By Afshan Subohi

'The orthodoxy of economics has given shape to the existing world where all investment is locked in only one category: profit maximization. The moment we open the door for making social impact through investments, investors will start putting their money through it,'says Prof Muhammad Yunus.

"We will have to change our mindset before striving to change the world," says Professor Muhammad Yunus, Managing Director and founder of the Grameen Bank of Bangladesh. "A better world without a major upheaval is possible," he adds.

Muhammad Yunus believes that it is possible to move towards an equitable, fair and just social order if civil society opts to act responsibly using market mechanisms to achieve greater social objectives. His vision of social business enterprise as opposed to profit-centred private business has so far not been able to capture the people's imagination. However, he is confident that many people, especially the youth, if provided an alternative framework to making their country and the world a better place without sacrificing their own future, would be willing to work to achieve this goal.

In a society where the winners and losers are defined by their financial worth and all activity other than that which improves one's net economic worth is considered a waste, such radical ideas do not win easy acceptance. But we cannot afford to brush them aside - more so, when they are propounded by a recognized visionary like Muhammad Yunus.

From a western qualified young Bengali who returned to Bangladesh to take part in the reconstruction of his newly liberated country in 1972, Muhammad Yunus has come a long way in the last three decades. He started off as head of the economics department of Chittagong University; created the Grameen project in 1976; founded the Grameen Bank in 1983 and has not looked back since. He gave a new meaning to microcredit and turned around the basic axioms of traditional banking and used his model to serve the poorest of the poor.

Conventional banking is based on collateral - the higher the collateral you can offer, the greater is the probability of getting a loan. At Grameen poorer people get higher priority and they get loans on trust without any collateral.

The success of the Grameen project brought Muhammad Yunus into the limelight. It generated a lot of interest in circles involved with the promotion of non-governmental organizations (NGOs) as a vehicle for delivery of pro-people initiatives. It became an interesting case study of its kind. The power of example worked and the Grameen experience has been replicated in many countries around the world.

In the last 20 years Grameen Bank has expanded its base in rural Bangladesh. Currently it operates 1,277 branches providing credit to 3.8 million poor people in 46,620 villages. The total amount of loan disbursed by the bank so far comes to $4.46 billion. The recovery rate is reported to be 99 per cent. The majority, that is almost 96 per cent of its borrowers, are women.

Muhammad Yunus's innovative ideas and their successful implementation have earned him great respect, both nationally and internationally, receiving awards and honorary doctorate degrees from 21 universities from all corners of the globe. He has gone on to create a number of companies in Bangladesh structured to serve social objectives.

Yunus believes that the right to credit should be recognized as a fundamental human right because it is the last option for those who are faced with abject poverty.

This man of ideas and action was in Karachi recently at the invitation of the Oxford University Press that has also published his autobiography entitled Banker to the Poor. In an interview with Dawn Magazine, he shared his views on the role of ideology, the role of government as a provider of public utilities and prospects of microfinance institutions in Pakistan. The following are excerpts from his interview:

Q. In 1994, when you visited Karachi, you informed the press that the then Punjab government of Ghulam Haider Wyne had expressed an interest in the Grameen project and requested your help to establish a microcredit bank in Punjab's rural areas. Nothing came up. What was it that actually transpired in those negotiations?

A. I am hoping that the microcredit conference in Islamabad that brought me here would provide the push that is needed to kick-start microfinancing in the country. Earlier initiatives by the chief minister of Punjab died a sudden death with the man himself. However, there are a few individuals experimenting with our microcredit framework. Two ladies are working in Lahore and the late Omar Asghar Khan had initiated a project in Quetta.

I had met Akram Khatoon of The First Women Bank earlier, and Ms Zareen recently. However, if a bank is based on conventional style banking, the gender of its manager can hardly change anything. In order to reach out to the poor the basic design has to be different, and it will have to be managed in a professional fashion.

Q. Does the disintegration of the Soviet Union in 1991 and the subsequent withering away of trade unions, peasant bodies and old style pro-people organizations have any relation with the strengthening of the NGO sector and the popularity of projects such as Grameen Bank?

A. The fall of the Berlin Wall and the collapse of the Soviet Union sent a strong political message across. People who were claiming that they could resolve all social issues through Marxism and socialism are now having a hard time explaining. So the importance of trade unions in that sense is no longer valid. Now it will be a different kind of trade union like the one in the US. Still, the world is going through an adjustment process. Old rhetoric does not work any more. In this new situation, there is need for repositioning.

The distance between the left and the right is decreasing. The left has given way to the new left. Earlier they had a very rigid position on privatization. Now they are flexible and say that the government must not sell profit making public sector organizations. So the rich are running the show to promote their own interests. Are we just bystanders? Is the world safe in the hands of a small club of rich people?

I am trying to promote an idea and I feel very strongly about it. The problem arose even before the collapse of the Soviet Union when we started adopting capitalism as the main building block of our economy. In my view capitalism is very badly and narrowly interpreted. It has never been completely elaborated upon. It carries in its fold solutions to the current distortions within capitalism. Its narrow definition says business means business to make money. Profit maximization is the focal point of any business activity. Unless you go for profit maximization you are not a businessman. That's where it went wrong.

To me, there are two types of businesses possible within the capitalist framework: one to make money, and the other to promote some social objective. These enterprises are using the market mechanism to solve a social problem. I call it social business enterprise. This social business enterprise never got into the theory of capitalism. It was never thought, never discussed. Some entrepreneurs created these organizations without realizing and understanding it conceptually.

Grameen Bank is a capitalist institution. It makes money. But it was not created to make money. It was created to solve a social problem. Financial services were not available to the poor. It was created to solve that problem. It made credit available to the poor. It made the borrower of the bank its owner. That falls into the category of social business enterprise. We see people working for a cause in politics, in religion, but not in economics. There is no room for them in economic theory.

How come people become greedy as soon as they enter the economic arena? The market is supposed to be for the greedy. You have to make room for selfless people in the area of economic enterprise, and I am sure they are not that willing to come and support such an enterprise. In my view people who are deeply involved in making money and are already very rich would also like to invest in an enterprise promoting a just cause, provided options are available.

Q. Who will create these options?

A. People will do that. There are many people out there who are not satisfied at all with the current scheme of things. They are dying to do something worthwhile, and not just earn more and more money. I recently met a 35-year-old proprietor of E-bay who made several billion dollars. He wanted to spend his money in a meaningful way.

To an individual there is hardly any difference between a million and a billion. One can buy the best of everything that one needs and is still left with loads of money. I am sure if a framework is developed we can channel more resources than we can imagine to make this world better and safer for all its citizens. For that, again, we will have to create a new order.

The orthodoxy of economics has given shape to the existing world where all investment is locked in only one category: profit maximization. The moment we open the door for making social impact through investments, investors will start putting their money through this door too. If social entrepreneurs can show a concrete impact, this flow will become larger.

Q. Despite the good work done by Grameen Bank and others, why is Bangladesh society not showing signs of a higher level of enlightenment? Our impression is that obscurantism and Islamic fundamentalism are on the rise in Bangladesh. What's your opinion?

A. My quick interpretation is that people are turning towards fundamentalist organizations because they are not satisfied with the way the world exists. Their shift actually signals their dissatisfaction with the rat race to become rich overnight. If we allow some room in the marketplace for good people they might not get attracted to these religious outfits. Currently, the market is like a casino that you enter with the sole purpose of making money. If allowed, such people may prove to be most productive.

Q. There is an impression that the NGO sector is indirectly helping different governments, particularly in the least developed countries, to absolve them of their responsibility towards their people to provide basic public services and utilities.

A. It is not the government's job to feed person by person. The government's job is to provide a safe, free and fair environment. It is its duty to enforce the rule of law, to create institutions and a policy framework to let the people live in peace. To expect the government to provide job security or affordable utilities reflects the old mindset. It is the responsibility of civil society to solve these problems. We need to find market solutions for our problems. If it is not possible today it will become possible tomorrow, as I see no other way to go about solving the issues that we are faced with.

The microcredit sector n Pakistan

The concept and potential role of microcredit, as far as development in Pakistan goes, gained popularity among the country's policy-makers in the recent past. In all, there are reported to be 35 microfinance providers in the country. It is said that a few NGOs inspired by the experience of Grameen Bank, such as the KASHF Foundation operating in Punjab and the OPP Charitable Trust in Karachi, are doing a praiseworthy job. Some banks, like The First Women Bank, are also involved in giving out small loans to the less privileged sections in some areas. However, the scope and impact of these loans are quite limited. In the last five years, two new banks specializing in microfinance have come up. They are: Khushhali Bank and The First Micro Finance Bank.

In Pakistan, the stated aim of microfinance programmes is to achieve the goal of poverty elimination. Many experts feel that such programmes have to be designed in a way that could help them survive in a competitive market environment. Pakistani banking and economic high-ups believe that in order to achieve this goal the following factors should be taken into consideration:

1. Appraisal techniques should be used to evaluate potential clients.

2. All designers should have expansion plans in place to expand microfinance programmes over a period of time.

3. The practitioners should focus on achieving operational efficiency. It is vital to the sustainability of the plan. The financial viability can hardly take us ahead in the absence of suitable and efficient management practices.

4. There should be a proper coordination among all stakeholders.

5. Development agencies should monitor the performance of such programmes on a regular basis.

6. The role of microfinance institutions need to be clearly defined in the context of economic development plans.

7. Though microcredit institutions are experimenting with different substitutes for asset-based collateral borrowing, no unified standard has been adopted by these institutions. They should use a group-guarantee lending model so that there is an in-built provision in the model to reach more people.

8. Such institutions need to shift their focus to self-sustainability over a specified timeframe to minimize the government's and donors' involvement in their affairs. - A.S.

Factors responsible for retardation in pro-poor initiatives

The conventional view

1. The pattern of land ownership in Pakistan: The concentration of landholding tends to create a powerful socio-political structure that makes all concessions, benefits and facilities meant to help the poor further strengthen and perpetuate this very structure.

2. Misplaced priorities of successive governments: There are indictors of an urban bias in the economic planning exercise carried out by the government.

3. Opposition of the landed aristocracy to pro-people policies, more specifically in rural Pakistan: Irrespective of their affiliations with the political parties, the landed aristocracy has consistently opposed all measures related to physical or social infrastructures that could eventually lead to a change in the country's rural areas. The status quo suits this class and it defends it.

4. The policies that are made to alleviate poverty are populist. Half-heartedly designed, they are not meant to bring any real change in the system.

5. Poor management and corruption make most policies aimed at serving the poor counter-productive.

6. Absence of an effective peasant movement and its integration into the mainstream politics.

The view of Grameen proponents

1. Credit needs to be recognized as a fundamental human right and should be available to everybody, irrespective of their social or financial standing.

2. The poor are capable of changing their destiny if they are provided with equal opportunities, despite the set pattern of landholding or other macroeconomic factors.

3. Microcredit policies adopted so far in Pakistan have either been badly designed or shabbily managed - or a bit of both.

4. Impractical and wrong approach of the masses' supporters: The pro-poor sections in the middle and upper classes still believe that it is the duty of the government to provide a minimum comfortable living to everybody. The government does not seem to be capable or designed to achieve this objective. It is the duty of civil society to force the government to create an environment where businesses can flourish.

5. Civil society should create market-based institutions to achieve social goals. - A.S.

Why microfinance?

Without mircrofinance more than half of the population would remain ineligible to use the services of all financial institutions.

The creation of microfinance institutions has made credit universal. Looking at it politically, it has democratized credit. If accepted as a basic human right, the access to credit can play a pivotal role in bringing out potential creativity in each individual, ultimately leading to poverty reduction.

In the last 20 years, the experience of microfinance in different countries has proved that it has been more successful in the private sector. In the public sector there is a risk of running it on short-term political considerations.

Microfinance is based on the belief that poverty is not created by the poor. In fact, it is a result of the prevalent systems in poverty-stricken countries. In this regard, institutions are to be blamed, not the people. The poor are the victims not the cause of poverty. If we can redesign our existing institutions and carve out more suitable institutions and policies a poverty-free world is possible.

Microfinance institutions may function just like any other bank; but they do a different job with a different methodology. The government can do its job by creating a legal framework for such institutions and setting up a regulatory body to supervise it.

Ownership of a bank with the social objective of lending money to the poor can be of any kind, such as:

a. Owned by private investors

b. Owned by borrowers themselves

c. A combination of (a) and (b)

d. Owned by the NGOs

e. Co-operatives

The multilateral financial institutions should be persuaded to, at least, double their lending in order to support microfinance initiatives in the developing countries. They have the resources to improve their monitoring capabilities to make sure that these funds reach all target groups.

If taken seriously by civil society, microfinance has the potential to help realize the UN's millennium development goals to reduce poverty to half by 2015.

-Grameen Dialogue Report