PROFILE - Opening the Gates of Capitalism:

Muhammad Yunus Photo by Gabriel Cooney

“Suddenly I felt the emptiness of those theories in the face of crushing hunger and poverty. I wanted to do something immediate to help the people around me get through another day with a little more hope.”

Economist Muhammad Yunus, 2006 Nobel Prizewinner
Creating a World without Poverty: Social Business and the Future of Capitalism

Nobel Laureate, Muhammad Yunus, arrives at the Swissotel in Quito, Ecuador, to a waiting throng of children, business people, aid workers, interpreters, journalists and photographers. Dressed in the traditional blue and white kurtah of his native Bangladesh, he smiles easily as children gather around him and camera shutters begin to click.

He is embarking on a five-day, three-city speaking tour through Ecuador, one of the smallest and most densely populated countries in South America where more than thirty percent of the population - 4 to 5 million people - live below the poverty line. Over the next few days, he will share his mission to rid the world of poverty by changing the structure of capitalism.

His method, microfinance - for which he was awarded the Nobel Peace Prize in 2006 - helps the world's poorest people escape poverty by giving them collateral-free loans and community-based services. As each loan is repaid, the money is redistributed in the form of more loans, multiplying its impact. The bank he founded, Grameen (Village) Bank now has more then seven and a half million borrowers - 97% of whom are women - and an almost flawless repayment rate.

For those of us traveling with him, the reality of the high altitude (nearly 2,800 meters or 9,186 feet above sea level), paparazzi, tight schedules, long days and nights can be exhausting, but Yunus never loses his equanimity nor strays from his message: Capitalism as it is currently practiced will never rid the world of poverty.

In his new book, Creating a World Without Poverty, Yunus says, “Capitalism takes a narrow view of human nature, assuming that people are one-dimensional beings concerned only with the pursuit of maximum profit…I think things are going wrong not because of ‘market failures.’ The problem is much deeper than that. Mainstream free-market theory suffers from a ‘conceptualization failure,’ a failure to capture the essence of what it is to be human…We need to recognize the real human being and his or her multifaceted desires. In order to do that, we need a new type of business that pursues goals other than making personal profit – a business that is totally dedicated to solving social and environmental problems.”

Whether one agrees with Yunus’s message or not, the story of how he founded Grameen bank is compelling and Grameen’s unprecedented accomplishments are now a matter of record. His reason for traveling to Ecuador, where he will meet the founders of a sister program, Red Grameen, underscores another fact: the concept of microfinance, begun in Bangladesh, one of the world’s poorest nations, can be successfully translated to other countries.

AN ECONOMICS PROFESSOR MAKES A FORTUITOUS LOAN

Photo by Gabriel Cooney

Born in Chitagong Province, Bangladesh, in 1940, before the partition of India and Pakistan, Yunus saw his homeland become East Pakistan in 1947. In 1965, after earning an M.A. in Economics, he was offered a Fulbright Fellowship to study in the United States where he went on to earn a Ph.D. in Economics from Vanderbilt University.

In 1971, following what became known as the War of Liberation, East Pakistan gained independence and became Bangladesh. The following year, Yunus, who had been part of Bangladesh’s independence movement in the United States, returned to Bangladesh to take a teaching position at Chitagong University.

“I come from a country that started as probably the poorest in the world,” he says. “Poverty everywhere. You didn't see a symbol of prosperity any place. That’s where Bangladesh began. During the Nixon era, Henry Kissinger called Bangladesh a ‘basket case,’ meaning it could not survive. It would disappear. So you can imagine what it was like to be living in that country and going through every day. Despite all the problems around us, we never gave up hope.”

From 1974-75, after a series of natural disasters and the loss of infrastructure following the War of Liberation, Bangladesh suffered a devastating famine. Hundreds of thousands of Bangladeshis died.

“This was not the Bangladesh which I had hoped to play a role in building,” Yunus says. “I couldn’t ignore the fact that just outside the gates of my prestigious university, people were living in mud homes with leaky roofs without money or resources to feed their children. Usually a university teacher doesn’t mix with the people next door, but my students and I broke the norm. We decided to go and talk to the people who lived in the village outside our gates, and see if there was anything we could do.”

In 1976, Yunus made his first official loan in the village of Jobra near the university. The turning point came when he realized that with $27 of his own money, he could pay the debts of 42 villagers, freeing them from the control of local loan sharks who kept them in perpetual debt.

"I was shocked by what I found," he says. "An economics professor talks in millions. All these people needed were a few pennies to be free. I thought, if $27 can make so many people happy, shouldn't I be making more loans?"

He decided to visit the local bank to persuade them to start giving loans to the poor.

“Everybody told me it cannot be done,” he says. “Banks do not give money to the poor. They told us we were breaking the rules by giving poor people money. And still, we didn’t hesitate. We weren’t exactly sure what we were doing, but we wanted to do something that worked. We broke the fundamental principle of banking which is: the more money you make, the more money you get. We reversed that process. We said, ‘The less you have, the more you get. If you have nothing, you get the highest priority.' And we meant it. Not only did we go to the poorest. We went to the poorestwomen who never had anything in their lives. Women were literally nowhere in the banking system.

“We said, 'We don’t need collateral. No guarantees. No lawyers.' I’m not against lawyers, only we don’t need lawyers to be involved in our day-to-day work. Imagine doing banking without collateral, without any legal tying up. Our bank is based on trust. People said, ‘Trust is something which never existed anyway. You can’t even trust your own brother.'

“I said, 'We’ll try. We’ll build the bank.'”

Yunus founded Grameen (Village) Bank in 1983, practicing what he preached. Grameen Bank doesn’t require collateral against microloans and doesn’t require borrowers to sign legal documents.

“Our twenty-seven thousand employees meet face-to-face every week with every borrowers,” he says. “This means we have a personal relationship with our borrowers and their business. Many of the people who receive our loans don’t know how to read or write so what good is a piece of paper?” He smiles. “What we did thirty-one years ago looks like something unusual, something big. We had no idea what it would lead to.”

RED GRAMEEN, ECUADOR – 
THE SUBJECT IS ROSES

Muhammad Yunus Photo by Gabriel Cooney

In a conference room at Quito’s Swissotel, we join Yunus and representatives of FUDECE, Ecuador - a cooperative of microlenders modeled on Grameen Bank.

According to Celia Varea, Executive Director of FUDECE - a network of six NGOs working with microfinance programs in Ecuador - only 15 percent of families who own businesses in Ecuador have access to credit. Half of those without access say they don’t need it, but the rest are too poor to qualify for it, providing a great opportunity for microlending.

One FUDECE member, Red Grameen, can chart its progress through one of Ecuador’s largest exports, roses. Most roses exported from Ecuador come from greenhouses on tracts of land situated in the Andean highlands surrounding Quito. Pesticide use is heavy and workers who handle pesticides face serious health risks.

Yet, the world market depends on a steady supply of perfect, long-stemmed roses at very low prices. What's a small country to do? Pay substandard wages. Allow pesticide runoff to flow into the numerous streams that course through the gorges of mountain passes. Look the other way when workers develop rashes or get cancer. The bottom line: all of this ultimately causes illness, destroys resources, and costs that country’s taxpayers.

One of Red Grameen's programs uses microloans to help poor clients, who are mostly women, obtain financing to grow pesticide-free roses. Currently 8,500 women grow pesticide-free flowers, but Varea explains that while the Ecuadorian government has money available to expand the program; much of it is tied up in bureaucracy and access to it still follows the rules of commercial banks.

Yunus listens carefully. He emphasizes that because commercial banks run on a for-profit, shareholder-based, bottom-line model, red tape and politics often get in the way of microlending where loans of less than 100 dollars cost the banks more money than the loans themselves.

Speaking in English and then through an interpreter, Varea addresses the issue of charging high rates of interest in order to create and maintain a self-sustaining cash flow.

Cecilia Varea Photo by Gabriel Cooney

Yunus smiles, “First, I didn’t realize that the Grameen idea and name has made such a success in such far-far away places such as Ecuador,” he says. “How much tenacity you must have needed to do that. One has to be really stubborn to try to replicate a program when you don’t have the same circumstances as Bangladesh… If I had not come here today, I would not have known what you’ve done.”

And then, he becomes the practical economist, emphasizing the universal principles of microlending.

“For successful microfinancing you must calculate your cost of doing business,” he says, explaining that microcredit interest rates are set with the goal of providing long-term, self-sustaining financial services to each community. “Interest rates must be set to cover administrative costs, plus the cost of capital, including inflation; loan losses, and a provision for increasing equity. This is important, because if lenders fail to cover costs, they will only reach a limited number of clients and tend to be driven by donor or government goals. They will lose their autonomy.

“So I define a reasonable interest rate this way: Cost of the loan fund at market price, plus 10 percent. If you can keep the interest rate within that limit, you are in the green zone. If you go above that to 15 percent, you are in a yellow zone. And 15 percent and above puts you in the red zone. You are now a loan shark.”

He goes on to explain that microcredit is really a new form of business: Social Business. “The entire objective is to help people get out of poverty, not to make money,” he says. “All our attempts should be to make sure that interest rates are as low as they can be. The question should always be: If I’ve earned an extra penny, should I take it or leave it with the woman who borrowed it from me? If I can leave the penny with her, I am happy.

“Only sustainable organizations can provide permanent access to those who need loans. Although microcredit interest rates are often higher than commercial loan rates, they also take into account the fact that the cost of making small loans is equally high. Poorly managed loan programs will not only drive interest rates higher, they will ultimately fail.”

And he makes clear that microlending must cater to the needs of individual countries and communities. “Ecuador’s needs are different from those in Bangladesh and those in Bangladesh are different than the United States, and so on,” he says. “Tomorrow, I will meet with government officials. We’ll have an opportunity to raise some the issues that you feel need to be resolved. My visit can be used as an occasion to bring your concerns to the highest level.”

A MESSAGE FOR THE PRESIDENT OF ECUADOR

Raphael Correa Photo by Gabriel Cooney

The next morning in Quito’s opulent Colonial era Presidential Palace, with portraits of his predecessors surrounding him, President Rafael Correa presents Yunus with Ecuador's highest honor, the Ecuadorian Peace Prize.

Yunus asks the President and his cabinet to consider ways in which the government can help FUDECE remain self-sustainable, including the release of funds already earmarked for microlending programs.

Impressed by what Yunus asks on behalf of Varea and her staff, Correa agrees to address her concerns. In reality, nothing is that simple, but Yunus isn’t looking for overnight results, he is looking to achieve something larger, a shift in consciousness about wealth and how it’s distributed.

Muhammad Yunus Photo by Gabriel Cooney

Correa clearly wishes to share a taste of his country’s wealth by honoring Yunus. He invites him to the palace balcony to watch a pageant below in the Plaza Grande. A crowd fills the plaza: merchants in traditional Andean dress, couples in T-shirts and jeans, a child sitting on the curb in a frilly white dress. A marching band enters the plaza followed by an honor guard on horseback. The band stops and the crowd grows quiet. When the band begins the national anthem "Salve mi patria, mil veces, " the dignitaries above, and crowd below, join voices, cheering when the flag is raised above the palace.

In that moment, one glimpses the genius of Yunus, shrewdness coupled with a generosity of spirit that traverses culture and class.

Photo by Gabriel Cooney

FROM THE PALACE
TO THE PEOPLE

In the evening, Yunus speaks before a large crowd at the 10,000-capacity Ruminahui Coliseum in Quito’s city center. He begins his speech, addressing the highest rows of concrete bleachers where people sit in near-darkness.

“I come from the other side of the world,” he says. “And it looks like the moon. But the world is getting smaller. You are lucky to live so high above sea level in these beautiful Andes Mountains because in Bangladesh we do not. In 1970, when we had a devastating monsoon, 500,000 people were washed away. In 1991, 148,000 were washed away. But it is not just the death toll we worry about. It is the loss of property, of livelihood. People live in these areas because they can’t afford to live anywhere else. The rich do not live in areas affected by floods.

“I tell people that poverty is not created by poor people. It’s not endemic. Sooner or later you come away with the idea, ‘the poor person is lazy, unruly, doesn’t have initiative.’ The rich don’t want to pursue poverty in a serious way. We try to blame the poor who are using all their energy just for survival…Poverty is created by the system and we’re so used to the system that we can’t see the imperfections anymore…My first priority is to give loans to women. She has not chosen poverty and still she must care for the children, the household. If she feels secure and happy, she will make others happy, too. And she is the first one to repay her loan.”

Very early in the morning, we are rushed by motorcade to the Quito Airport, given tickets, and led into the executive lounge for coffee and pastries before the short flight to Guayaquil. As soon as we arrive, Yunus is scheduled to speak on the city's Malecon followed by a luncheon at Ecuador's oldest private men's club - Club de la Union - two more speaking events, and then to the hotel for a banquet.

We fill our plates with croissants; pour milk into coffee. Yunus pauses between conversations to stifle an almost imperceptible yawn.

A voice comes over the loudspeaker and announces our flight. We sip the last of our coffee and wipe jam from our lips. Sunlight bathes the runway as we are escorted to the plane.

Yunus boards first. By the time we pass him on the way to our seats, he has settled in the front row by the window – hands folded, eyes closed – in radiant repose.

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