Feb 2008- my father hosted a 30-person lunch to celebrate mUhammad Yunus at RAC Saint James -
he filed this op-ed:
THE IMPORTANCE OF DR YUNUS
By Norman Macrae
The Nobel Peace Prize for 2006 was controversially
awarded in Oslo to a "banker for the poor" in once basket case Bangladesh.
Since the microcredit system pioneered by this Doctor Muhammad Yunus really has raised record millions of Bangladeshi women
from the world’s direst poverty, Yunus was greeted on his recent visit to London largely by the
misunderstanding Left. But as an octogenarian Thatcherite, I also had lunch with him and thrill fully to his stated aim to
"harness the powers of the free market to solve the problems of poverty", and his brave belief that he can "do
exactly that". This apparent appearance of a viable system of banking for the poor has important implications we had
better start by examining how microcredit almost accidentally came about.
START IN A STARVING VILLAGE
During Bangladeshi’s terrible famine year of 1974, Dr Yunus ( who had attained his doctorate
in economics in a fairly free market American university) was back at his 1940 birthplace of Chittagong,
Professor of Economics at the university there. He took a field party of his students to one of the famine threatened villages.
They analysed that all 42 of the village’s small businesses (tiny farm plots and retail market stalls) was indeed going
bust unless they could borrow a ridiculously tiny total $27 on reasonable terms.
First thought was to give the $27 as charity. But Yunus lectured that a social business dollar
that had to be paid back from careful use in an income generating activity, was much more effective than a charity dollar
which might be used only once and frittered away. All of those first 42 loans were fully repaid, and lent back, and after
9 years further experiments Yunus in 1983 founded his Grameen (which means Village) Bank. Its priority was to make loans that
were desperately needed by the poor instead of the usual banking priority to make the safest loans to the rich who could provide
collateral against what they happened to want to borrow.
In the next 23 years, Grameen provided $6 billion of loans to poor people with an astonishing
99% repayment rate. In 2006, it had seven million borrowing customers, 97% of them women (who tend to be the poorer sex in
rural Islamic societies) in 73000 villages of Bangladesh. Microcredit had by then reached 80% of Bangladeshi’s poorest
rural families and over half of Grameen’s own borrowers had risen above the absolute poverty line.
When a Grameen bank manager goes to a new village, he has
entrepreneurially to search for poor but viable borrowers . He earns a star if he achieves 100% repayment of loans, and another
star if he attains achievement of the 16 guarantees that all customers are asked to pledge, ranging from intensive vegetable
growing through attendance of all children at school, to abolition of dowries. A branch with five stars would oftenb transfer
to ownership by the poor women themselves. A branch with no stars would be in danger of closing, so borrowers tend to rally
round with suggestions, such as which unreliable repayers to exclude.
An early income generator was the profession of telephone ladies. They borrowed enough to buy a cheap mobile phone
from a Grameen subsidiary. They world draw fees for phoning to see if more profitable prices for crops were available in a
neighbouring village, and from anybody who wanted to hire the phone to contact the outside world. This is a job that could
only become important in a microcredit setting; the owner of a mobile phone in richer suburbia would not find many customers
to hire her set. Village garment-makers were soon exporting clothes to far countries which made free trade by the importing
countries important. One special desire of Yunus was to improve the nutrition of poor children in the villages of Bangladesh, and he formed a social business with the large French food multinational called Danone. Grameen-Danone
test marketed to find what sorts of fortified yogurt Bangladeshi children would like. Although Danone at first wanted large
plants with refrigerated systems, Grameen won the debate to make then small plants who bought local milk and very cheap local
distributors who knew which families had children who might buy the cheap yogurt fresh. Danone had to agree not to pay any
dividend from the sales of the yogurt in Bangladesh so as to keep the price cheap at a few US cents per cup, but
its $1 million investment remains returnable and it has learnt a lot about sales of a new product in poor countries.
THE FUTURE
Will such Social Businesses spread as far as Yunus hopes? I doubt this. Great leaps like Microsoft’s
invention of good software are often made by small but initially hugely profit making small businesses. But it is easy to
see a Grameen-Microsoft social business providing software suitable for poor countries where even adults are often illiterate.
My view is that the Grameen experiment may prove to be most important for what might be called its macroeconomic impact. When
more formal banking for the rich is intermittently in crisis, this may be happening now. In this 2008, conventional bankers
to the rich have trotted in panic behind the American giants who grossly mislent on subprime mortgages, and then sold these
loans on in "securitised", and exploding and even "derivitavised" packages to weaker funds and banks who
have frantically tried to disguise from their shareholders and from themselves how unmarketable and worthless some of these
assets are. If all bank statements in early 2008 had been utterly and appallingly honest, runs by depositors out of them could
already have accelerated out of control. Such banking crises are likely to recur before and after next January when a new
American president takes office. To judge from the protectionist economic nonsense at least two of the three candidates have
talked in the primaries, a tyro president would be quite liable to bumble such a crisis into an even a 1929-1933 type of world
slump. Britons should remember that our prime minister in 1929 was our last previous dire right wing Labour Scot, and that
he had to coalesce in 1931 with a Baldwin who was as deaf as today’s Cameron to why it is better to widen budget deficits
in a slump.
A lesson in how to run village businesses and not to handle bank crises comes also
from Japan. When I wrote my first book on Japan’s economy nearly 50 years ago,
Japan had about two dozen lightly taxed exporting multinationals who bought their components marvellously
cheaply. The car factories bought their ball bearings from tiny village firms, and the banks attached to Toyota etc kept on
lending even when some peasant’s first bearings did not past muster but gradually propelled him to work with or under
a brighter neighbouring peasant whose products did. That seemed inefficient to American experts and in the early 1960’s
I had a translated debate on Tokyo television with an American who said that such slack banking would ruin the country.
I rejoiced as Japan then quintupled its living standards in the next twenty years and its banks became
temporarily the most powerful and prosperous in the world. The crash came when in the late 1980s American business schools
convinced Japanese factories that components must be bought just-in-time. The big banks turned to financing suppliers who
could do this (which were not those striving to be cheapest). Banks lent mainly to new firms who could provide collateral
which meant to richer ones. Once they were lending mainly to the rich they blew up such a bubble that the nearest golf course
to Tokyo was said to have a greater land value than the whole state of California.
When this bubble burst, all the banks had bad debts, which the government helped them to hide so Japanese living standards
stop rising fast since circa 1989. This is the threat to the whole rich world today.
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inquiries chris macrae info @worldcitizen.tv us tel 301 881 1655 ; us office 5801 nicholson lane suite 404, North Bethesda,
MD 20852 USA - uk 80 queens road, suite 30, wimbledon, london sw19 8lb Mapping is a process of discovery. It explores how to make the invisible principles and practices of
real wealth creation visible, and therefore useable. Our planet needs case studies underline the search for new win-wins that
build ‘system integrity’ Trust-flow is the unseen wealth to invest sustainability in. Tranpsaremtly
mapped it develops a goodwill gravity tyhat invites with roleplayer in a community to multiply goodwill while sustaining
their own cashflow.. Trust is not some vague, mushy, abstract warm-hearted sentiment. It is an economic powerhouse –
probably just as economically and socially important as oil. The point is, there are specific things you need to do
to get trust flowing, just as there are specific things you need to do to get oil flowing. And like oil trust has a dark side.
Right now, the world is awash with the carbon emissions which threaten the stability and sustainability of its ecosystems.
Right now, the world is also awash with the ‘carbon emission’ of trust – mistrust. Indeed it may well be
that our ability to tackle the one issue – the threat of environmental catastrophe – depends on our ability to
tackle the other issue: how to generate, deepen, extend and sustain trust.>br>But what is the best way of doing this?
One thing is for sure. You don’t build and sustain trust via some sentimental exercise of goodwill to all and sundry.
There are three very simple principles at the heart of effective trust generation. First, trust is generated via
win-win relationships. It’s virtually impossible to generate or sustain trust without mutual benefit for those involved.
But beneficial outcomes are not enough in themselves. For trust to be built and sustained, both sides need to signal a demonstrable
commitment to finding win-win ways forward. Such a commitment may require real changes to what we say and
do. Second, real ‘win-wins’ are hardly ever purely financial or material. You don’t build trust simply by
walking away with more cash in your pocket. Trust works at all the dimensions and levels of human exchange. Yes, it’s
about financial and material rewards. But it’s also about purpose (what people want to achieve). It’s about politics
with a small ‘p’: the use and abuse of power, the crafting and application of rules of fair play. And it’s
about emotions: the sometimes overwhelmingly strong emotions, both positive and negative, that are generated when people deal
with other peopleWhat’s constitutes a ‘win’ – a sense of real improvement – is therefore highly
specific. It depends absolutely on the details of who the parties are, what they are trying to achieve, in what context. Building
trus, therefore involves discovering these specifics. Just as oil doesn’t flow out of the ground, get refined and pump
its way into motor vehicles automatically and without effort, so identifying and doing what is necessary to get trust flowing
requires dedicated, skilled effort. It requires a disciplined, structured process, not a vague sentiment.
3) Third,
even if we do steps 1) and 2) there’s still a good chance it won’t succeed. Why? Because it ignores an invisible
third factor. In the real world, purely two way bilateral relationships don’t exist. There is always a third party whose
interests or outcomes are affected by what the other two parties do but who is not a party to the contract. The environment
is a case in point. Producers and consumers may both benefit from buying and selling to each other – but what happens
if, in doing so, they destroy the environment they both depend on?
This raises a hugely important question. When
two parties pursue win-wins and build mutual trust, are they doing so in a way which creates a win and builds trust for the
third party at the same time? Or are they simply pushing the problems – and the mistrust – further down the line
on to this third party? Building vigorous, healthy networks of trust is a different kettle of fish to ‘you
scratch my back and I’ll scratch yours’ win-win conspiracies. It requires a Map of all the key relationships plus
careful consideration of knock-on consequences. It requires a different perspective.
These three simple, basic
steps do not happen automatically. They need to be worked at. The territory needs to be deliberately Mapped and explored.
What’s more, there are obstacles in our way – mental and practical obstacles that need to be cleared. Prevailing
economic theories about ‘rational economic man’ for example, deny the need to commit to win-win outcomes. Instead,
they promote supposedly ‘rational’ (i.e. narrowly selfish behaviours) which actively undermine trust The same
theories insist that the only valid measure of human benefit is money, thereby excluding from consideration many of the biggest
opportunities for improvement. Meanwhile many vested interests do not want to extend the circle of trust to third parties
and complete networks because their positions of power depend on their ability to take advantage of the weaknesses of these
third parties. That’s another job for Mapping: helping to identify and mount such obstacles. The potential benefits
of doing so are unthinkably huge. They start with a simple negative: the relief that comes from when you stop banging your
head against a brick wall. Mistrust breeds wasteful, wealth destroying conflict that tends to feed on itself. Anger and hatred
engender anger and hatred. Simply easing or stopping the terrible waste of mistrust would transform prospects for many millions
of people. We desperately need to find ways of doing this. Then there are the positive benefits. Understanding the real nature
of human wealth – all those dimensions of purpose, ‘politics’ and emotion as well as money and material
comfort – means we can start being human again; human in the way we think, and act. What’s more, many of these
intangible benefits won’t cost a penny. They’re there for the taking, if only we puts our minds to it. But
there’s more, because trust is also an economic superpower in its own right. In the pages that follow we will show conclusively
that material and financial riches are also dependent on trust. In fact, we will argue the case for going one step further.
We will say that material and financial riches are a by-product of trust: the visible fruits of invisible, intangible human
exchange. Once you understand that sustainable cash flows are a by-product of sustainable trust flows, your understanding
of what makes a successful business is transformed. Separately, each of these three fruits – reducing the waste
of conflict, unleashing the potential intrinsic benefits of human exchange, and energising the sustainable creation of material
wealth – are massive in their own right. Put them together and they represent a vast new continent of opportunity. As we said, this book is addressed to entrepreneurs and system innovation revolutionaries. Wherever you happen to
be, whatever the change you want to make is, the principles explored in this book apply. The wish to change and the will to
change are not the same as being able to change successfully. For that you need to understand your territory. You will need new
Maps.
