by Mark Skousen, Chairman, Investment U
Muhammad Yunus and the Grameen Bank: The Nobel Peace Prize-Winning Genius Behind the World’s Most Original Bank (Which Is “Giving Away” $50 Bills)
I remember as a young boy people telling me that borrowing money and going into debt were very, very bad.
“Neither a lender nor borrower be,” declared Shakespeare. Ben Franklin warned in The Way to Wealth, “The first vice is running in debt… You give to another power over your liberty… Be frugal and free.”
And church leader J. Rueben Clark says debt “never sleeps nor sickens nor dies… and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”
Financial advisors warn repeatedly to stay out of debt, and gold bugs publish charts showing the national debt by consumers, business and government climbing to unsustainable levels.
Sounds ominous, doesn’t it?
Going into debt is a serious matter and should not be done lightly. I don’t recommend it for most consumer goods, and certainly not for buying food at the grocery store or 7-Eleven. In short, use cash.
Debt, however, does have its advantages. In this issue, we’ll discuss Nobel Peace Prize winner Muhammad Yunus, founder of the Grameen Bank and the Micro-Credit Revolution. First, a closer look at the virtue of debt as it relates to the Micro-Credit movement…
The Difference Between Starvation and Prosperity
For those of you still skeptical about the virtue of debt, consider this…
Laily Begun and her husband, Atiqullah, were manual laborers in Bangladesh who barely had enough to eat. She took out a $50 “micro” loan from the Grameen Bank to buy a cow, which allowed her to make some extra cash selling milk.
She borrowed another $65 for a second cow, and her little business flourished. Now she had enough to apply for a mobile phone. Laily became known as the “Village Phone Lady,” and before long, she was earning nearly $300 a month. With their savings, the couple set up five shops and a restaurant. They now live in a brick house, own two color TVs, a refrigerator and a cassette player, and send their three children to school.
All because of a $50 starter loan.
The Grameen Bank is not a charity. Billions in foreign aid have been thrown at poor people without effect. Only when a for-profit bank began lending to the desperately poor did anything positive come of it. Grameen Bank charges 18% interest on its micro-loans, and has only a 5% default rate. How is this possible? Borrowers must join small support groups, and if one defaults, the others are forced to take over his debts.
It seems impossible, but so far the Grameen Bank has made more than $5 billion in loans, and its model has been imitated around the world, even by the World Bank.
Yunus founded the Grameen Bank in the world’s poorest country, and today has branches in over 71,371 villages in Bangladesh through collateral-free micro credits to needy entrepreneurs.
While the World Bank has imitated his micro-credit model, Yunus decries the organization in his book Banker to the Poor: “We at the Grameen Bank have never wanted or accepted World Bank funding because we do not like the way the bank conducts business.” Nor does he like foreign aid. “Aid-funding projects create massive bureaucracies, which quickly become corrupt and inefficient, incurring huge losses.”
Posted by: Mimmy Duhaylungsod
Source: http://www.investmentu.com/
Monday, January 19, 2009
All human beings are potential entrepreneurs
Yunus believes that poverty can be eradicated by loaning poor people the capital they need to engage in profitable businesses, not by giving them a handout or engaging in population control. In his own words, “All human beings are potential entrepreneurs.”
Edited & Posted by Mimmy Duhaylungsod
Sources: flicker.com & http://www.investmentu.com/IUEL/2006/20061027.html
Saturday, January 17, 2009
Thursday, January 1, 2009
Inspiring Social Entrepreneurs
Muhammad Yunus, founder of the Grameen Bank and father of microcredit, provides a classic example of social entrepreneurship. The stable but unfortunate equilibrium he identified consisted of poor Bangladeshis’ limited options for securing even the tiniest amounts of credit. Unable to qualify for loans through the formal banking system, they could borrow only by accepting exorbitant interest rates from local moneylenders. More commonly, they simply succumbed to begging on the streets.
Here was a stable equilibrium of the most unfortunate sort, one that perpetuated and even exacerbated Bangladesh’s endemic poverty and the misery arising from it.Yunus confronted the system, proving that the poor were extremely good credit risks by lending the now famous sum of $27 from his own pocket to 42 women from the village of Jobra.
The women repaid all of the loan. Yunus found that with even tiny amounts of capital, women invested in their own capacity for generating income. With a sewing machine, for example, women could tailor garments, earning enough to pay back the loan, buy food, educate their children, and lift themselves up from poverty. Grameen Bank sustained itself by charging interest on its loans and then recycling the capital to help other women.
Yunus brought inspiration, creativity, direct action, courage, and fortitude to his venture, proved its viability, and over two decades spawned a global network of other organizations that replicated or adapted his model to other countries and cultures, firmly establishing microcredit as a worldwide industry.
The well-known actor, director, and producer Robert Redford offers a less familiar but also illustrative case of social entrepreneurship. In the early 1980s, Redford stepped back from his successful career to reclaim space in the film industry for artists. Redford was struck by a set of opposing forces in play. He identified an inherently oppressive but stable equilibrium in the way Hollywood worked, with its business model increasingly driven by financial interests, its productions gravitating to flashy, frequently violent blockbusters, and its studio-dominated system becoming more and more centralized in controlling the way films were financed, produced, and distributed. At the same time, he noted that new technology was emerging – less cumbersome and less expensive video and digital editing equipment – that gave filmmakers the tools they needed to exert more control over their work.
Seeing opportunity, Redford seized the chance to nurture this new breed of artist. First, he created the Sundance Institute to take “money out of the picture” and provide young filmmakers with space and support for developing their ideas. Next, he created the Sundance Film Festival to showcase independent filmmakers’ work. From the beginning, Redford’s value proposition focused on the emerging independent filmmaker whose talents were neither recognized nor served by the market stranglehold of the Hollywood studio system.
Victoria Hale is an example of a social entrepreneur whose venture is still in its early stages and for whom our criteria apply ex ante. Hale is a pharmaceutical scientist who became increasingly frustrated by the market forces dominating her industry. Although big pharmaceutical companies held patents for drugs capable of curing any number of infectious diseases, the drugs went undeveloped for a simple reason: The populations most in need of the drugs were unable to afford them. Driven by the exigency of generating financial profits for its shareholders, the pharmaceutical industry was focusing on creating and marketing drugs for diseases afflicting the well-off, living mostly in developed world markets, who could pay for them.
Hale became determined to challenge this stable equilibrium, which she saw as unjust and intolerable. She created the Institute for One World Health, the first nonprofit pharmaceutical company whose mission is to ensure that drugs targeting infectious diseases in the developing world get to the people who need them, regardless of their ability to pay for the drugs. Hale’s venture has now moved beyond the proof-of-concept stage. It successfully developed, tested, and secured Indian government regulatory approval for its first drug, paromomycin, which provides a cost-effective cure for visceral leishmaniasis, a disease that kills more than 200,000 people each year.
Why not call these people social entrepreneurs? It wouldn’t be a tragedy. But such people have long had a name and an exalted tradition: the tradition of Martin Luther King, Mahatma Gandhi, and Vaclav Havel. They are social activists. Calling them something entirely new – i.e., social entrepreneurs – and thereby confusing the general public, who already know what a social activist is, would not be helpful to the cause of either social activists or social entrepreneurs.
Source: http://www.ssireview.org/
Here was a stable equilibrium of the most unfortunate sort, one that perpetuated and even exacerbated Bangladesh’s endemic poverty and the misery arising from it.Yunus confronted the system, proving that the poor were extremely good credit risks by lending the now famous sum of $27 from his own pocket to 42 women from the village of Jobra.
The women repaid all of the loan. Yunus found that with even tiny amounts of capital, women invested in their own capacity for generating income. With a sewing machine, for example, women could tailor garments, earning enough to pay back the loan, buy food, educate their children, and lift themselves up from poverty. Grameen Bank sustained itself by charging interest on its loans and then recycling the capital to help other women.
Yunus brought inspiration, creativity, direct action, courage, and fortitude to his venture, proved its viability, and over two decades spawned a global network of other organizations that replicated or adapted his model to other countries and cultures, firmly establishing microcredit as a worldwide industry.
The well-known actor, director, and producer Robert Redford offers a less familiar but also illustrative case of social entrepreneurship. In the early 1980s, Redford stepped back from his successful career to reclaim space in the film industry for artists. Redford was struck by a set of opposing forces in play. He identified an inherently oppressive but stable equilibrium in the way Hollywood worked, with its business model increasingly driven by financial interests, its productions gravitating to flashy, frequently violent blockbusters, and its studio-dominated system becoming more and more centralized in controlling the way films were financed, produced, and distributed. At the same time, he noted that new technology was emerging – less cumbersome and less expensive video and digital editing equipment – that gave filmmakers the tools they needed to exert more control over their work.
Seeing opportunity, Redford seized the chance to nurture this new breed of artist. First, he created the Sundance Institute to take “money out of the picture” and provide young filmmakers with space and support for developing their ideas. Next, he created the Sundance Film Festival to showcase independent filmmakers’ work. From the beginning, Redford’s value proposition focused on the emerging independent filmmaker whose talents were neither recognized nor served by the market stranglehold of the Hollywood studio system.
Victoria Hale is an example of a social entrepreneur whose venture is still in its early stages and for whom our criteria apply ex ante. Hale is a pharmaceutical scientist who became increasingly frustrated by the market forces dominating her industry. Although big pharmaceutical companies held patents for drugs capable of curing any number of infectious diseases, the drugs went undeveloped for a simple reason: The populations most in need of the drugs were unable to afford them. Driven by the exigency of generating financial profits for its shareholders, the pharmaceutical industry was focusing on creating and marketing drugs for diseases afflicting the well-off, living mostly in developed world markets, who could pay for them.
Hale became determined to challenge this stable equilibrium, which she saw as unjust and intolerable. She created the Institute for One World Health, the first nonprofit pharmaceutical company whose mission is to ensure that drugs targeting infectious diseases in the developing world get to the people who need them, regardless of their ability to pay for the drugs. Hale’s venture has now moved beyond the proof-of-concept stage. It successfully developed, tested, and secured Indian government regulatory approval for its first drug, paromomycin, which provides a cost-effective cure for visceral leishmaniasis, a disease that kills more than 200,000 people each year.
Why not call these people social entrepreneurs? It wouldn’t be a tragedy. But such people have long had a name and an exalted tradition: the tradition of Martin Luther King, Mahatma Gandhi, and Vaclav Havel. They are social activists. Calling them something entirely new – i.e., social entrepreneurs – and thereby confusing the general public, who already know what a social activist is, would not be helpful to the cause of either social activists or social entrepreneurs.
Source: http://www.ssireview.org/
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