For the hundreds of millions of persons in Asia under the poverty line, the equally huge amounts of development aid, soft loans or technical assistance dispensed by the international donor community seems to have little direct impact on their everyday lives, because what they really need to possibly transform their existence is a meagre investment that nevertheless seems beyond realistic reach.

For the hundreds of millions of persons in Asia under the poverty line, the equally huge amounts of development aid, soft loans or technical assistance dispensed by the international donor community seems to have little direct impact on their everyday lives, because what they really need to possibly transform their existence is a meagre investment that nevertheless seems beyond realistic reach.

But microcredits of the equivalent of a few dozen or hundred euros could provide the real venture capital that could turn them into grassroots entrepreneurs and generate profits to propel them into a world beyond mere day-to-day subsistence.

A graduate of a top Western university economics faculty, Muhammad Yunus more than 30 years ago reached that conclusion and launched a movement that changed the lives of millions in the remote villages of his native Bangladesh and has now spread throughout a world still plagued by poverty.

This “Banker to the Poor,“ as his memoires are titled, spawned a real bank, Grameen, a telecommunications company and numerous other financial services such as pension and investment funds, mortgage lending and health insurance, all destined for the poor unreached by other traditional financial institutions because they had no money to speak, or could not repay loans and were considered unacceptable risks.

Bank’s bottom line also enviable

Today his Grameen Bank, which he says is owned by the borrowers, has some $500 million in assets, has some 3.1 million borrowers, 90% of them women, lends some $1.5 million daily and made $11 million in profits in the past year. The bank has moved beyond lending for cattle, fishing nets or agricultural seeds and launched Grameen Phone in 1996 when it obtained a mobile telephone license from the Government. But it maintained its traditional approach through the bank, which began lending to village women to purchase mobile telephones to earn a living and has helped set up 43,000 such “telephone ladies” in Bangladesh. “This virtually guarantees to move them out of poverty in a year or two with the earnings,” he told business students in Brussels in February.

More recently, the Grameen microcredit concept has even extended to the poorest of the poor in the Bangladeshi beggars‘ community. “We got sick of allegations that we didn’t serve the poorest,” he remarked recently. He says there are now some 3000 beggars enrolled, many of whom are disabled or come from families of generations of beggars, and he hopes to have 10,000 in a few years. The credit enables them to acquire goods they can also sell while begging, increasing their revenues.

10,000 similar plans

Today, the original “barefoot bankers” have been emulated by some 10,000 micro-finance institutions throughout the world, probably half of them in Asia, including some 50 large ones like Grameen, which lend to some 15 million borrowers, according to Arnaud Ventura, of Planet Finance, a relatively new international NGO dedicated to this system. He added recently in Brussels that in addition, some 300-400 of these organisations receive some support through financial donations, but that the other 9000 or so were very small and require more support to be sustainable and effective.

Yunus and Planet Finance have also teamed with other such organisations and the EU to move micro-financing into the information revolution in the hopes expanding their effectiveness and impact “exponentially” in the future. They organised a series of seminars in recent months in Beijing, New Delhi and Brussels to explain and examine the potential for helping to reduce poverty and the so-called digital divide globally. The gathering, sponsored by the EU Commission Asia Information Science and Technology programme have sought to draw lessons from the experience in China and India for both micro-credit projects and information technology. A senior Pakistani official also briefed on the experience in his country, which he underlined ranked 127th in the UN development index but was fully committed to achieving the International Millenium Goals and was also establish a modern electronics infrastructure and had now 5 million Internet users.

China, India take different paths

The participants at the Brussels conference February 9 and 10 heard from speakers that the situation for micro-credit plans was vastly different in these two Asian giants.

While there was what was described as a “tremendous demand” in China for micro-financing, according to Professor Du Xiaoshan of the Chinese Academy of Social Sciences and the founder of microfinance in the country. He said it was especially the case in rural China, where 60% of the population lives, including an estimated 10%, or 120 million, in poverty. He noted the introduction of such projects in China in the early 1990s after their establishment in Bangladesh and Indonesia, and the extension of rural credit operations in 2001, which had benefited some 10 million borrowers. He added that the government recognised the advantage of such programmes and wanted to study international best practices before introducing appropriate regulations.

In reality this expert indicates that despite this official interest and support, the climate for such operations in the country is not favourable because the policy framework has not been suitably arranged and is not consistently flexible enough to permit the sustainable development of microfinance. “No clear relationship has been defined,“ he adds. More specifically, he says, the government strictly controls interest rates and NGOs do not qualify as financial institutions. He adds that the government and the regular banking system, “don‘t understand the concept of microfinance and don‘t run the programmes effectively. They don‘t believe microfinance can be profitable.“ Local governments are also regarded by Prof. Du as a major difficulty because they tend to have a passive attitude toward some rural poverty programme and tend to favour actions aimed at the richer farmers.

In essence the result, he explains, is that there are insufficient funds, staff or incentives for either the government programmes or NGO activities. He advocates a number of recommendations, including a clarified legal framework that reduces government control, to allow, for example, more flexible interest rates, but increases funding, broadens the recipients targeted and assists in training staff.

India also targets urban poor

Medha Samant, director of the Annapurna Microfinance Institute in Pune, India, explained to the participants that such activities have been carried out in India for more than 30 years through rural self-help groups, which in the past tended to overlook the urban poor that comprise some 35% of the total urban population there. In addition, she said that previously the emphasis was on women and tended to overlook the male population, families, children, adolescents and dropouts. But she believes now they do provide a bridge to these other groups through urban uplift training programmes, job placement, insurance and health services.

Commenting on these results and questions, one Planet Finance representative remarked that “we have no guarantee we are transforming these countries,“ in part he added because microfinance is a market-driven sector:

The implication is one that Muhammed Yunus and his concept have struggled against for decades and, he believes has been disproved. The asssumption was widespread and remains so that poor people have no money and therefore are poor customers and especially poor risks for repayment of credits made to them. Yunus and Grameen have found instead that the repayment rate for the poor is sometimes between 90-100% and in any case much higher than the more affluent population and in addition they demand additional services and products as they move up the economic ladder after their initial loans. “Poverty is not created by poor people,“ Yunus maintains, “the poor are dynamic, energetic, intelligent.“ He uses the simile of the bonsai tree whose growth is stunted by its surroundings. He also maintains that success, greed and self-interest should not necessarily be the driving force for business, which will neglect the poor, but that other values of social economics could also become a force. “We have to fix the other side,“ he adds, “we must redesign the whole thing: We have to look at the world of business and look at how it is today.“

Although he acknowledges that his concept will “not solve all the problems of the world,“ he clearly believes this alternative approach is not condemned to a dead end.

Grameen concept has adapted

He explained his own Grameen business‘ evolution from the initial micro-credit concept into a major new type of international economic action to a Brussels student audience at the Solvay Business School February 11.

This path, Yunus said, branched off in the early 1980s to develop a number principles and decisions in partnership with their early borrowers, many of whom were poor, illiterate villagers. One of the decisions they jointly made was that they would send their children to school, a flow which has attained nearly 100%, he continues. Although it was expected that many of this first generation of students would probably end their studies after five years of primary schooling, he said, “After a few years, we noticed they didn‘t stop at primary school, or even secondary school, but went to universities, medical schools and others and we started providing educational loans and scholarships.“ Grameen now provides 6000 such scholarships a year, he notes.

In 1984 he continued, Grameen introduced housing loans, which the national Central Bank was initially reluctant to accept but eventual acceptance has resulted in 60,000 such loans.

Similarly with the passing of time and many of the first borrowers aged, Grameen introduced a pension system, which he adds was a concept almost unheard of in Bangladesh at time, where the family traditionally cared for the elderly. Now, he says, almost all the Grameen borrowers are enrolled in the pension system and he adds they are very enthusiastic.

Then, after considerable Grameen scepticism, it became involved in telecommunications. Grameen phone has been a reality since 1995 which has extended mobile telephones to remote villages and “brings state of the art technology to peoples some consider as primitive… and integrated it into their lives,” he assures. He also believes this has proved modern information technology is not just for rich people while “bridging the digital divide and the opportunity divide.”

There is also a Grameen mutual fund among the more than two dozen different Grameen firms.

Tycoon of the poor on a mission

As if that were not enough, he said in Brussels Grameen is still oriented toward the future. He said the firm is now seeking advice from the young people in Bangladesh, where more than half of the population is below 18 on future applications for ne information technology. And he believes his firm can be an example of a new type of social entrepreneurship working for others in such fields as health, the homeless, drug addiction, the environment, water purification and others. “We don’t have to make big money, but pass it on,” in shares in the company which guarantee additional income to the poor borrowers, he said. It is clear that this tycoon for the poor has a world-wide mission, we tells business students in Europe that “we needs to create a new kind of business environment in the world.”