Interview Transcript
Muhammad Yunus: Commercialization is a kind of code word. In plain, simple English it means “make money” by doing that. My position has always been microcredit should be an area for social business where you want to help poor people get out of poverty by doing business. You don’t lose money. You get your money back, but you don’t make profit out of it. Because with that money you want to give to the poor people so that they get out of poverty faster. That’s where the interest is. So I look at microcredit in that direction. The other direction is this is an interesting, new, emerging area of business. If you put money . . . If you invest your money, you make a lot of money. I don’t see that is the right kind of approach, because loan sharks have been doing this for years and generations and for ages. They lend money to the poor people and make a lot of money by exploiting them. So microcredit is not a new tool for exploitation. Microcredit is a tool to help people get out of poverty. So if commercialization means you make money, I will say I’m not in support of that. I would rather discourage that thing to happen. But if you want to do in a business way . . . make some profit, I would still allow or admit up to a certain amount. And their interest rate issue comes in – how much you take back. Say my definition of reasonable interest rate is cost to fund at the market price, plus 10 percent maximum. So that should be the maximum of interest rate that you can charge, and you’ll be a proper microcredit program. If you go beyond that, I tell you you are going into a risky area where you are getting too high. And after a while if my cost to fund at market price plus 15 percent and above . . . If that is the interest rate, then I’ll say you are in the red area of lending to the poor because now you are moving into the loan shark zone. So this is the kind of ground rules that I try to promote.
Recorded on: 1/23/08
Should microfinance be commercialized?
Managing Director, Grameen Bank
"Microcredit should be an area for social business where you want to help poor people get out of poverty by doing business...You get your money back, but you don't make profit out of it."
January 25, 2008 | In Business & Economics
Discuss
Anna Matsen on February 3, 2008, 4:24 PM
I love your passion to help the poor and admire your success in doing so. I dearly, dearly hope that banks in the U.S. take your ideas to heart. As long as they are conscientious about breaking even (without losing money but also without becoming loan sharks to the poor), I see no reason they can't continue business as usual with their regular customers, yet also help the poor in the fashion you have. Do you think this would work, or is it more practical to have separate banks dealing exclusively with the poor?
I love great ideas, and this is a fantastic one which should be spread worldwide. Thank you for all your work and for trying to get other nations involved in the business of eliminating poverty.
Anna Matsen on February 3, 2008, 9:24 PM
I love your passion to help the poor and admire your success in doing so. I dearly, dearly hope that banks in the U.S. take your ideas to heart. As long as they are conscientious about breaking even (without losing money but also without becoming loan sharks to the poor), I see no reason they can’t continue business as usual with their regular customers, yet also help the poor in the fashion you have. Do you think this would work, or is it more practical to have separate banks dealing exclusively with the poor?
I love great ideas, and this is a fantastic one which should be spread worldwide. Thank you for all your work and for trying to get other nations involved in the business of eliminating poverty.
Stephen King on February 12, 2008, 5:13 AM
Cost of funds plus 10%. I think most commercial bankers would be very happy with that kind of return over a long period of time. Perhaps Dr Yunus has a different definition of profit but I would think cost of funds plus 7 or maybe 8% would be a reasonable profit.
I'm a social capitalist. That is I believe the value of my workers is greater than the value of my money. Given the choice of investing in my workers verses plant and equipment, I would chose investing in my workers. Over a period of time, my return (profit) will be greater. If my workers are more productive their profit will be greater as will be mine. I believe that is particularly true among the poor. When financial resources are scarce as with the poor, there is little opportunity to save. Every stotinki (it is a coin of a country) has a place to go. That fuels what we call consumerism and generates profit that feeds the economic engine that we all need.
I have the greatest respect for Dr Yunus and his accomplishments. But I disagree with him on this point. Let's try redefining profit in human terms, not monetary.
Stephen King on February 12, 2008, 10:13 AM
Cost of funds plus 10%. I think most commercial bankers would be very happy with that kind of return over a long period of time. Perhaps Dr Yunus has a different definition of profit but I would think cost of funds plus 7 or maybe 8% would be a reasonable profit.
I’m a social capitalist. That is I believe the value of my workers is greater than the value of my money. Given the choice of investing in my workers verses plant and equipment, I would chose investing in my workers. Over a period of time, my return (profit) will be greater. If my workers are more productive their profit will be greater as will be mine. I believe that is particularly true among the poor. When financial resources are scarce as with the poor, there is little opportunity to save. Every stotinki (it is a coin of a country) has a place to go. That fuels what we call consumerism and generates profit that feeds the economic engine that we all need.
I have the greatest respect for Dr Yunus and his accomplishments. But I disagree with him on this point. Let’s try redefining profit in human terms, not monetary.
Anthony Tobalo on March 30, 2009, 6:37 AM
As long as Microfinance services are rendered to the poor by business peoples, it will continue to inevitably be commercialized. The price of any commodity considers factors like: the cost of fund/capital/RRI, costs of running the biz, profit margin and more importantly business peoples exploite any opportunity, market information gap to reap big (profit) from anywhere.
However, it wouldn’t need to be commercialized if offered to the poor by Charity organisations.
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