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  Lending to the poor
  The birth of micro credit
  The philosophy of responsibility
  Grameen -- transforming lives
  Banking for Bangladeshís flood victims
  Yunus and the rural experiment
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The philosophy of responsibility

DHAKA, Bangladesh (CNN) -- CNNfn's Lisa Barron interviewed Muhammad Yunus, founder of the Grameen Bank in Bangladesh.

Q: How did the whole philosophy of micro credit take shape?

A: It was a local problem that I was trying to address in a personal way. We had just gone through a big famine and I was upset because I was teaching economics and then coming out of the classroom to see people starving. What I was teaching had no meaning to the life of the people I met.

I met a woman who was making bamboo stools and she told me she made only two pennies a day. I couldn't believe it. She had to borrow the money to buy the bamboo and the lender made her sell the stools to him at a fixed price -- which was why she made so little. She needed 25 cents for the bamboo for each stool. She was a slave for 25 cents.

I made a list of 42 people who needed just $27 between them so I gave them the money.

I put people in contact with the bank but they were turned away as not credit worthy. Eventually, I offered myself as a grantor. I took the money in 1976 and gave it to people. The bank manager said not a single penny would come back, but so far every penny has come back.

Muhammad Yunus
Muhammad Yunus, founder of Grameen Bank  

Still the bank would not change its view. So I went to the government to get permission to set up a bank for poor people, owned by poor people. The government thought it was a crazy idea. It took me another two years to get permission. Finally, in 1982 we got permission and we became a bank.

Now we work in 40,000 villages. We have lent to 2.4 million borrowers. Ninety-five per cent of those borrowers are women and over time we have given more than $3 billion.

The bank is owned by its 2.4 million borrowers. They sit on the board and decide the policy of the bank.

Q: The government still owns 7% of Grameen Bank. Why the continued involvement and would you like the government out altogether?

A: Yes, when we first got permission, a condition was that 60 percent of the bank should be owned by the government. I was very unhappy because my proposal was for it to be entirely owned by the borrowers. We later persuaded the government to release some of its shares so that it was 75 per cent-owned by bank borrowers and 25 per cent-owned by the government. Gradually, this changed to 7 per cent government-owned and 93 per cent owned by borrowers.

The government says it wants to be associated with such a great project. The chairman of the board is appointed by the government.

Q: Isn't that a lot of power for the government?

A: We would like to see it changed but so far we have not been able to persuade the government. I hope that the government can be persuaded someday that the chairman should be elected by the board.

Q: How does micro credit work, starting with the first small loan?

A: Grameen Bank is designed as a kind of a club that provides different financial services. So once you get in, you continue to stay in and take loans.

The first loan is the most critical because for the first time, in most cases, you are really handling money. These women, some 95 per cent of Grameen's borrowers are women, have never handled money in their lives.

Once she has successfully used the money and paid the bank she is very confident and takes a bigger loan. So the next cycle begins. Experience is gained and we then offer several kinds of loan products, depending on her needs.

In 1984 we started offering housing loans. Some thought it was a crazy idea, but for a poor person a house is like a factory building -- somewhere to work. Bangladesh is a monsoon country and with four or five months a year of pouring rain, the poor cannot work without a roof over their heads.

We have also started providing leasing facilities so people can buy equipment...a power tool or a truck, a trolley, whatever.

But the real story to me is the next generation -- children are seeing a very different world around them. They see a bank, they see their mother working and they are being sent to school because every mother in Grameen Bank wants to send their children to school. I can safely say 100% of the children of Grameen Bank are in schools. Many are graduating from high school and attending colleges, going to medical school, going to professional schools, engineering schools.

So the second generation will take the big leap to get them out of poverty and that is where the process becomes sustainable. It's not coming out of the poverty -- it's not slipping back again that is important.

Q: Why are 95% of borrowers women?

A: I was critical of conventional banking in Bangladesh, not only for not lending money to the poor, but also for not lending money to women. Not just poor women, any women.

Originally, I wanted to make sure half the borrowers were women. At first women would not come to us for money. It took six years to finally get to the 50 per cent level. Then we started noticing that when money went to the family through women it brought much more benefit to the family. Women were very cautious with the money - they were skilled in managing scarce resources.

So we decided to give priority to women and we built in a lot of incentives for our staff to approach women.

Q: How much is repaid?

A: Traditionally, Grameen Bank has a 98 per cent repayment record. But recently we had a set back. We had a big flood in 1998 and that pushed us back, way back. So today it is nearer 90 per cent. However, I think by the end of this year we will be back up to the traditional level of 98 per cent.

Q: Many in the international development community are critical of your philosophy of self-help.

I'm sure there are many who will be against it. I'm simply saying if you want growth, you have to take poor people with you.

Development is not creating high-rise buildings in the city surrounded by slums. It is making sure every human being has meals every day and decent housing conditions. To me, if a person who starves one day, no longer needs to starve, it is the biggest development possible.

Q: What about those who criticise the interest rates you charge?

A: The market rate in Bangladesh is 15 per cent and we charge 20 per cent, but we deliver the service directly to people's homes. None of our borrowers have to come to our office. Our staff visit them -- every week in some cases. So that's why we need to add 5%.

Also, nobody mentions that we charge just 8 per cent for our housing loan and almost a quarter of our loans are for housing. So if you are charging 8 per cent where the market rate is 15 per cent it looks cheap.

Nobody mentions that we charge 7% below the market rate for a quarter of our loans and 5% above for the rest. On a weighted average it comes to 15%.

Q: How far has the micro credit concept come since 1976 and are you surprised at what has happened to it since you developed it?

A: It is very satisfying thing to see that people are responding to it, but I am unhappy that it is not expanding as fast as it could.

The micro credit summit in 1997 set a goal of reaching 100 million of the poorest families with micro credit by the year 2005. So far, only 20 million families have been helped so there are 80 million to go in the next four years.

Q: Many people say micro credit can't flourish in western countries without a history of self-employment and in urban areas where people don't have the same close links with their neighbours as they do in rural areas?

A: You can't say that because a lot of micro credit programs are in rich countries now. The U.S. has a micro credit program in Harlem that uses the Grameen principles.

Unlike charity or welfare, which take away a person's initiative, loans make people more responsible because they have to be paid back. This is just as important in rich countries.

Q: How successful have you been in winning over top policy makers?

A: Former President Clinton was a great supporter of our work. When he was still governor of Arkansas he invited me to help him design a Grameen program.

His wife, Senator Hillary Clinton, was a great supporter of micro credit and that's how she became the co-chair of the micro credit summit. She came to Bangladesh along with Chelsea to visit Grameen bank.

Also, President Fox of Mexico supports micro credit. And he wants to do a big program for Mexico. He has invited us to set up a wholesale fund and a network of micro credit activities there. We are invited to Chile and many other countries to support that. So, some leaders are taking serious action. The only thing I can complain about is the speed at which it's happening.

Q: You're listing technology now in the war against poverty. How viable is that when some of the basic needs have still not been met?

A: Technology could be applied to bringing services to the poor, but at the moment it is only used to help the rich and businesses.

Software is designed with some big company or executive in mind, not some poor woman who cannot write or read. She can give voice command and she can find out what to do and so on.

Technology could be like an Aladdin's Lamp. I say well...I didn't have anything to eat today. What can I do? Where can I find my food? Computer tells you, you have these options. Which one would you like to do? Or if I'm not well and I want to talk to a doctor, but I can't pay - the computer could provide a list of doctors who would do that.

Q: So you disagree with Bill Gates when he said the poor need food not computers.

A: People also say what good is a mobile phone in the hands of a poor woman. She doesn't need a mobile phone. Yes she does because it's her new cow. It produces milk for her and she sells the milk and makes money. And she has a decent life for that. So the telephone became her new cow. A computer can become the new cow. And that's how we should design the program so it produces food for them. So once you demonstrate that to Bill Gates I think he will change his mind.

Q: Even your supporters say your pragmatism and sometimes anti-establishment views can cost you the Nobel Prize. Is that something you worry about?

A: I have no worries about that. People make their own decisions. I do what I think is right

Q: You talk about poverty being eliminated. How realistic is that and in whose lifetime?

A: I'm talking about my lifetime. I believe that it is possible but we all have to believe it is possible

Each individual has the capacity to create a poverty free life for himself/herself. That is the essence of the whole thing and if you believe in each individual's potential you will agree with me.

Q: How profitable has Grameen Bank been over the years as an institution?

We never saw it as a profitability issue. We saw it as a sustainability issue that we cover our cost. That's the important thing. Along the way, we covered our costs. We avoided losses some years we had losses but some years we had surpluses.

For me personally Grameen Bank has not been a profit-making enterprise. I am paid by Grameen Bank. I get whatever the salary Grameen Bank has decided to give me.

Q: When you go out to the villages and you see the people who have gone from thatched huts to houses and who have started this business, how does it make you feel?

A: Oh, that is the most thrilling experience. When I am upset or depressed I always go out to the village and spend some time with the Grameen borrowers and talk to their children. It's an amazing experience.


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