What is a government's role in alleviating poverty?
In 1974, Professor Muhammad Yunus, a Bangladeshi economist from Chittagong University, led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.Realizing that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent the equivalent of $27 to 42 basket-weavers. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.Against the advice of banks and government, Yunus carried on giving out 'micro-loans', and in 1983 formed the Grameen Bank, meaning 'village bank' founded on principles of trust and solidarity. In Bangladesh today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages. On any working day Grameen collects an average of $1.5 million in weekly installments. Of the borrowers, 94% are women and over 98% of the loans are paid back, a recovery rate higher than any other banking system. Grameen methods are applied in projects in 58 countries, including the US, Canada, France, The Netherlands and Norway.In 2006, Yunus and the bank were jointly awarded the Nobel Peace Prize, "for their efforts to create economic and social development from below.
Muhammad Yunus: Government can play a very important role. Government is what gives you the structure of the economy. Government gives the policies. Government gives the institutional framework. So in that way government plays an important role. In foreign aid, if you are a foreign aid giver, if you are a donor country, then you decide how you use your foreign aid money. You previously did something in infrastructure, in helping people in different ways. Now that another option came in a social business, you may prefer to give your foreign aid as a social business. Because here you know exactly what’s happening. You can avoid the corruption. Because it’s a business it has to have all the . . . You track your money all around, and you can bring your business skills and solving the problem . . . and helping solve the problem in the recipient country. And you encourage local talents to go into social businesses and creating institutions. It’s not just one shot money we gave. We spend the money, we build the roads, and we don’t have any other news about it. Bridge building is not an institution. It doesn’t have its own life. But now we build something as an institution when we go as a social business. So this will be one option to them to come forward – a very strong option. And if you’re a recipient country, you would also like to see more things growing out of economy. And social business will be one institution building that you would like to build up with assistance from foreign aid. Because you would like to see that these are the things which will have lasting impact in your economy; and you would like to address the most difficult problem in your country – how to design that social business. You will seek help from donor countries and countries around to . . . in designing, because designing will be the most critical part of the whole thing. So if they can help you in designing those things and you can implement it, you’ll be much, much benefitted from that. Once you are successful in a particular design, other countries will imitate you. Other countries will borrow from you. “Yes this is a great idea. I would like to do that.”
Recorded on: 1/23/08
Government can create economic structure, policies, and an institutional framework.
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