Muhammad Yunus on Merging Charity with a Business Engine

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Muhammad Yunus

“Poverty is not created by poor people, it is the system which created the poverty …. Unless you change the system, you won’t remove the poverty.”

Professor Muhammad Yunus, Nobel laureate, social entrepreneur, banker, economist, and founder of Grameen Bank, came up with a local idea that made global changes. At the 2016 CFA Institute European Investment Conference, he told delegates that his original intentions had nothing to do with banking or credit, but circumstances had pushed him into something he never expected. “I specialize in tiny, tiny, little investments,” he said.

Yunus explained that during his tenure as a professor of economics at Chittagong University in Bangladesh, “economics had no meaning to the people dying around me.” Wanting to find “some measure of usefulness,” he ventured into the surrounding village to help the people living in extreme poverty that he saw every day from his office window.

Discovering wide-spread and destructive predatory lending practices in the community, Yunus determined to lend the poor money out of his own pocket “at a just rate.” From this humble beginning, the idea of microcredit was born: Yunus reported that currently, almost every country in the world has a microcredit program.

Yunus is quick to distinguish the work he does from that of a charity. He emphasized that he has “never gone through the charity door.” He acknowledges that charity is a wonderful idea, but he believes it has distinct limitations. “Charity money goes out, does that wonderful thing, but the money doesn’t come back. It is only a one time use of your money,” he explained. Instead, Yunus took the objective of charity, put a business engine behind it, and called it “social business.”

At the European Investment Conference, Yunus explained that with a social business, “the money goes out, does the work, and it comes back.” Given that Americans alone donated $373.25 billion to charity in 2015, a 4.1% increase from 2014, the amount of work that social businesses could do with only a fraction of that total is staggering.

Yunus observed that a major flaw with the current financial system is that there are few opportunities for the poor to obtain capital that they can apply productively. “Money begets money,” he stated. “If you don’t have that, you wait around to be hired by somebody at the mercy of others. If you have that money in your hand, you desperately try to make the best use of it and move ahead.” Given an opportunity, Yunus declared that anyone can become an entrepreneur. “The basic instinct of entrepreneurship is in all.”

Yunus holds up microlending as a way to get more capital into the hands of potential entrepreneurs. “Microcredit has shown how you can reach out to people who conventional banking will not,” he said, adding that the creation of new entrepreneurs could take steps to address wealth inequality.

Although news outlets have reported that microcredit initiatives have encountered some implementation difficulties, Yunus remains optimistic. “If others have tried to imitate it in a flawed way, it doesn’t mean the whole idea of noncollateralized lending to the poorest people is flawed,” he said. “The challenge is to get it right.”

“Everything starts with solving a very tiny slice of a problem,” Yunus explained. With microcredit, he was trying to help a few people in one village so that they didn’t have to go to loan sharks and lose everything in the process. That is how social business begins. “There is no reason anyone should be poor; we just need to fix the system so that all are truly reflected in our economy.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: Courtesy of Martine Berendsen Photography

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