World Changers

It is a customary courtesy for the Nobel Foundation to call new winners of its prestigious Nobel Peace Prize to let them know they have won the award. But there’s another purpose for the phone call as well: it’s to capture for posterity the winner’s spontaneous reaction to the news in a one-minute recorded interview.

On an otherwise typical October day in 2006, the Nobel Foundation in Stockholm placed its call to Muhammad Yunus, the banker to the poor and the world’s most acclaimed social entrepreneur. Yunus’s life-changing idea was stunningly simple: loan minuscule amounts of money to the poor so they could fund their own entrepreneurial ventures and lift themselves out of poverty.

At the time, the mid-1970s, his home country of Bangladesh was in the grip of a devastating famine. The university professor saw misery and sickness everywhere. “People were dying of hunger, and I felt very helpless,” Yunus recalls. “As an economist, I had no tool in my tool box to fix that kind of situation.”

When he came upon his idea for microlending, the mainstream bankers said it wouldn’t work. The poor were not creditworthy, he was told. They wrote him off as an incredibly naive though well-intentioned egghead. They laughed him out of their offices. And when, after several months of failure, he offered to become the guarantor of the loans to the poor, the bankers warned him that he would end up paying off the debt himself

Undaunted, Yunus began handing out small amounts of money to destitute basket weavers in a Bangladesh village. The results were startling. For people living on pennies a day, just a few dollars could transform their lives—and in many cases it did. Much to even his surprise, they paid off their loans—on time. Yunus moved from one village to the next, finding all sorts of projects to fund.

By the time the Nobel Foundation made its phone call, the Grameen Bank had outstanding loans to nearly seven million poor people, some 97 percent of whom were women, in 73,000 villages in Bangladesh. The repayment rate on those loans was a stunning 99 percent.

No less profound, Yunus created a global movement toward eliminating poverty in the world through microlending. If imitation is the sincerest form of flattery, Yunus was flattered beyond belief. Replicas of the Grameen model spread to more than one hundred countries worldwide, affecting the lives of tens of millions of people.

“The one message that we are trying to promote all the time: that poverty in the world is an artificial creation. It doesn’t belong to human civilization, and we can change that. We can make people come out of poverty. So the only thing we have to do is to redesign our institutions and policies, and there will be no people suffering from poverty. So I would hope that this award will make this message heard many times, and in a kind of forceful way, so that people start believing that we can create a poverty-free world. That’s what I would like to do.”

“Oh yes, very much. We see the demonstration of it every day. People come out of poverty every day. So it’s right in front of us and it can be done globally, it can be done more forcefully. This is not a theoretical issue, it’s a very real issue. People can change their own lives, provided they have the right kind of institutional support. They’re not asking for charity. Charity is no solution to poverty. We didn’t do anything special. All we did was lend money to poor people. That did the trick, that makes change.”

Born in 1940 in the seaport city of Chittagong, Professor Yunus studied at Dhaka University in Bangladesh, then received a Fulbright scholarship to study economics at Vanderbilt University. He received his PhD in economics from Vanderbilt in 1969 and the following year became an assistant professor of economics at Middle Tennessee State University. Returning to Bangladesh, Yunus headed the economics department at Chittagong University.

I became involved in the poverty issue not as a policy maker or a researcher. I became involved because poverty was all around me, and I could not turn away from it. In 1974, I found it difficult to teach elegant theories of economics in the university classroom, in the backdrop of a terrible famine in Bangladesh.

Suddenly, I felt the emptiness of those theories in the face of crushing hunger and poverty. I wanted to do something immediate to help people around me, even if it was just one human being, to get through another day with a little more ease. That brought me face to face with poor people’s struggle to find the tiniest amounts of money to support their efforts to eke out a living. I was shocked to discover a woman in the village, borrowing less than a dollar from the moneylender, on the condition that he would have the exclusive right to buy all she produces at the price he decides. This, to me, was a way of recruiting slave labor.

I decided to make a list of the victims of this moneylending “business” in the village next door to our campus. When my list was done, it had the names of forty-two victims who borrowed a total amount of $27. I offered $27 from my own pocket to get these victims out of the clutches of those moneylenders. The excitement that was created among the people by this small action got me further involved in it. If I could make so many people so happy with such a tiny amount of money, why not do more of it?

All of Bangladesh has changed if you look from the bottom up. In general, you see Bangladesh is still a poor country and so on. But empowerment has come to the women of Bangladesh—even the poorest women in Bangladesh. It’s tremendous. It’s a dramatic change that has taken place. Women have access to money. They can now plan. They can now dream. Their children are in school. Many of them are going into higher education through Grameen Bank financing. New communities are emerging.

A new generation is emerging. New technology has been brought in—information technology, mobile phones, and so on—in a country where 70 percent of the people have no access to electricity. We brought solar energy—self-contained electricity—and connected it to the mobile phones. Housing has been brought in, and new infrastructure. The economy as a whole has changed. People are creating their own jobs. They are not waiting for anybody else to hire them.

The microcredit we give to the women is a tool to explore one’s self, how much capacity that is stored up inside: “I never knew that I had the capacity. That creativity. That ingenuity. To make money to express myself. So that money gives, for the first time, an occasion for me to find out how much I can do.”

When you were successful in the first round, when you took tiny amounts—$30, $35—and went into business and paid back the loan, you are now much more equipped to do better. Bigger. So you ask for a $50 loan, a $60 loan, because you think you can do bigger business and more challenging business than when you first took out an easy loan.

If you go through ten rounds and fifteen rounds you are ready for a much bigger challenge than you thought. We introduced information technology into the system. We created a cell phone company called Grameenphone and brought the phone into the villages of Bangladesh. We gave loans to the borrowers to buy a cell phone and start selling phone service. It became a growing business. Now that they are already confident businesswomen, they can very easily come into a business which they never heard of before. They never saw a telephone in their life but they accepted it as a business idea, and there are now more than 100,000 telephone ladies all over Bangladesh doing good business and connecting Bangladesh with the rest of the world.

It’s a business itself. If I have a phone, since nobody else has a phone, they have to come to me to use it. They make a call and pay. It’s like a public telephone call office. The owner of the phone becomes a one-person public phone office.

By defining “entrepreneur” in a broader way we can change the character of capitalism radically, and solve many of the unresolved social and economic problems within the scope of the free market. Let us suppose an entrepreneur, instead of having a single source of motivation (such as maximizing profit), now has two sources of motivation, which are mutually exclusive, but equally compelling: a) maximization of profit, and b) doing good to people and the world.

Each type of motivation will lead to a separate kind of business. Let us call the first type of business a profit-maximizing business, and the second type of business a social business.

Social business will be a new kind of business introduced in the marketplace with the objective of making a difference in the world. Investors in the social business could get back their investment, but will not take any dividend from the company. Profit would be plowed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a nonloss, nondividend company.

Once social business is recognized in law, many existing companies will come forward to create social businesses in addition to their foundation activities. Many activists from the nonprofit sector will also find this an attractive option. Unlike the nonprofit sector where one needs to collect donations to keep activities going, a social business will be self-sustaining and create surplus for expansion since it is a nonloss enterprise. Social business will go into a new type of capital market of its own, to raise capital.

Young people all around the world, particularly in rich countries, will find the concept of social business very appealing since it will give them a challenge to make a difference by using their creative talent. Many young people today feel frustrated because they cannot see any worthy challenge, which excites them, within the present capitalist world. Socialism gave them a dream to fight for. Young people dream about creating a perfect world of their own.

Almost all social and economic problems of the world will be addressed through social businesses. The challenge is to innovate business models and apply them to produce desired social results cost-effectively and efficiently. Health care for the poor, financial services for the poor, information technology for the poor, education and training for the poor, marketing for the poor, renewable energy—these are all exciting areas for social businesses. Social business is important because it addresses very vital concerns of mankind. It can change the lives of the bottom 60 percent of world population and help them to get out of poverty.

To connect investors with social businesses, we need to create a social stock market where only the shares of social businesses will be traded. An investor will come to this stock exchange with a clear intention of finding a social business, which has a mission of his liking. Anyone who wants to make money will go to the existing stock market.

To enable a social stock exchange to perform properly, we will need to create rating agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications, such as The Social Wall Street Journal. Business schools will offer courses and business management degrees on social businesses to train young managers how to manage social business enterprises in the most efficient manner and, most of all, to inspire them to become social business entrepreneurs themselves.

My greatest challenge has been to change the mind-set of people. Mind-sets play strange tricks on us. We see things the way our minds have instructed our eyes to see. We think the way our minds have instructed our minds to think. We are familiar with one way of thinking. Most of it comes during our academic years, during our student years. The teachers we had, the books we read—they made up our mind-set, and ever since we are stuck with that. We cannot break through this.

If you are a successful student in a university, actually you become the “mini” of the professor whom you liked and admired most. So that’s what mind-set does. When you bring in a new thought, you are in conflict with those old thoughts. You struggle, but the old thoughts still prevail because the mind-set is so strong. It would be good if we could have an educational system, a learning process, where we could retain our originality and at the same time accumulate insight and never become a mini professor, but remain ourselves and still absorb different views. Yet institutions have their own mind-sets, and it’s very difficult to penetrate and change them. So changing has to be done faster. It’s a faster world—particularly in the twenty-first century—but human minds, our academic system, make change slow. So this has been the hardest challenge that I have faced along the way.

To me poor people are like bonsai trees. When you plant the best seed of the tallest tree in a flower pot, you get a replica of the tallest tree, only inches tall. There is nothing wrong with the seed you planted, only the soil base that is too inadequate. Poor people are bonsai people. There is nothing wrong in their seeds. Simply, society never gave them the base to grow on. All it needs to get the poor people out of poverty is for us to create an enabling environment for them. Once the poor can unleash their energy and creativity, poverty will disappear very quickly.