Nobel prizes are frequently mired in controversy, especially the peace prize. But there is little doubt that this year’s prize which went to Grameen Bank and its founder Dr. Muhammad Yunus is richly deserved.
Dr. Yunus has been a pioneer in the world of banking. The bank he established, Grameen bank lends almost exclusively to the poor, small amounts of money which no large bank is was willing to lend.
But despite it’s altruistic motivations, Grameen is very much a commercial enterprise. It does not practice philanthropy for its own sake. By partnering the poor, it hopes not only to help them but also, at the same time, retain its own ability to survive and prosper.
Infact, it is also quite interesting to see the techniques which Grameen employs:
the bank adopted its signature innovation: making borrowers take out loans in groups of five, with each borrower guaranteeing the othersâ€™ debts. Thus, in place of the hold banks have on wealthier borrowers who do not pay their debts â€” foreclosure and a low credit rating â€” Grameen depends on an incentive at least as powerful for poor villagers, the threat of being shamed before neighbors and relatives.
This is understanding at the micro level, of the community feeling in our societies, even the shaming factor, when properly harnessed can work miracles. No surprise, the bank enjoys recovery rates far higher than much larger commercial banks. Because it functions on the same principle, it just does it’s job far better! Why?
Who owns the largest banks in our part of the world? The government does! And the state is always susceptible to the pulls and pressures from unscrupulous borrowers. That really does explain why our banks carry so much of non-performing assets. Or how cooperative banks, run ostensibly to protect the interests of the poor farmers have become the plaything of rich politicians, secure in the knowledge that the government will ultimately bail them out.
The key thing to understand is that defaulting on loan commitments has nothing to do with being rich or poor. It is solely dependent on whether you can get away with it or not. If you can, you will try. Discounting that is not really understanding human nature.
Grameen bank’s contribution is also noteworthy in another aspect. It has focused most attention on women and strived to give them economic independence. Many of the problems women face in our society stems from that lack of freedom. By creating millions of women entrepreneurs, Dr. Yunus has to a great extent transformed the rural landscape of Bangladesh, not only on the economic front but also the cultural aspect.
And yes, of course, as Dr. Yunus points out-profit is essential.
Grameen believes that charity is not an answer to poverty,â€ he wrote in an introduction to microcredit posted on the organizationâ€™s Web site in August. â€œIt only helps poverty to continue. It creates dependency and takes away individualâ€™s initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.
This is a lesson which many of our intellectuals need to learn- by heart. Decrying profit is decrying human entrepreneurship, it is revolting against the basic human desire to constantly better himself. It is pro-poverty and anti-poor, a distinction one must not ever forget.
And why the peace prize? Because poverty has everything to do with violence.
Dr. Yunus’s victory is a true celebration of free markets. Well done Dr. Yunus! More power to you.