Saturday, July 07, 2007

On Muhammad Yunus's autobiography Banker To The Poor

Not many would dispute the claim that poverty - not AIDS, terrorism, or climate change - is the greatest problem before mankind today. After all, even if we are living in an age of unprecedented prosperity, more than one billion people, or one-sixth of humanity, still live below the poverty line, or on less than $1 a day.

But unlike those other issues, poverty has always been around with humanity, and so we are all to some extent inured to it - it is for most people a fact of life, as natual as the weather. And perhaps even the opening proposition of this essay leads to a misleading conclusion, for it suggests then that it is the responsibility of mankind, or at least the richer sections of mankind, to "solve" the problem of poverty through redistribution, charity, employment schemes, or development aid. And who should know of this propensity better than Indians? We are, after all, home to one third of the world's poor, and our politicians routinely come to power speaking the rhetoric of poverty alleviation. Indira Gandhi's rousing slogan Garibi hatao, which swept her to power in 1971, still resounds through the corridors of government today and informs our policy-making at every level.

The salutary argument of Banker to the Poor, the autobiography of the 2006 Nobel Peace Prize laureate Mohammad Yunus, is that to emerge from the shackles of poverty the poor need access not so much to development aid or social welfare or skills training as capital. As Yunus has demonstrated in three decades of work in Bangladesh with his Grameen Bank, the idea that the poor are not credit-worthy because they have neither skills nor collateral is fallacious. The extent to which he has been successful is disputed by skeptics, but the fact that he has ushered in nothing short of an economic and social revolution is indisputable.

His autobiography recounts the steps by which he arrived at his thinking, and the progress of the micro-credit movement from a $27 loan made in 1976 - Grameen's disbursements came to over $600 million in 2005, and programmes replicating the Grameen model are in place now the world over. Yunus's philosophy of "grass-roots capitalism", and the specifics of how it involves both the individual and the community in a comprehensive vision, is one of the most essential advances made in our times on problems of economics that have been debated for hundreds of years, a fact acknowledged by the United Nations when it declared 2005 the International Year of Microcredit.

Returning to Bangladesh to teach economics in the seventies after completing his Ph.D in America, Yunus noted that the elegant theories of his education that he himself now propagated in the classroom seemed not to be working on the ground. Many of the desperately poor in his village, although capable of productive work, were caught up in the clutches of moneylenders, or else working for miniscule wages because, as Yunus points out, "profit is unashamedly biased towards capital".

These facts have confronted many an economist, but Yunus's achievement, backed by hundreds of committed workers, was to convince the poorest of the poor (many of them illiterate women in a society which treated them like second-class citizens) that they could be independent economic actors by borrowing small amounts of capital, and then to get them to pay back these debts. He shows that he managed this, paradoxically, by making it hard for the poor to borrow from Grameen. Each individual desirous of a loan had to approach the bank after forming a group, the members of which then acted as a peer-support system. Further, the repayment of the loans was not on a yearly but a weekly basis, a continuous rather than a deferred activity.

The poor are often overawed by money (many of the women to which Grameen issued loans had never handled money in their life) so Yunus went down to a scale at which even they could be comfortable. Grameen was also unusual in that it sanctioned loans without collateral, and that it gave no great importance to skills training. In Yunus's view, the poorest of the poor already have skills which they can utilize to break the strangehold of absolute poverty. In a table of activities supported by Grameen loans, amongst the most popular are paddy cultivation and paddy-husking, cow-rearing, weaving and cane-making, the purchase of rickshaws and sewing-machines.

Yunus emerges in these pages as a strong proponent of self-employment, which he sees as being given short thrift in traditional theories of economics. "Obviously self-employment has limits," he writes, "but in many cases it is the only solution to help the fate of those whom our economies refuse to hire and whom taxpayers do not want to carry on their shoulders." Yunus is also a critic of development aid and the welfare state, which inculcate in the individual a sense of dependence or natural entitlement. "Charity, like love, can be a prison," he declares.

The poor are poor not because they are untrained or illiterate, "but because they cannot retain the return of their labour," argues Yunus. "It is not work which saves the poor, but capital linked to work." By thinking of the poor as not creditworthy because they possess no collateral, banks, in his opinion, practice a kind of "financial apartheid". Micro-credit, in his view, uses the power of cash capital to liberate the potential of human capital. He reminds us that the etymological root of the word credit is "to believe, put trust in". This incisive and clear-headed autobiography should become an enduring part of the essential literature on poverty.

Here is Yunus's Nobel lecture, in which he asserts his belief in capitalism but argues against a now-standard interpretation of it based on the assumption "that entrepreneurs are one-dimensional human beings, who are dedicated to one mission in their business lives − to maximize profit". "This interpretation of capitalism," he argues, "insulates the entrepreneurs from all political, emotional, social, spiritual, environmental dimensions of their lives." And he has a good essay on globalization here, in which he contends that "we cannot cope with the problem of poverty within the orthodoxy of capitalism preached and practised today". Yunus's observations might be interpreted as proof that sometimes it is capitalism's most perceptive critics who are its best friends.

And here are two essays on a related theme by the economist William Easterly, "Why Doesn't Aid Work?" and "The Ideology of Development", and a good essay by Amartya Sen on Easterly's recent book The White Man's Burden.

And finally, a superb essay - the transcript of a lecture, actually - by James Q.Wilson, a writer I admire greatly: "The Morality of Capitalism".

Muhammad Yunus's new book Creating A World Without Poverty is published in America this week by the excellent imprint PublicAffairs Books.

And some other posts on autobiographies by Pervez Musharraf, Sasthi Brata, and Barack Obama.

[A shorter version of this piece appears today in Mint.]


Anirudh said...

Wonderful piece, Chandrahas. You give one an excellent overview of Yunus' ideas, concurrently expressing your own.

Hari said...


Very good review on what is clearly an important effort. I heard of Muhammad Yunus and Grameen bank through a documentary on social entrepreneurs I saw on American public television - here is the link with some information and pictures

I do have a question: does Yunus elaborate on why Grameen focused on women borrowers? Greater accountability and better management, perhaps? For if this was successfully done in a place “in a society which treated them [women] like second-class citizens”, it bodes very well for emulating the Grameen idea of focusing on women borrowers elsewhere as well.

Chandrahas said...

Hari - You are correct in your guess. Women are definitely more responsible borrowers. Unfortunately I can't quote what Yunus does say exactly because I'm travelling right now and I don't have the book on me. But it's an elaboration of your hunch.

Peter said...

Great review Chandrahas...