Wednesday, 2 December 2009

'Everyone Should Have the Right to Credit'

A Mind blowing interview with Nobel Laureate Muhammad Yunus from Bangladesh Source: Spiegel Online

Microcredit loans have revolutionized the world of finance in developing nations. Now Muhammad Yunus, the Nobel Peace Prize laureate behind the concept, wants to see similar programs in the industrialized world. In a SPIEGEL ONLINE interview, he explains why Germany's poor should be given loans.

SPIEGEL ONLINE: Mr. Yunus, you provide microcredit to people in developing countries through the Grameen Bank. Is a similar program required in Germany?

Muhammad Yunus: Definitely. Even in Germany, there are lots of people who are being shut out of the banking system, like unemployed people. Bankers see them as too big a risk. Yet they are the very people who need loans.

SPIEGEL ONLINE: Why? The unemployed get state support.

Yunus: That is the usual system in rich countries, like Germany. But there is no incentive to generate new income on unemployment payments. The next payment is coming next month after all. This robs people of initiative. One could also give the unemployed microcredit, allowing them to start their own businesses. Capable people should not sit in front of the television, like zombies, without having something to do. Their potential and skills go unused, their creativity is wasted.

SPIEGEL ONILNE: Would you grant microcredit to every jobless person?

Yunus: Everyone should have the right to a loan. You could say that you'll give someone €100 or loan them €500. It's a better way to distribute money. If only half of the people pay back the money, then it's already a success. And if the person receiving the loan is successful, that will encourage others. Pride returns.

SPIEGEL ONLINE: There are already a lot of opportunities for jobless people to receive subsidies to start a business from the state. The KfW bank, a federal institute, already gives small loans. Why does Germany nevertheless need microcredit?

Yunus: State programs usually have strict bureaucratic procedures, from which there is no deviation. Some people raise their capital from this system and get around the rules. Not because they need the loans but because they know they can trick the system. Others don't even make the cut because they don't fit a certain profile. Also, the state is not necessarily interested in sustainability when providing credit. Finally, the money is financed by tax payers.

SPIEGEL ONLINE: Does that mean microcredit should instead come from private institutions?

Yunus: I don't want to use the word "private." That means that the lender expects to earn money from the loan. I see microcredit as a social business. Social business means that you take on a certain social problem with an enterprise. Profits are then reinvested back into the social business. In addition, costs have to be covered. That is why we demand interest.

SPIEGEL ONLINE: At rather high rates. The Grameen Bank sometimes asks for as much as 20 percent.

Yunus: Of course low interest is good. But when an institution has to support itself, then we can't offer an interest rate that doesn't allow the institution to be run sustainably.

SPIEGEL ONLINE: You've also created programs in developing countries for beggars that don't demand interest payments. Do these loans get paid back?

Yunus: Yes. The rate of repayment is actually very high. We don't take any interest because we don't want to apply pressure. The beggars should feel comfortable taking the money.

SPIEGEL ONLINE: Then where does the motivation to pay the money back come from?

Yunus: If the beggar pays back the money, then they get a new loan with the same conditions. In our experience, it works.

SPIEGEL ONLINE: Would that work also with homeless people in Germany?

Yunus: It's something we should try. It would be a new situation and, of course, I can't tell you now if it would work. I also wouldn't want to give a loan to every beggar, but would try it out first with one. If that works, then one can extend credit to the next person. When one starts, others follow. It worked in Bangladesh and many other countries.

SPIEGEL ONLINE: Which criteria do you set in order to give loans to the poorest of the poor?

Yunus: We first try to understand why someone becomes a beggar. Usually, there was some turning point in their life. It is easy to say that beggars don't want to work but it's possible that this is not at all true. Then we discuss with them what they could do, make a business plan and provide them with funding.

SPIEGEL ONLINE: Does every beggar have a business idea?

Yunus: The human spirit is infinitely creative. If you keep thinking about something, eventually you find a solution.

SPIEGEL ONLINE: Microcredit seems to works so well because there is moral pressure from the community on the person who takes out the loan. However, German culture is very individualistic and people often live anonymously. Would microcredit still work here?

Yunus: Look at New York. There, residents don't usually know who lives next door. When someone dies, it often goes unnoticed. But microcredit is functioning there. Through the programs, we bring people together and suddenly, they have friends. That's where the community pressure comes from.

SPIEGEL ONLINE: Have you been to a country where microcredit didn't work?

Yunus: No. People need money. We live in a world where money is important.

SPIEGEL ONLINE: There are branches of the Grameen Bank, which you founded in 1983, in several countries around the world. When will you open a branch in Germany?

Yunus: I get asked a lot why there still isn't a branch in Germany. But I won't come from Bangladesh and say "I want to introduce microcredit here." Someone has to come to me and say: "Hey, can you help us with this?"

SPIEGEL ONLINE: And no one has asked you yet?

Yunus: A few people once came to me asking for assistance in creating a kind of ecological microcredit bank in Germany. But they lost interest and had other things on their mind.

SPIEGEL ONLINE: Many companies are active in social business -- another idea which started with you. BASF is selling mosquito nets that even very poor people can afford, Danone sells cheap vitamin-rich yogurt, while Veolia has created a social business offering affordable drinking water. Which company will you convince next to undertake a social business?

Yunus: I don't convince anybody. I wait for them to come to me. They don't even have to work with me. They can do it on their own initiative. I don't want to expand my bank, but rather spread the idea.

SPIEGEL ONLINE: Adidas has recently announced that it will also be getting involved in a social business. Did you go to Adidas or did the company ask you for advice?

Yunus: The people from Adidas came to me. They asked me what they could do and then I told them that they need to have a goal, a mission. That could be: No one in the world has to run around without a pair of shoes. The shoe must, of course, be affordable, and that makes it a social business.

SPIEGEL ONLINE: Why are shoes so important?

Yunus: Many people don't know that shoes can protect them from disease. Many parasites get into the body by penetrating the feet. If all children had shoes, we could prevent many illnesses. If Adidas can succeed with this idea, then other businesses will follow. There is a new kind of competition emerging -- the competition to help other people.

SPIEGEL ONLINE: Why do social businesses work?

Yunus: There are two sides to every person: selfishness and selflessness. The selfless part is just as strong as the selfish side, we just haven't admitted that yet. Most businesses are based on selfishness but why can't we build a business on selflessness? To help others is a joy. We don't want to abolish capitalism but complete it. Selfishness and selflessness belong equally there.

Interview conducted by Friederike Ott

No comments: