Banker to the Poor by Muhammad Yunus

I do not want to let the subject matter gets in a way of me reviewing the book. This blog after all is about book reviewing. So I’ll split my reviews about what I think Micro-credit as a concept and then I’ll talk about what I think about the book.

For a long time I wanted to know how micro-credit programme works. I hope to work for a non-profit organisation and volunteering full time once I ceased to work full time in the future. Banker to the Poor by Muhammad Yunus is a autobiography of the man but mostly about the story of the Grameen bank programme, which is founded inBangladesh by Yunus to help the poor.

It all started in the 1974 famine after the flood. In 1983, the credit program is formed to provide small loans to the poor. Yunus has a dream of helping the poor to help themselves. He feels that if they receive a little financial help in the form of a loan and are taught some basic principles of business and financial management, buy the necessary equipment, keep what they earn and alleviate themselves from poverty. He begins to formulate this philosophy in 1976 when he comes upon forty-two women in a small village that make chairs. They need money to buy the raw supplies so he loans them $27 of his own money.

Micro-credit as a concept:

Micro-credit is throwing a lifeline to the poor. The poor is not credit-worthy. They have no collateral, no asset to guarantee a payback, thus they are shunned by the bankers and the only way for them to have access to loan previously was to get the money from loan shark who charge very high interest rate.

Today, Yunus’ system of ‘micro-credit’ is practised in some 60 countries, and his Grameen Bank is a billion-pound business acknowledged by world leaders and the World Bank as a fundamental weapon in the fight against poverty. The book also disclosed a little about Yunus personal lives, his family, his university days in Colorado, his political involvement in the Pakistan-Bangladesh separation, which made us understand why he became a man that he is and how he go about setting up the micro-credit business. At 2006, he won the Nobel Peace Prize.

Grameen Bank does business in a very unconventional way. Its employees are very hands-on, they ride their bicycles to the far corner of the villages and extend micro-loan to women who needs it. The employees work far and hard and can meet, collect and record repayment amount from 400 borrowers within 1.5 hours. Why lend to women and not men? Yunus said giving the women control of the purse-strings was the first step in giving her rights as a human being within the family unit. Similar in most extreme Islamic society, the women has no rights to work, to show their faces, to own any money. Independent studies have shown that incidences of these women being beaten by their husbands have reduced significantly after they join Grameen Bank. I thought that was a achievement towards promoting women’s right inBangladesh.

While reading the book I have a few questions in my head that question the viability of micro-credit in other cultural context:

I also wonder how Grameen Bank achieves a high 98% loan repayment. The myth we believe that if you gave money to the poor, chances are you will never see it again. But the Grameen Bank actually works in a very clever system of 5 in a group, and a chairperson is responsible to collect the weekly repayment on behalf of the 4 women. It is peer pressure at work that encourages a prompt repayment. Yunus has expressed a less satisfactory result micro-credit replication on European system where the social benefits are more generous than being self-employed. The micro-credit does not equate small business loan as some sponsor wrongly perceived. Micro-credit loans out money lesser than small business loan would.

One of the criteria for signing-up to the micro-credit loan in Bangladeshwas an interest rate of 20% (page 110). 20%???!! I stared at the number and couldn’t believe if I have read it right. In Wikipedia there is a claim that Grameen Bank was charging its borrowers annual interest rates of 30% to 200%. However, on 4 January, MicroFinance Transparency (MFT) – engaged by Grameen Bank as an independent expert to investigate this issue – released a report 9 March 2011, saying that all of Grameen Bank’s rates were completely transparent (an unprecedented rating in MFT’s examinations of MFIs and their rates) and showing that the highest effective interest rate charged for Grameen Bank’s “basic loan” was 22.84%. In the investigation it showed that Grameen actually has the lowest interest rates of any microcredit program inBangladesh. The basic loan charges a flat 10% but since it is paid out over 44 weeks, it comes out to just under 18% APR.

Perhaps my question is if the Base Lending Rate (BLR) ofBangladeshwas as high as 20%? Surely 20% interest rate for the poor was a bit too high? Does the high interest rate act as a deterrent to delay loan repayment or an usury?

I wasn’t too please as well that the recruitment advertisement for Grameen Bank has an age limit on it: Anyone who has a master’s degree in any discipline with at least a ‘second class’…. and of an age not exceeding 27 years, is eligible to apply for a job as one of our bank managers. (Page 161) again perhaps this is peculiar to the local cultural context that I do not understand.

From some of the examples that were mentioned, there were good actions being done to help a very unlucky woman who met with calamity, natural or man-made otherwise to get up on her own feet after each downfall. However there are many who remain “a borrower until her death”, which led me to think that it is an illusion to think everyone who borrows are going to stop borrowing in the future once they get their business going. In truth, many borrowed, repaid and then request for a new loan after the last one is repaid, which is fair and well as the loan has helped the family alleviate from poverty and everyone in the family gets to eat but it doesn’t necessarily means the family is ever free of Grameen’s debt. I think the situation is similar to many of our middle class families who lives seemingly decent lives but may have been mired in mortgage and debts. Is that poverty? Maybe not.

About the book:

The earlier part of the book is better than the latter. The latter tends to repeat the company’s philosophy which is already mentioned many times in the earlier chapters, which makes reading a little weary and I ended up skimmed reading the last 50 pages. There is also introduction of Grameen Bank and its subsidiaries, with a balance sheet and Profit & Loss statements. The group of companies are involved in telecommunication (phone and internet), fisheries, healthcare, education, trust and even an asset and securities management company. In essence, Grameen is profitable and has grown into a conglomerate.

Despite the controversies surrounding his methods and companies, there is without a doubt Muhammad Yunus is a great man and instead of watching what happens to the poor decided to do something about it. In his early days, he went to house after house in a small village, day after day trying to gain the villagers’ trust, to convince them to borrow money. There was an occasion when it was downpour raining and he had to wait outside because it was against the custom for a non-relative male to be in the house without the men at home. His first “office” did not even have a lavatory since he started with very little money in a remote village.

I fully endorse Yunus’ belief that the poor is not without skills but without the initial capital in order for their ideas and skills to take flight; and that his bank help these people because his bank is people-worthy and believe that everyone has an innate ability to be an entrepreneur. Too idealistic? An idealistic man he is, this Muhammad Yunus, and look what he had achieved. I’m glad that I read the book.

Rating: 

The poor are poor not because they are untrained, or illiterate, they are poor because they cannot retain the returns of their labour. The reason for this is obvious – they have no control over capital, and it is the ability to control capital which calls the tune. Profit is unashamedly biased towards capital. The poor work for the benefit of someone who controls the productive assets.

Why can’t the poor control any capital? Because they do not inherit any capital or credit , nor does anybody give them access to capital, because we have been made to believe that the poor are not to be trusted with credit – they are not creditworthy. But are banks people-worthy? – Muhammad Yunus, page 225 to 226

Paperback. Publisher: Aurum Press 2003, originally published 1999; Length: 304 pages; Setting: Bangladesh and worldwide.  Source: Westminster Library copy. Finished reading at: 12th February 2012.

Other views: 

Bookie Mee: The goals they set are clear and very realistic. The poverty rate has fallen from 74 percent in mid 1970s to 40 percent in 2005. A ridiculously high achievement for a nation that is often struck by natural disasters and has no great natural resources apart from the hard work of its people. Professor Yunus is truly one in a million. What a better place he has made the world. My admiration for him has no bound.

Social entrepreneurship book review: To give a concluding comment on the book, our group felt that thought the book is written in a very narrative style and the story telling manner actually makes it very interesting to read but for an entrepreneur or manager who would like to learn a few things from Yunus about how he handled the various technicalities and how he took the strategic decisions at various points of time during the journey of Grameen Bank, the book does not provide much inputs in this regard. Yunus has definitely touched upon these things but probably he has not dealt with them in detail.

About the writer:

Muhammad Yunus (Bengali: মুহাম্মদ ইউনুস, pronounced Muhammôd Iunus; born 28 June 1940) is a Bangladeshi economist and founder of theGrameen Bank, an institution that provides microcredit (small loans to poor people possessing no collateral) to help its clients establish creditworthiness and financial self-sufficiency. In 2006 Yunus and Grameen received the Nobel Peace Prize. Yunus himself has received several other national and international honors.
He is a member of advisory board at Shahjalal University of Science and Technology. Previously, he was a professor of economics at Chittagong University where he developed the concepts of microcredit and microfinance. These loans are given to entrepreneurs too poor to qualify for traditional bank loans. He is the author of Banker to the Poor and two books on Social Business Models, and a founding board member of Grameen Americaand Grameen Foundation. In 1996, Yunus introduced mobile phones to rural villages. Grameen Intel is just one of hundreds of public and private partnerships now mediated through Youth & Yunus. In early 2007 Yunus showed interest in launching a political party in Bangladesh namedNagorik Shakti (Citizen Power), but later discarded the plan. He is one of the founding members of Global Elders.
Yunus also serves on the board of directors of the United Nations Foundation, a public charity created in 1998 with entrepreneur and philanthropist Ted Turner’s historic $1 billion gift to support UN causes. The UN Foundation builds and implements public-private partnerships to address the world’s most pressing problems, and broadens support for the UN.
In March 2011, after months of government attack, the Bangladesh government controversially fired Yunus from his position at Grameen Bank, citing legal violations and an age limit on his position. Bangladesh’s High Court affirmed the removal on 8 March. Yunus and Grameen Bank are appealing the decision, claiming Yunus’ removal was politically motivated.
Professor Yunus was chosen by Wharton School of Business for PBS documentary, as one of ‘The 25 Most Influential Business Persons of the Past 25 Years’. In 2006, Time magazine listed him under “60 years of Asian Heroes” as one of the top 12 business leaders. In 2008, in an open online poll, Yunus was voted the 2nd topmost intellectual person in the world on the list of Top 100 Public Intellectuals by Prospect Magazine (UK) andForeign Policy (United States).

The italian film company Eurofilm s.r.l. owns the worldwide and exclusive film and television rights of the book. Film director Marco Amenta is currently working on making the film Banker to the Poor for the big screen, based on the international bestseller. For the script of his “Banker to the Poor”, written together with the famous Sergio Donati, Amenta was rewarded by Robert De Niro at theTribeca Film Festival. Italian producer Simonetta Amenta has purchased the film rights through her company Eurofilm- before the Professor Yunus won the Nobel Prize.