Yunus (PublicAffairs, May 2010).
Yunus, the microcredit pioneer who founded Grameen Bank, won the Nobel Peace Prize in 2006.
http://www.businessweek.com/smallbiz/content/jun2010/sb2010067_884209.htm
For more on "America's Most Promising Social Entrepreneurs":
http://www.businessweek.com/smallbiz/running_small_business/archives/2010/06
/americas_most_promising_social_entrepreneurs.html |
| |
|
The Bold Vision of Grameen Bank's Muhammad Yunus |
|
May 27 2010 |
by Georgia Levenson Keohane
In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his pioneering work in the field of microcredit. As the founder of the Grameen Bank in Bangladesh, Yunus demonstrated that lending money to poor people to start businesses could be profitable and could transform their lives by raising them out of poverty. Today, Yunus is advocating something even more revolutionary: an entire market system of companies that solve social problems and are financially self-sustaining.
In Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs (PublicAffairs, 2010) Yunus describes his vision for this new economy and reports on his first experiments in social business. I caught up with him recently on the New York stop of his book tour.
You're often held up as a social entrepreneur par excellence. And yet you make an important distinction between "social enterprise" and "social business."
Social entrepreneurship is about an individual trying to make a difference in people's lives. But this can be done in many ways. Some individuals do it as an NGO — a nonprofit — based on charity and grants. Others do it as a business, making money while serving people. If people don't have eye-care service, for example, a social entrepreneur can bring them eye glasses and make money out of that. Which is a commendable action.
A social business is something different. It is a business where you don't want to make money. You are committed to solving a social problem with no intention of making personal financial gains. You cover all costs through your operations so that your business is self-sustaining. Setting up a self-sustaining business is like starting an engine that never stops running; it does not need any fuel from outside. It returns the original investment. Within the social business, money is recycled again and again. The person who runs a social business is definitely a social entrepreneur, because he is trying to make a difference. But he is a unique kind among them. His sole intention is for the business to solve the problem, not make money from it.
You've gone from theory to practice, enlisting several corporate partners to create real, live social businesses:Danone, Veolia, BASF, and many others.
I said to these companies, "Why don't you use part of the money you already spend on corporate social responsibility projects to invest in the creation of a social business of your own? Instead of giving the money away, you can invest it to create businesses that grow each year. Imagine the problems you can solve. And you would bring your business experience and technologies to the social business, which means you can solve problems much faster."
How are these experiments faring?
[People are recognizing] that these are legitimate businesses. But social business is still a new idea, and it will take time. Any new effort goes through an experimental phase, developing the prototype in each company. Everything doesn't always work out as you thought it would — the market situation changes, or your idea or assumptions were wrong. Yet once you develop it, and it works, you've discovered a fantastic thing. I use the example of the Wright Brothers' plane, which now looks like a funny little toy, but it changed the world because it flew. Today we have all these beautiful, magnificent planes because of it. Some day we will look back and laugh at these early social businesses and say, "How simple, how crude these were." But beautiful things will come from these first models.
Capital may flow to the high-profile projects of a Nobel laureate, but without the incentive of financial return, why would investors support other social businesses?
If you're a foundation, you're giving money away anyway. Why don't you put that money in a social business fund that will recycle the investment? And in the meantime, you have gained a lot of experience in fixing the problem, and people can say, "Ah, this problem can be solved!" You inspire many more people. In social business, you share experiences. If you have developed a technology, if you have developed a patent, it is all shared — all open source — because we have the same goal: Solve the problem.
Governments can also create social business funds. We are asking them, instead of putting all monies into a safety net, put a portion into social businesses — and help people get out of the safety net. Where you give foreign aid, give 10% — not to the usual projects implemented through government machinery but to create social business funds in each of those countries.
You talk about the potential for a social stock market. Is this really viable?
This is not an "in our lifetime" question; this could happen tomorrow. Many people are very interested in this. The President of the Mumbai stock market, the largest stock market in India, came to me and said, "I would like to do this. Let's sit down and design it." In such a stock market, you buy and sell shares in a social business but not for speculation purposes. Whatever extra money you earn by selling your shares, you invest again in a social business.
The Grameen Bank — and microcredit generally — is often described in bottom-of-the-pyramid, poverty-alleviation terms. Would you apply that framework to social business?
The bottom-of-the-pyramid approach implies that there are vast numbers of consumers out there that you can do business with and make money. I see social business as an opportunity to help people out of poverty, which is different than an opportunity to make money. The bottom-of-the-pyramid approach says entrepreneurs will come up with tiny packets of shampoo to sell to poor people. I say, they don't need shampoo. They don't need small bottles of soda to drink from. These are unnecessary expenditures. That's not my purpose. My purpose is to give them good food, good housing, good health care.
A former McKinsey consultant and foundation executive, Georgia Levenson Keohane writes and advises on social and economic policy and nonprofit management. She lives in New York City.
http://blogs.hbr.org/cs/2010/05/the_bold_vision_of_grameen_banks_muhammad_yunus.html
|
| |
|
Angola: Vice President Invited to Assess Effects of Micro-Credit |
|
May 05 2010 |
|
Luanda — The Vice President of the Republic, Fernando da Piedade Dias dos Santos, was this Friday invited to Bangladesh in order to assess the advantages of the attribution of micro-credits to disadvantaged families.
The invitation was made by the president of the Grameen Ban, Muhammad Yunus, during an audience in Luanda.
Speaking to the press, Muhammad Yunus, laurette of the 2006 Nobel Peace Prize, said that he discussed with Fernando da Piedade the advantages of attribution of micro-credits and the success obtained by this policy in his country (Bangladesh), which has already been adopted by various countries, and might also be applied in Angola
.
He informed that the Vice President of the Republic was impressed with the implementation of the programme, which is aimed at putting an end to
poverty. In his view, Angola has possibilities to eliminate poverty, through the lending of money with methods of easy access by citizens.
The Grameen Bank is the first of the world specialised in micro-credit and was created by Muhammad Yunus, in 1976, with view to eradicate poverty in the world. Situated in Bangladesh, already has 2,185 agencies and, since its creation, borrowed an equivalent to USD 6.6 billion, of which 97 percent to women.
http://allafrica.com/stories/201004300715.html |
| |
|
Apr 29 2010 |
Coming to America
US Banker | April 2010
Delia came to New York from Ecuador 13 years ago, leaving her children behind in search of a better income to support them. She worked in factories for many years until 2009, when she purchased a large freezer cart, ice cream and supplies. Delia is now happily running her business on a busy New York street corner, and sending more money back home to her children.
Delia would never have been able to afford the cart without a $2,000 loan from microlender Grameen America, an offshoot of Grameen Bank of Bangladesh. Since opening its first U.S. branch in Queens two years ago, Grameen America has helped hundreds of low-income individuals-mostly women-improve their lives by lending them the funds to get small businesses off the ground.
"There is so much demand and need for these types of small loans. Especially in a time when people are losing jobs and they are looking into entrepreneurial pursuits to provide income for their families," says Leslie Kane, the vice president of Grameen America.
Demand is so strong that Grameen America is expanding. The nonprofit, which has lent close to $3 million to more than 1,300 different borrowers in the U.S., added three offices last year-two more in New York and one in Omaha-and intends to open in the Washington, D.C., and San Francisco areas this year. Eventually it hopes to have 50 U.S. offices, Kane says.
Grameen Bank gained worldwide attention when its founder Mohammad Yunus won the Nobel Peace Prize in 2006 for his pioneering work in microfinance. He started what would become Grameen Bank in 1976 by arranging small loans for poor villagers in Bangladesh, and today the bank has 2,562 branches in Bangladesh and has helped set up affiliate organizations, like Grameen America, in a dozen other countries. (Grameen means "rural" or "village" in the Bengla language.)
Kane said that Grameen Bank decided to move into the U.S. on a dare of sorts to Yunus. "As the story that I heard goes, he was challenged after he won the Nobel Peace Prize in 2006," she says. "Someone said, 'It's great it works in the developing world but too bad it would not work in developed countries.'"
Grameen America was certified as a Community Development Financial Institution last summer, so mainstream banks that invest in Grameen can receive CommunityReinvestment Act credit. Some banks, including Citibank and Wells Fargo, are also working with Grameen America to set up deposit accounts for borrowers.
Perhaps most importantly to banks, though, such microlenders "are creating the next generation of mainstream bank customers," says Jennifer Tescher, the director of theCenter for Financial Services Innovation, a division of ShoreBank Corp. in Chicago. "I think the broader financial services industry is excited by Grameen and the others that are doing the heavy lifting."
Kane says Grameen America will open offices in any city where interested individuals are willing to help raise $2 million, roughly the cost of getting a new branch up and running.
Lukas Lipinski, a former Wall Street banker with a background in microfinance, contacted Grameen America about two years ago with the idea of starting a branch in D.C.
After visiting its Queens branch and working with the staff, Lipinski has now raised $1.1 million, mostly from private-equity firms and commercial banks, and hopes to get the additional $900,000 through a major fundraiser in April.
In the San Francisco Bay area, the capital came a little easier, with Silicon Valley Bank of Santa Clara, Calif., committing a $1 million loan and other small grants and donations.Craig Robinson, the bank's director of community reinvestment, says that Silicon Valley has assisted some international microfinance ventures in the past and was looking to help start one locally. The $11.9 billion-asset Silicon Valley earns CRA credit for making the loan, but its main motivation is encouraging entrepreneurship.
"We see Grameen as an innovative model and want to partner with a leader," Robinson says. "We are lenders to technology and life sciences so when we see something new and in the startup phase, it excites us."
Grameen America differentiates itself from other microlenders such as Accion Internationaland Progreso Financiero by exclusively targeting borrowers living below the federal poverty threshold, which in 2009 was $22,050 annually for a family of four. Accion and Mountain View, Calif.-based Progreso don't have a limit on income for applicants.
Grameen America's average loan size is $1,500, about one-tenth the size of the average Accion loan, and the loans carry a maximum interest rate of 15 percent.
"There is a need all over the country for this level [of credit] and kind of work that Grameen does," says Robert Annibale, the global director of microfinance at Citigroup. "There are so many people that don't have the financial tools or financial education or formal credit."
Education is a key component of Grameen's lending strategy. Individuals seeking loans must first find four other people who also need small loans. Then this group has to meet for five one-hour-training and education sessions held on consecutive days. Only after completing the sessions can the budding entrepreneurs receive their loans, provided Grameen America managers approve.
Still, while the peer requirement is the hallmark of Grameen, Tescher says the tactic could inhibit growth in the U.S., where it's not as familiar. "There is a lot about peer lending to like, but whether it is scalable is the question," she says. "If the only way you can get a loan is to participate in a group, then there are only so many consumers willing or interested in jumping through the hoops."
Kane acknowledges that some borrowers are skeptical at first. However, the loans are not made to the group collectively, but to the individuals, and yet the peer pressure and desire "not to let down your neighbors" really encourages loan repayment, Kane says. The repayment rate is 99 percent and most borrowers have an average credit score of 670 after six months.
http://www.americanbanker.com/usb_issues/120_4/coming-to-america-1016268-1.html
|
| |
|
|
