Following the global financial crisis, conventional banks have lost a trillion dollars, yet they are still not in favour of lending to the poor, Nobel Peace Prize winner Muhammad Yunus said on Saturday.
The Bangladesh banker and economist was giving the seventh Nelson Mandela Annual Lecture in Johannesburg.
“I had to create Grameen Bank because the conventional banks refused to lend to the poor. This is the same for conventional banks the world over,” Yunus said.
“They do not mind writing off a trillion dollars in a sub-prime crisis, but they still do not lend $100 to a poor woman despite the fact such loans have near a 100 percent repayment record globally,” he added.
Yunus said conventional banks also complained that the poor were not credit worthy.
“The real question to ask is whether banks are people worthy,” he added. At Grameen Bank, there were no legal instruments between lender and borrower, no guarantees, no collateral.
“And yet our money comes back while the prestigious banks all over the world that went down had all their intelligent paperwork, all their collateral, all the lawyers and legal systems to back up their lending, ” Yunus explained.
“When we give a $100 loan, behind that there’s a cow, there’s a few chickens, there’s something real,” Yunus said.
“The banks that are collapsing were based on chasing papers. It was a race to create a fantasy world of papers. And when something went wrong, the whole thing collapsed. ”
He said the Grameen Bank was locally based and its source of money was local.
“In other words, the money comes from the deposits of the people in the bank. We take the depositors’ money and lend it. We are not connected with international banks, so their crisis could not reach us.”
But Yunis noted that even if the problems springing from the global financial crisis were overcome, the world would still be left with some fundamental questions about the effectiveness of capitalism in tackling many other unresolved issues.
“There is only one concept of business in the whole world, and that is the purpose of business is to make money.”
He said the interpretation of the human being in this theory treated people as one-dimensional beings.
“Capitalism and the marketplace that has grown up around the theory make no room for the selfless dimensions of people … what about starting a business on the base of selflessness?” he asked.
Yunis proposed a second type of business alongside the existing one, calling it “social business.”
“This is a business whose purpose is to address and solve social problems, not to make money for its investors.”
He said Grameen had partnered in a joint project along these lines in Bangladesh with Danone. “Grameen collaborated with Danone to supply nutritious fortified yoghurt to the undernourished children of rural Bangladesh,” he said.
Grameen had also created a joint venture with Veolia of France to deliver safe drinking water to the villages of Bangladesh.
“Whenever I see a problem, I start a company to solve that problem,” Yunus said.
The lecture was attended by Nelson Mandela and his wife Graca Machel. Yunus congratulated Mandela on his forthcoming 91st birthday.
“You are the most wonderful person alive today,” he told Mandela. “I feel privileged to be on this planet while you are with us.”