Today’s Book Review is for a book which I actually read in September 2016 but just never got around to publish it. Seeing as it is taking me ages to finish my January read, I assume its okay to share one of the most easy-to -read yet most insightful book that I have ever read. ‘Banking to the poor; micro-lending and the battle against world poverty’ by Muhammad Yunus.
Muhamad Yunus is the founder of the Grameen Bank, Bangladesh and is widely regarded as the founder of the concept of ‘Micro-finance’. Because of his pioneering work in the field of micro-credit to the poor; Yunus and the Grameen Bank won the 2006 Nobel Peace Prize. The book chronicles Yunus’s upbringing in a modest household in Bangladesh; his sojourn to America to study Economics and where he joined the movement for Bangladeshi’s independence; his return to Bangladesh and his stint as an Economics Lecturer; the establishment of the Grameen Bank; the Bank’s expansion in Bangladesh and across the world and his hopes for the future, particularly the role of social enterprises in eliminating global poverty.
I like the book because of its simple language, personal feel, and the passion of the Author which I thought was quite palpable as you flipped through the pages. He begins the book on a personal note about his modest family upbringing. Then he proceeds to discuss his sojourn in the US and his involvement in the movement for Bangladesh’s independence.The fight for independence led to his return to Bangladesh where he was involved in setting up the government and took up a position in the Economics department at the University. It was during his time at the University that he got involved in assisting poor farmers and other citizens in the rural areas.
He was upset at the general poor level of farm productivity, so even though he had no experience in agriculture, he learnt about it and engaged some of his students in assisting the farmers. His involvement with this project led him to visit the actual villages to discover the challenges the poor people faced. I think these visits were the turning point for him as he was dismayed that many of these people were stuck in poverty simply because they could not afford start-up capital which in many cases were less than $20. In addition to this, these people could not afford to assess loans from financial institutions because they could not provide the needed collateral or even fill out bank forms. He was disappointed at the extent to which standard economic theories failed to address the needs of these people at the bottom of the economic pyramid. He decided to do something about it; he personally provided these poor people (mostly women) with the loans and asked them to pay back whenever they could but he soon realised that this was unsustainable. He then approached the bank and tried to convince them to revise their policies so they could lend to the poor but they disagreed; eventually they agreed to lend to them if only he (Yunus) would act as the Guarantor/intermediary so that the bank would deal directly with him and not the poor. But after a couple of years, he discovered that this system was equally unsustainable and after a series of thoughts and conversations, he realised it was time for him to establish a Bank dedicated to providing credit to the poor and in which they do not need to provided any collateral to access these loans. And that is how the Grameen Bank was founded.
As at 2007 when this edition of the book was written; Grammen Bank had established 1.181 branches, had disbursed a total of $3.9 billion dollars with a 98% recovery rate. Also, its total borrowers was 2.6 million, of which 95 % were women.
There were a couple of things I found interesting while reading the book;
- First, Yunus vehemently argued that the poor can not default on their loans because they have no other alternative source of funds and that what the poor need is simply credit; they do not need any sort of trainings to run their business. I think I agree with the first claim to an extent but the second claim though; don’t they need basic financial literacy skills? management skills? and other forms of capacity building trainings? At least, this is what I have always assumed. But if the Grameen Bank in fact did not provide these trainings to its borrowers and they had such a high repayment rate, perhaps there is some truth to this
- I found his views on globalisation really profound especially with the turn of events in the world today. While a believer in the power of capitalism and free markets, he made serious calls for its worsts effects to be cushioned in order for it to be beneficial for everyone. In his words..‘the real issue is creating a level playing field for everybody-rich and poor countries, powerful and small enterprises-giving every human being a fair chance. As globalisation continues to encroach on our socioeconomic realities, the creation of this level playing field can become seriously endangered unless we initiate a global debate and generally agree on the features of a ‘right’ architecture of globalisation, rather than drift into something terribly wrong in the absence of a framework for action’.
Given the rise of Nationalism, protectionism and increasing global inequality; this statement could not be more profound and even prophetic in a way.
- I also found his views on social enterprise and social investment equally profound given how much these fields have grown in recent years and how unpopular it was at the time he wrote the work. He said..‘Social driven investors will need a separate (social) stock market, rating agencies, financial institutions, mutual funds, venture capital and so on….. Because of the way in which the orthodoxy of Economics has given shape to the existing world, all investment money now is locked up in one category of investment: investment for making personal profit. This has happened because people have not been offered any choice’.
Again, with the rise of ESG Investment (Environmental, Social and Governance), Impact Investing, Sustainable Investing etc. this was quiet prescient.