Grameen Bank, Bangladesh

Does the Capitalist System Have to be the Handmaiden of the Rich ?

by Muhammad Yunus

[Extracts from the keynote address delivered at 85th Rotary International Convention held in Taipei, Taiwan, on June 12-15, 1994.]

Credit As a Human Right

IF we are looking for one single action which will enable the poor to overcome their poverty, I would go for credit. Money is power. I have been arguing that credit should be accepted as a human right. If we can come up with a system which allows everybody access to credit while ensuring excellent repayment --- I can give you a guarantee that poverty will not last long. If the helplessness and isolation of labour, who have nothing to sell but their labour, can be totally removed by connecting labour with capital through a universal credit system, we'll then have other kinds of actors on the economic scene different from what the existing capitalist world would allow us to bring out. Poverty is not created by the poor.

Poverty is created by the existing world system which denies fair chances to the poor. If we can ensure truly equal opportunities to everybody in the society there is no reason why poverty should linger around us.

Charities and handouts help maintain and deepen poverty. These are invented to avoid giving equal chances to the poor. Handouts take away initiative from people. Human beings thrive on challenges, not on palliatives.

Grameen has put trust back into the picture. We do business on trust. (In the USA, one of the Grameen replications calls itself "Good Faith Fund" to make this very point.) Grameen trusts people. It believes in the enormous potential of each and every human being. Given enabling environment, even the poorest woman can peel off doubts in herself and start exploring her abilities to find a life with full human dignity.

Besides being a lending institution, Grameen also requires the borrowers to save. Each borrower saves one taka (2.5 cents US) each week, and five per cent of the loan money. Today the total savings of Grameen borrowers exceed US$ 70 million. If they wish, Grameen borrowers can collectively buy up the largest enterprise in the country. It would be fun to do that -- the poorest in the country getting into the league of the richest in Bangladesh!

Capitalism : Making the Rich Richer The essence of capitalism is expressed in two of its basic features: a) profit maximization and b) market competition. In their abstract formulations none of them was supposed to have anything conspiratorial against the poor. But in real life they turn out to be the "killers" of the poor#by making rich the richer and poor the poorer.

Profit maximization is recognised as the best principle to ensure the optimal use of resources. It tells you when you are going in the right direction in mixing inputs, when you are going in the wrong direction, and when you have just the right combination of resources. Free market competition ensures that you are pushed out of any comfortable position when your competitor finds a better combination or better product or better way of doing business. It is the driving force for all innovations, technology changes, and better management.

In the conceptualisation of the capitalist world we have installed a greedy (almost bloodthirsty) person to play the role of profit-maximizer. Not only have we deprived him of all human qualities, we have empowered him by giving him all the institutional support he can use by depriving the same support to everybody else (e.g. banks will give him the money and not to anybody else). On top of it, we conceptualise that the entrepreneurs are a very rare and special breed of people. We are lucky to have them with us. We must give them all the privileges they ask for.

We Build What We Imagine

If we imagine a world where every human being is a potential entrepreneur, we'll build a system to give everybody a chance tomaterialise his/her potential. The heavy wall between theentrepreneur and the labourer in this world will be meaningless. In addition, if labour had access to capital, this world will be very different from what we have built so far now. We build what we imagine. In the past we imagined the wrong way; as a result we got a wrong world. By formulating our axioms the right way, we can create the right world.

In the "right" world, we'll have to forget that people should wait around to get hired by somebody. We have to instil in everybody's mind that each person creates his or her own job. We'll build institutions in such a way that each person is supported and empowered to create his/her own job (self-employment). Wage-employment will come into the picture only as an alternative to self-employment. The more self-employment becomes attractive, wide-ranging, and self-fulfilling, the more difficult it will be to attract people for wage-jobs. Women, minority groups, the physically handicapped, and socially handicapped persons will benefit more, the more self-employment becomes rewarding and convenient.

Mass production of a product leads to economics of scale under any production system. But there is nothing which makes itobligatory to organise this mass production under one roof. Home-based production based on self-employment can be as mass-scale as in a single roof wage-based factory system. The more we can move towards home-based production by the self- employed masses, the more we can come close to avoiding the disasters of capitalism.

Through wrong conceptualisation the agricultural world quickly moved into plantation economy and enslaved people. In its impatience and arrogance, the world refused to see theopportunities through people-based agriculture.

Let me give some examples from Grameen how people-based production can be organised in a large scale and benefit the poorest.

Help Them Learn How to Catch Fish

In 1986 Government of Bangladesh invited us to take over a large fisheries project. The project was not getting off the ground after investing several million dollars of donor money. We were not sure whether we should get involved in the project. We did not know anything about growing fish. In the end we agreed to take over the project at the urgings of the government, hoping that the un-utilised water bodies could be combined with the un- utilised abilities of the poor to create a new chemistry for production and better life.

There were nearly 800 ponds of various sizes and shapes under this project with a combined water area of over 1000 hectares. The government tried to grow fish in these ponds. They failed because government employees used the resources to benefit themselves rather than the government and the people. Stealing fish from the ponds by the villagers was identified by the government officials as a major cause for the failure of the project. Government records show that the actual annual fish harvest remained below 50 tons.

Grameen brought in new management style, new determination and a new drive. Poor people around the ponds were organised into groups to become partners in the pond management and share the harvest on a 50:50 basis. Grameen provided the capital and know-how; poor people provided their labour. Stealing of fish was brought down to near zero. The poor, who under the previous regime, either stole fish for themselves or stole fish as agents of others, now became growers and protectors of the fish, and owners of the fish. In 1993 Grameen produced 805 tons of fish, 402.5 tons went the poor group members. In 1994 we are hoping to raise the production to above 1,000 tons. Yield per unit of water body is rising steadily. The project not only covers all its costs, it now generates a profit.

Two Million Idle Ponds

Encouraged by the results in our fisheries project we have nowcreated a non-profit, non-stock new company called the Grameen Fisheries Foundation. The new company has taken over all the fisheries projects of Grameen Bank, including a shrimp farm located on the Bay of Bengal. Bangladesh has nearly two million ponds, innumerable other water-bodies with excellent possibilities to grow fish. All these water-bodies remain underutilized. If we can only extend the Grameen style of growing fish in these water-bodies we can achieve the following objectives : a) poor people can grow and catch their own fish and enhance their income by growing more and more fish per unit of waterbody; b) it will make substantial contribution to animal protein availability in the country; c) a large pool of educated youth will have ready opportunities for self-employment and wage employment, d) processing, storing, marketing of fish can generate another growth area.

Why doesn't it get done now ? Because in a capitalist world we are told that we'll have to wait around until we find a "greedy" entrepreneur to discover this as a new opportunity to make money. With a socialist orientation of the government, the state would have come forward and exploited the opportunity presented in the fisheries sector of Bangladesh. (In our case the state did step forward. But the result was very unhappy.) In a capitalist framework we have always ignored the role of another type of entrepreneurs----social-consciousness-driven entrepreneur. I think it is time we pay serious attention to them.

Let me add a few more examples from Grameen experience.

Grameen Check : People-Based Textile Industry

Grameen had neither any intention nor any qualification to get involved in the garment industry of Bangladesh. But somehow we got drawn into it. There are over a million weavers in Bangladesh with approximately half a million handlooms in their possession. Over eighty per cent of textile requirement in Bangladesh are met by these weavers through handloom production. One will tend to imagine that the weavers are having good business from this captive market. They are not. Since most Bangladeshis are very poor they cannot afford to buy clothes as often as you'll imagine. Unless a piece of clothing becomes absolutely unusable one does not buy another piece of dress.

Many of the weavers are Grameen borrowers. We see how difficult their lives are because of very low demand and stiff competition from machine-made clothes. Many of the weavers remain without work during slack season.

About two years back we came to know that Bangladesh imports a handloom product called "Madras Check" valued at US $ 80 million for Bangladeshi garment industry to make garments for North American and EEC countries. We could not figure out why Bangladesh imports such huge quantities of handloom fabric while our weavers remain half-starved part of the year. One explanation we got was that our weavers cannot produce the quality that is demanded by the international market. We wanted to find it out. We produced samples and circulated than around. Everybody agreed that the samples were as good or even better than the imported fabric.

Then we got another explanation why this cannot be procured from the local weavers#because "they are not organised; we cannot go door to door to each weaver to buy hundreds of thousands of yards we need; now we place orders to Indian suppliers and they supply whatever quantity we need, right on time". We said Grameen Bank can play the role of the supplier. We can accept orders and remain responsible for quality and delivery date.

Make Room for Social-Consciousness-Driven Entrepreneurs

We started receiving orders. We named our product "Grameen Check". We organised some weavers to do the job. These weavers never had worked for the international market. Everybody in the villages was thrilled to know that the fabric their village was making will be worn by the Americans and the Europeans. The weavers took it as a great appreciation of their work. They worked hard to make sure users like it.

Now business is picking up. The more we deliver, the more the garment industry takes us seriously. This can grow into a billion dollar business --- developed around home-based weavers. We can supply "Grameen Check" to garment industry any where in the world --- India, Pakistan, Sri Lanka, Thailand, China, Viet-Nam, or any where else. We are inviting consumers and producers every where to try us. Please make room for social-consciousness-driven entrepreneurs in the world economy.

Noticing the growth of the business, Grameen Bank has created still another a non-profit, non-stock company called Grameen Uddog (or Rural Initiatives) and handed over all the Grameen Check related businesses to this new company. Grameen Uddog is expanding itself into new areas of textile too. Besides Grameen Check it is now producing Grameen Flannel. They are getting a good response from the market. =============================================================================

Main Report & Country Reports (Part2)

Grameen Agriculture Foundation

Two years back Grameen Bank created another company called Grameen Agriculture Foundation. We saw how agriculture in Bangladesh lagged behind other countries in the region because it was left to people who did not have the knowledge, financial capability or interest to bring any change in agriculture. People with money and ability left villages for urban areas where they adopted other professions. They have very little link left with agriculture except collecting rent from the share-croppers.

We saw how the poor in Bangladesh suffer because there is not much activity during the slack season in agriculture.

Grameen entered agriculture to break the traditional production cycle. Grameen Agriculture Foundation (GAF) now produces unfamiliar crops like maize, soyabean and sunflower, besides rice, wheat, sugarcane and other traditional crops. GAF does not own any land. It enters into agreement with any willing farmer to become a partner in production. GAF supplies all or some critical inputs and gets an agreed quantity of the harvest. Farmers do not have to worry about funds, inputs, or marketing. They are now willing to experiment with any crop and crop-cycle.

Come and Join Hands With Us

GAF is looking for partners and friends around the world to find new technology, new markets, new crops, new management systems. GAF will like to enter into export market for banana, okra, gherkins, tomatoes, vegetables, or anything else that has a market for. Any individual or organisation who is willing to use the tools and concepts of capitalism to benefit, not the greedy, but the needy, may come and join hands with us.

GAF wants to enter into biotechnology in a big way --- to eliminate chemical fertilizers and chemical pesticides and replace them with bio-fertilizers and bio- pesticides. We are hoping to organise the bio-fertilizers and bio-pesticides in people-based ways --- rather than in mass- scale factory production.

GAF wants to set up a seed industry to allow all farmers access to first-rate seeds so that his hard work is not wasted because of inferior seed. We hope to use tissue-culture technology in a people-based way to produce some of these seeds. We are looking for experienced partners to help us set this up.

One of the big plans for GAF is to produce orchids in a home- based manner by inducting poor households to grow orchids in partnership with GAF for world market.

Health-Care for the Poor

All research done on Grameen Bank show that Grameen borrowers improve their income significantly. They also show high erosion of income as the borrowers increase their earnings. Despite this erosion of income, Grameen borrowers succeed in crossing the poverty line in ten to fifteen cycles of Grameen loans. We are trying to find ways to speed up the process of poverty reduction and help the borrowers to cross the poverty line earlier, say, in less than ten years.

If we can plug the erosion of income, we can help speed up the process. So we looked at it. This income erosion takes place primarily in procuring health care services. The poor have very poor health. As they improve their income, they spend more and more on one of the priority items --- health. But the health services they buy with their hard-earned money is not only unreliable; most-often they lead to more serious health hazards. In other words they end up buying more health troubles with their money rather than overcoming them.

Grameen has decided to enter into this market and provide modern health services on cost recovery basis. Government of Bangladesh has a very elaborate health service infrastructure which is built to provide free medical services to all citizens. As a result the service is extremely poor and it is available only to a handful of privileged people.

Grameen has started its experimental healthcare programme through Grameen Trust, another member of Grameen family of companies. This service is available to all villagers, both to Grameen borrowers and non-Grameen villagers. Grameen borrowers pay a fixed amount of US $1.25 per family per year as premium for a health insurance programme. They pay a nominal fee (US $ 0.02) each time they have to see a doctor. Medicines are sold at a discount. Pathological tests are available also at a nominal fee. Non-Grameen villagers pay a higher fee.

From our initial experiment, we feel that it is possible to run a modern health-care programme on cost-recovery basis. If we can organise it through a nationwide franchise (even international franchise) we see a good possibility to turn it into a strong, competitive, sustainable pro-people enterprise.

The engine of the capitalist system is supposed to be fuelled by greed to keep the system moving. I feel that this is one wrong assumption which has led the world to a self-fulfilling prophesy. We must vision a world which has not only greedy people, but also people with strong feelings for their fellow human beings. Also, between them, there are many people who are neither all greedy, nor all self-sacrificing. They can swing either way or spend their lives following a middle course with a careful mixture of selfish deeds and personal sacrifices for the community. If the societies can build a good reward system for works of collective good, they will easily take on more of good works than the selfish kind. When we accept this configuration of the world, we'll build our values, institutions, educational and social systems consistent with this configuration.

An Alternative Vision of the World

In this alternative vision of the capitalist world, instead of one motivating factor ("greed") to keep it in motion, we can introduce social consciousness or social dreams as another motivating factor. Both types of people can be in the same market place, using the same tools and concepts of capitalism, but pursuing completely different goals.

Of course, in addition, there will be middle of the roaders, who will mix both greed and social objectives according to their tastes and abilities.

This alternative vision of the world under capitalism will not be as black as it turned out under greed alone scenario. This capitalist world can accommodate all shades : white, gray and black. I think this is the most realistic vision of the world under any framework, capitalist or non-capitalist.

I am inclined to believe that the role of social-consciousness- driven entrepreneurs in the new configuration of the capitalist world is assigned to the state in a socialist framework. The state did not do a good job in this role. Can capitalist concepts, tools and framework allow, support and promote economic activities leading to achievements of social objectives in parallel with narrow personal objectives ? My answer is an emphatic `yes'. Yes, it can be done provided we can create, strengthen and widen the role of social-consciousness- driven entrepreneurs through building supportive institutional arrangements, state policies, educational systems, social reward mechanisms and creating international support systems and solidarity networks.

Through this forum I make an appeal to the Rotarians all around the world who are leaders of their professions to join and take up leadership among social-consciousness-driven entrepreneurs. By joining the ranks of social-consciousness-driven entrepreneurs you'll gain more in social respectability than what you'll lose in dollar and cents of personal income. Above all, you'll be a happier person than you'd otherwise ever be. If you become social-consciousness-driven entrepreneurs with your total commitment, I can assure you that you'll build an entirely different world than what we have now. The world that we can build will be totally free from poverty and human indignity; it will be a world of friendship, cooperation and happiness rather than a world of aggression and destruction of human values and environment.

Are we Alert and Active ?

I appeal to all entrepreneurs, professionals, management people, business strategists and fund managers, to take upon themselves the task of setting up social-consciousness-driven enterprises and businesses throughout the world and create supportive financial and solidarity network to help sustain, grow and expand this type of enterprises.

There are already many small efforts in this direction scattered throughout the world. We need to bring them closer to find inspiration from each other. We offer to make Bangladesh an action-research site to demonstrate what can be achieved in a problem-ridden least developed country through the combined efforts of the social-consciousness-driven entrepreneurs from all over the world.

We must find ways to have social-consciousness-driven entrepreneurs out-number the greed-alone-driven entrepreneurs in the world as fast as we can. We just can't leave the market place to be monopolised by the greed alone-driven business people. Let us not create a wrong world just because we laid down wrong postulates or we are too indifferent to notice opportunities to build a better world. Let the new millennium show that we are alert, active and committed. We can take the initiative to correct the errors of the past in a decisive way. We can set our course on the right track with full vigour.

Let us join our hands to create a world which we'll be proud to be part of, not ashamed of .

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