As people across the world, especially the poor, gather themselves and restore their dislocated lives, a lot needs to change and adjust to the new realities. Financial Express Online reached out to Muhammad Yunus, the Nobel laureate from Bangladesh and the founder of the Grameen model of microcredit on how he sees the change coming. Professor Yunus, as he is often referred to by those who know him or engage with him, talks of the way he is seeing change happening and the course ahead in micro-lending, a space that he pioneered and inspired many in India and around the world. He also talks of social businesses, the not-for-profit operations focused on social impact that has been engaging his attention for quite some time now. He talks of virtual meetings replacing physical interactions, albeit there are challenges that need to be overcome where connectivity is a challenge. He also sees room for CSR (corporate social responsibility) fund flow into social business and also moots a social business microcredit bank. Excerpts from the interview:
One of the important pillars of the micro-credit movement has been the meeting of borrowers in groups and their interactions with the field staff from the microfinance institutions. A lot hinged on these face-to-face interactions. How do you see this pan out in times of social exclusion and if physical meetings are a challenge, how will the social collateral be established in the new environment?
Pandemic is a new phenomenon causing massive dislocation in poor people’s lives. But this is not the only disaster that microcredit borrowers had to face so far. Bangladesh is known as a country of disasters. Situation gets worse because of global warming. Every year some parts of the country go underwater because of local flood. Then there is national disasters of flood at regular intervals. Sometimes flood water goes over the rooftop of the houses. In one flood, boats and steamers became modes of transportation in Dhaka city. Cyclones, tidal waves are regular visitors in the southern part of the country. These are more serious than a pandemic. Nothing escapes from these disasters — houses, animals, material possessions, lives and so on.
Microcredit has learned to survive financially and organisationally through these regular disasters. If it could not deal with these, microcredit would have been wiped off long back. Just go through the history of disasters and microcredit in Bangladesh then you’ll see the detailed institutional safety mechanisms built into these programmes.
The microlending model also works on frequent meetings – weekly or monthly – collecting and exchanging cash and also attending group training. Central to these were the built-in economies of scale as collections by microfinance institutions were made at one location. How will this model change and affect the economics? For instance, will it become more expensive as representatives from the microfinance institutions will have to visit each member instead of holding group meetings?
These are matters of experimentation. Many people will try many different ways to improve the early versions of microcredit. Nobody expects microcredit to remain unchanged over time.
Grameen America has done something nobody thought they would ever do such a thing. To cope with the pandemic they introduced virtual centre meetings with digital payments. All their 3,000 centres hold their centre meetings virtually. All branches are cashless branches. Nobody has to arrive at any place to do business with Grameen America. Borrowers attend their virtual centre meetings from wherever they are, from kitchens, from markets, from cars, from street corners. Grameen America staff doesn’t have to travel to any place. Head office executives can drop into any centre meeting any time they want. Repayment has gone back to over 99% as before. Grameen America has 24 branches in 14 major cities, lends out over half a billion dollars a year. Lending and repayment went down drastically in the first six months when 52 of their borrowers died of Covid-19. Then it came back to the pre-pandemic level. (Google Grameen America for more information).
Grameen America opened a new branch during the pandemic time, in Chicago, the first-ever branch in the city. Because of the pandemic, they decided to take a bold step. They decided to create it entirely as a virtual branch. They even had a virtual opening ceremony. Staff never met physically any of the interested persons who want to form a group. All negotiations, training, and centre and group meetings take place virtually. The branch is confident to do as good as the branches which were created physically. Technically you can run your virtual branch from anywhere in the world, no branch staff has to be in Chicago. Grameen America is now considering to abolish physical offices for all branches. Physical office doesn’t make any sense any more.
If post the current pandemic we do not return to the old way of engagement then historically the credit losses of less than 1 per cent that most microlending institutions used to enjoy and feel proud about may get disturbed because without frequent meetings and peer group pressure will it become like any other unsecured lending business, which comes with its 5 to 6 per cent credit losses? How will this change the pre-eminent position that microcredit model had in terms of asset quality?
Microcredit programmes must learn to survive under all disaster situations. Giving up is not an option. One has to be innovative. Complaining about one thing or other for failure will not get microcredit anywhere.
Social business with no profit-making has been engaging your attention for a long time. Now, in such kinds of social enterprise ventures, which type of investors other than the government can be tapped for a pool of capital?
Creation of a whole new social business financial system is the answer. We should create social business microcredit banks, social business venture capital funds, investment funds, insurance funds and so on.
But who is going to invest in these companies if investors are not receiving any dividends?
People who want to create foundations and trusts, they may see this as an option. They may create a social business venture capital fund to transform unemployed youth into entrepreneurs or create a social business microcredit bank to lend money to poor women, and so on. They don’t do it now because this option was not available to them.
The plain and simple answer is, social business will exist and expand because people want them. If people don’t want them, social business doesn’t have a future. Social business is an option, if people choose it, it will have a future.
I promote the idea because I think people want it, but they don’t have the opportunity to do it, because our institutional framework never presented it to them. If we keep on offering it, it will grow. I am confident about its existence in people’s mind and heart.
Charity money accounts for trillions of dollars in the world. If a fraction of the charity money could be directed to social business as investment or loan, social businesses will be flooded with money.
Yes, governments can invest in social businesses if they think it is a better use of their money. Governments can outsource many of their activities to social businesses. Governments will choose the social business option for the same reason as people will choose social business options. When they’ll look for solutions, not profit, they’ll go for social business.
It is not uncommon to see profit-making businesses creating their own foundations. They set aside CSR money to donate. Now they’ll have another option— they can create their social businesses instead of or in addition to, creating foundations, and invest their CSR money in social businesses.
Social businesses can mobilize loans from the market at usual terms and conditions. Just because I am a social business it doesn’t mean I cannot borrow from the market. I am a social business, but it doesn’t mean I cannot do business with a profit-making business. I can buy service from them, buy their products, sell my products to them, and do all kinds of business with them. Only thing is, I make sure my business remains dedicated to solving a defined problem, and I, the owner, do not take any profit from my business.