2 TALES OF 2 BANKING SYSTEMS – WHITHER SUSTAINABILITY INVESTMENT?

 If you look at Grameen bank for example – if you raise the question how did you decide on the procedures that you gave created in Grameen bank, how did you design these things, where did it come from whatever you have done- my answer would be a simple one – it is not exactly what it is but it describes what it is-  in a lighter vain I can say whenever we need a little procedure in  a specific case of in doing our work in Grameen bank in the early years we just looked at the conventional banks, what  do they do in such a situation, and once we figured out what they do, we just do the opposite. So if you take piece by piece almost you will see the reflection of it. Everything we do - almost the opposite of what the conventional banks do. So sometimes people think that microcredit means giving tiny loans, which is true but they don’t see how the whole system works – then the real microcredit will come out. The basic principle of banking is : the more you have the more you can get. That’s the basic principle. You have to have a lot to get lot. The corrolary of it:  if you have less, you get nothing

And we reversed that basic principle. Our principle sis: the less you have the higher attention you get from us. If you have absolutely nothing then you get the highest priority. So we started from that basic premise and built the system on that.

Conventional banks look at your position/ your wealth and against that they give you new money to accumulate more. We dismissed that on day one: we said that if you want to do business with the poorest people to ask for any position – and design system on base of that – is useless and ridiculous. So we don’t have any collateral in Grameen bank or microcredit programs – so no collateral , no guarantee, no lawyers, we don’t have any lawyers. And these are the basic features of the conventional bank. You cannot go to a conventional bank and do business with them without lawyers looking over everything you do. So we said it would be useless to have all those things – and we designed something that does not depend on that. So basically it is a trust-based banking, and funnily enough it works. And its particularly amazing at this moment when you see the subprime crisis where you have the collateral, the  lawyers, everything but it didnt work – you are now ready to write off some 400 billion dollars.

3 FAMILY IS CULTURAL CORE OF HEALTHY SOCIETY COMPOUNDS STRONG ECONOMY NOT VICE VERSA

And microcredit is going on with us for 31 years, and many more orgs for lesser time, but is a globally operating system. One common thing you hear about MC is a very high repayment rate 98-100% despite the fact that you are doing business with the poorest people. And conventional banks want you to have lots of experience in the business for which you are borrowing money.  You are supposed to be an expert in your business. We go to women to tell her what Grameen bank will do , encourage her to take a loan and get into some income generating activity; and her answer is always please dont give me money I dint know anything; she will repeatedly mention I dont touch money, I never touched money in my life- give it to my husband. But we dont walk away. In the beginning my students, who were working with me were frustrated – why dont you forget about women? – they say they dont know anything , how can you give something to people to do to use money when they say they dont know  anything about what to with the money. So repeatedly i needed to talk to them... that when the women say they no I dont know what to do , dont take it as their answer this is not their voice; this is the voice of the history- the history that generated fear after fear in them and made them believe that they are nobody; they have no capacity to do anything except to take care for the children and the family. So that’s how when you come with the money , they kind of get scared, something terrible will happen to them, so our job is to peel off that fear, layer by layer, so that one day we can build enough courage in them that one or two will say: well let me try. So that’s the day we will be waiting for- so dont give up. We had to work for 6 years to bring the level to 50-50 –because this was our initial decision that half of our borrowers must be women. Because I was complaining against the conventional banks – not only are they wring by rejecting the poor people from their system, they are also wring and unjust to reject women for their system – all kinds of women any levels of income., I pointed out that not even 1% of their borrowers were women. This was mid 1970s when I was complaining. Today in 2008, you can almost repeat same compliant in Bangladesh. The situation has not changed. So when I began I wanted to make sure half the borrowers in my system are women.  So that’s why we try to encourage women for 6 years. Once we achieved that we saw that the money that went through to the family by women brought so much more benefits than the money that went to the family through men. So we started asking the question what is so good about 50:50? Why stick to 50:50, why mot open up and concentrate on women if it is so good with them. So we did –and we started focusing women as a result we moved from 50 to 60 to 70 to 90% .

Today we have 7.5 million borrowers in Bangladesh – 97% women. And they own the bank- this bank is owned by the borrowers themselves.

We encourage the children of Grameen families to go to school. So we came up with a system where we finally succeeded in nearly 100% of children being n school. Then we started giving scholarships because some of these children not only went to school but they were at the top of the class- This is a kind of a thrilling experience to see  - not only for first time in the whole history of their family did someone go to school, but he or she is top of the class.  Every year we have a little ceremony in the village honoring the new recipients of scholarships and recognising their parents and invite all the important people of the village so the family and the child feels tall that they have achieved something. Last year we have given 51000 children scholarships for their performances in the schools.

4 FREE MARKETS FREE WOMEN  (or whomever history has discriminated against whereas conditional aid spins white man’s burden)

Then we saw these students gradually moved into higher education -; so we introduced education loans, we have 21000 students on education loans going to medical schools, engineering schools, universities, some of them completed phds some scholarships in international institutions – and now we are offered scholarships from Harvard, York College n NY, MIT is considering offering scholarships to children coming from Grameen families. So this is an amazing kind of thing that you notice. When I go to the villages meeting these women who have been working so hard to make a difference in their life, it is an amazing experience being with them.  And now I see a new phenomenon coming, added to that, when I visiting the daughter from the city comes in having just finished her degree in medicine. She is a doctor practising now- so I see the mother and the daughter standing side by side , one is an illiterate person who joined Grameen bank 15 years ago, took tiny loans started her life, sent her daughter school , now she’s a doctor- so you can not escape the though entering your mind looking at these 2 ladies standing next to each other that her mother could have been a doctor too. But society never gave the chance to her mother – all we have done through Grameen bank allowed her to improve her income and the capacity to send her daughter to school and ... to become a doctor. Our mother must have the same elements in her- there is no reason why she should have less than what her daughter has. ...

5 POVERTY IS A SYNONYM FOR FAILED SYSTEM

The conclusion you come to is that poverty is not in the person, it is created by the system. So if you want to address the issue of poverty, it is not rushing to her but rushing to us – what did we do wrong, where did we go wrong, fix it up – if we can pick up the seeds of poverty that we have put inside all the institutions , policies, concepts we have built, nobody in the world will be a poor person., There is nothing wrong in the human way. We messed it up and them blamed them – ah these are lazy people or whatever!

Sometimes I describe poverty by comparing with the bonsai tree- the little tree that you grow in a flower pot. If you take the best seed of the tallest tree in the forest, and put in a flower pot, it doesnt grow at all , it grows this big. And you wonder what happened to this tree, why doesnt it grow,. There’s nothing wrong with the seed, we picked the best seed. Thing that went wring was the base we allowed that seed: the flower pot; so it couldnt get the nourishment to grow as tall as the tree we saw in the forest.  And I try to explain that the poor people is bonsai people, there is nothing wrong with their seed, only society never allowed them the space to grow. So its not their fault. The fault is not in the seed but the base we provided to the seed. So if we change the base they will be as tall as anyone else. So that’s the challenge : how to change the base so people can grow

6 POVERTY CAN ALSO BE A PLACE WITH MOST TO GAIN FROM LIFE-CRITICAL INFORMATION BEING OPENLY NETWORKED

In Grameen bank. We encourage the children to go into education, to create a completely new second generation because getting out of poverty is just simply crossing the line. In a country like Bangladesh, crossing the line doesnt ensure you remain out f poverty. Because we are a country with all kinds of disaster happening all the time. Flood is a very common phenomenon – last year we had 2 major floods and then on top of it we had a big cyclone at 250 km per hour speed  ; it blew away peoples possessions, then a tidal surge came and washed away - killed people,  eliminated their livelihoods and so on. So that’s the environment where we live. So we thought if we can concentrate on the second generation - to grow into a different kind of persons - so that they will be far far away from the poverty line, so that even if a disaater comes they will not be pushed back into poverty- so that’s our effort to make sure we can do that

7 GRASSROOTS SYSTEMS LIKE GRAMEEN ARE HI-TRUST SERVICE FRANCHISES

Several features that I will quickly mention illustrated by what we practice at Grameen bank. We have 2500 branches all over the country –each branch is graded by a 5* evaluation system,  like hotels. Our branches are always looking at number of stars shows level of accomplishment they have reached. Green star means 100% repayment record for the whole year. Blue star means they have enough surplus of deposits over loans they give.  Each branch has to find its own money , monyt does not come from anywhere else not from head office, not from neighboring branch. When we open a new branch, literally we literally give an address to the branch manager. Here is the place you are supposed to open a branch, go and open the branch. We dont give you any money. He goes to the address, finds it where its suppose to be, his job and colleague who accompany him to start the branch is to mobilise deposits as a bank. He still doesn’t have an office yet, but he starts mobilising deposits. As he starts mobilising deposits his task is to organise poor women in village so he can start lending them money because hen the income starts coming in. So he must rely 100% on the deposits of his branch to lend out money and then create a cushion, a surplus so thgat in emergency situation still he doesnt have to borrow any money. So if branch gets such a surplus it gets another star.  Our basic principle is when you open a new branch, not only you run branch with money you mobilise in locality  you must get to a break even point within 12 months. And they do that within 12 months they come to a break point – and get another star the brown one. The fourth star comes when all the children of Grameen  borrowers are in school.  Not a single child is missed. Then you get a violet star. On average a branch has 4500 borrowers (with 10000 children) so this is quite a tough task, They work very hard to see why anyone is left out, why someone has dropped out and how to get them back in school, its a continuous cycle but when you have ensured that you get the star.  And when you have all these 4500 families out of poverty, not a single family in poverty, you get another star. S when a branch has 5* this is quite a significance achievement for anybody. I tell my colleagues if I ran the country, I would give 5* a state honor because after all helping people get out of poverty is what the state is trying to do but you have done that with no cost to taxpayers, you have done it on your own, the money came for the locality, donors didnt help you out, its all yours. So having a 5* branch – you have solved the problems that you set for yourself

If you ever visit a Grameen branch, first questions to ask are how many stars have you got and what colors. Then you know what they have done – if they say they have 3 stars then most likely they will say we will get our fourth start by April this year because everyone is planning when their next star is . When I meet 100 village staff, the traditional pattern is the 5 stars sit at the front, 4* in the next row back and so on. And those in the front sit with pride- we dont give any financial benefit to 5*. I have always said that financial benefit will take away their pride –its not something you convert in money, you stand tall you have done the work, this is your pride you have contributed to your society. And when I meet someone with no stars, I always hear somebody saying dont worry the next time you come next I will be at the front. He knows he has to earn a lot of stars, he’s assuring he’s working on it. That kinds of energises the whole system that you are doing something you take pride in – important thing that you do

8 ENTREPRENEUR IS THE CREATIVE TALENT UNIQUELY PACKAGED INSIDE US AT BIRTH

And in connection with that I will mention something else relating to pride. One of the criticisms often made of microcredit is : one has to be really entrepreneurial person to benefit from microcredit- so only the entrepreneurial poor benefit form microcredit. Whenever I hear that it really burns me up, because I firmly believe all human beings are entrepreneurs. No exception This is a package in which all human beings were born. It is not something that can be taken away still you call a human being. That’s how we came to this planet, survived on this planet, and that’s what we are. Some may have discovered it, others may not have discovered  it - the talent inside them – because society never allowed them to discover it – so the wonderful gift of creativity , entrepreneurship and energy and innovativeness that each human being is born with – not every person is lucky enough to unwrap that gift – you got the gift, but nobody introduced you to that gift and ever allowed you to unwrap and have a peep at what you have got, you dont even know you die without ever knowing what you could have been, That is not her fault, not his fault, its the fault of the society that never allowed that opportunity.

9 FEMALE BEGGARS- DEVELOPING WORLD’S NUMBER 1 ENTREPRENEURIAL OPPORTUNITY FOR SOCIAL ACTION

 So after repeatedly debating this, about 4 years ago we said let’s demonstrate this. Let’s create a separate program where we exclusively lend money to beggars. My argument is you cannot be poorer than beggars and if they can show entrepreneurship, then you have made a point.  So we started doing that – go to the beggars sit down with them spend hours talking – our first question: at what point in life did she become a beggar.? Its an important point : society has pushed and pushed and finally brought her to the tipping point –and she couldn’t take it any more and stretched out her hand:  please help me I cannot survive anymore, help me to survive and feed my children. By understanding this process you understand the whole society, how ruthless it is to push a person to that level. After we go through this process, we said well : we can do something if you want to. As you go from house to house begging, would you like to carry some merchandise with you – some candy, some cookies, toys for the kids whatever people would like –if you’d like to do that we will be your financing.  That will be your business and we will be your financier. And people started liking it, why not?  And we encouraged thee and said after all you are going there anyway. This is no extra work for you. So give people option- and they may like to buy something from you or they might t lie to give you charity – and they have 2 options. It became popular with the beggars, but what is amazing it became extremely popular with our staff. I didnt expect that . I thought they would be grumbling we already have enough work. Instead they kept pressuring that they wanted to make more beggars into the program because I had made the rule that nobody can take more than 1 beggar to serve. They became so involved in it that they wanted to take more beggars. I said no just one beggar. My idea was if you have too many beggars with you will probably not pay attention to them ; so if there’s one you will pay attention. This is addition to their regular work – so they will be doing everything, this is additional responsibility, optional responsibility, nobody required to do it. We  have 27000 staff and very quickly 27000 beggars were in our program!. And the staff were saying give us 10 beggars, we can handle 10, and I said no way.. The pressure became so unbearable so I finally allowed 2,3 4, step by step. Now we are at the 4 level so we have more than 100000 beggars in program. In the 4 years, amazing thing is that more than 10000 beggars have quitted begging completely – they are door to door salespeople – some are successful personal shoppers- because in Bangladesh like many other countries women cannot go to the market to buy simple things so she has to tell the husband please bring me matches, bring me this and when husband comes home at night ask did you bring it – oh I forgot – so now she has found a way – this person is becoming a go-between the market and the woman. And the remaining 90000 beggars I would say they are part-time beggars; they are mixing begging an selling at the same time but they are still in the process. My impatient colleagues – some of them why cant they get out of begging like the others:  I said dont push them , that’s not what the whole idea is- they are in the process of closing down their begging division; and this is their core business-to close down the core business takes a lot of time, and in the mean time they have to build up their sales division so its a restructuring of their business. And when you talk to beggars, these are smart people. They tell which house is good for begging, which is good for selling – I say to myself this is good, they know the market segmentation! Its amazing. We never trained them – all we did was just a loan for things they would like to carry round. They figure out which is a best-seller, shifting into those items. And the loan: that we give- typical loan is 15 dollars. With a 15 dollar loan, if you can help a beggar to change his whole life – why can’t we do more of it? Society is so blind that wouldnt even allow this 15 dollar loan to a beggar who would like change his or her life. Our idea is very simple: this is a loan you have to pay it back whenever you can. But there is no interest on this loam; so it will never grow- so dont worry about it getting big. And there is no time limit, so you’ll never become a defaulter. So you are immune from all those worries.

So again coming back, if a beggar can figure out how to run business and change his or her life, how can we say that they are to blamed for their poverty? If the system is at fault, who dont you fix the system. If institutions are at fault, why dont you fix the institution like banking for example which never gave any loan to poor people. Two third of the world population dont have the eligibility criteria to satisfy the conventional banks. So they are not creditworthy in their eyes – so why dont you fix those institutions. 31 years ago they could say they are not creditworthy. Today they cannot say that. The recent subprime crisis proved it again.: the poor are more creditworthy than the borrowers if the conventional banks. So this is the question, and I am raising the question again about institutions, the concept –and one concept I focus on is the concept of business. The concept of business : to maximise profits.. And I look at it: the economist, the theoreticians  who built this theory – they assume that human beings are like money making machines, they look like robots, they just maximiae profits. But the real human beings are not robots, are not single dimensional human being of economic theory, real human beings are multidimensional human , that’s what the beauty of the human being, why cant we bring the whole human being into economics. Rather than cut off the real interesting part of human being and leave only the money part of human being. That’s not a fair interpretation of human being. So I am arguing that if you want to justify the totality of human being, you need at least 2 kinds of business: one that we already have making money, the other business is to do good to people , do good to the planet.

10 SOCIAL BUSINESS MODELS- SUSTAINABILITY INVESTMENTS SIMPLEST SYSTEMS

 I am calling it Social Business. It is a non loss non dividend company with  a social objective. So if the traditional business, the one recognised in economics, is all about me -I want to benefit everything that’s why I run business it also has to come to me I am the owner; the other business is all about others nothing about me, just the reversal. Then we can put the two together, that what the human being is ;-the human being wants to make money and be helpful to others. That’s part of human being – you cant deny this. But today you can’t exercise that, if you want to exercise it you have to step outside economics and become a philanthropist involved with charities. Why cant we within the economic world be a fill human being. So that’s the idea of social business. And if we can create a Social Business this can be much more powerful than philanthropy or charity. Because in charity , charity dollar has only one life , you can use it only once. If you want to do it again ,you have to find another dollar to do it. So you are dependent on someone to repeat it because it doesnt go beyond one life. But if we can transform their whole thing into a social business, social business dollar has endless life, it recyles , and it is sustainable , it creates an institution.

 Charity does not create a permanent institution,. Its a program, you do it, achieve it, that’s the end of it . If you want to repeat it you have to have fresh money to do it again. But not in business, in business it just circulates. One of the examples I give in my book is the Grameen-Danone collaboration in a social business. We created this yogurt company as a social business, both sides agree for a social purpose there are millions of malnourished children in Bangaldesh—and other countries but we have our share – because their diet is so poor , so what we have decided is that we will take all the micronutrients that is missing in children and put these into the yogurt, all the vitamins iron zinc etc, and then sell this yogurt at a very cheap price to the children of poor families, and they will enjoy it because it is a delicious yogurt and they love it. And the company recovers its cost. Its not based on charity or subsidies. But both partners agree that they will never take any dividend out of it, because its a social business.

In Social Business you dont take any dividend out , you can take back your investment money, exactly what you invested, but it stops there. Because all the profit made by the company is stays with the company to achieve the goal you have set for it. So here the bottom line is how much impact have you made in the life of people, that’s the bottom line. Unlike the bottom line how much money have you made in your business.

By accepting the social business model  we have a complete  structure  so that we can transform all the issues of poverty, healthcare, nutrition, safe drinking water, sanitation by social business models. And make a difference on all the problems we see surrounding ourselves, So then in the business schools that give you MBAs young people to be trained to joined the maximising company, we need another department at school that will be creating social MBAs trained to design social business  how to measure impact, how to reduce the cost so you can go to the poorest people and improve the health, improve the social conditions of whatever social goal you have defined because the whole thing will be calculated completely differently. So one of the issues that I raised with Grameen Danone, when I was asking what kind of cup do you use in selling yogurt because they sell yogurt all over the world. They showed me the cup I asked is it biodegradable, they said no its not. So I said why cant you make biodegradable cups I dont want to see Bangladesh rural areas littered with plastics just because we sold yogurt. They said well we will have to do some research. I said go out and do the research. So they went out around the world to figure out how to make biodegradable cups

Finally they come back very excited, we have found it where what. In China, cups made of corn starch –very good material, which satisfies all of our conditions, and they brought some cups made of corn starch. And I said can I eat it. Why should you want to eat it. Because poor people are paying for it, why should they pay for something which they have no use for. Why cant you find a material that kids can eat alongside the yogurt.

Their money shouldnt be wasted, They said we cant find this thing; I said you’ll find it. I said when I buy ice cream I get a cornet. And I love cornets. Why cant you find something like that. They said no cornets wont work. I said find the one that will work because that cup should also carry nutrition as they are paying for it. So finally they got convinced and said that they would ask their research facility in Paris. We will give the task to our scientist to find it. I said how long will it take. They said a year or so. I said can we make it 6 months. Because otherwise there will be useless expenditure on these cups people will be making but with no nutrition.

The reason I mention all this is that the moment you design something as  a social business a lot of other issues come up. In the profit maximising business you dont see that because you are busy to make the money, the bigger you make the container the bigger it is the more money you make ,so  you make it bigger unnecessarily, you spend a lot of money on packaging just to lure you are in , you dont get anything out of it but they get the money in the process you waste resources. So if you fix the concepts and the institutions nobody will be a poor person in the world, so we can create a world free of poverty. And then I say the only place we will see poverty will be poverty museums.

We will build a museum in London where they will show where poor people used to live in this country, and now there is no poor people in this country! And similarly in many other countries. And let’s fix the date on which we will inaugurate the museum in each Future Capital and country.