Commonwealth Lecture, 2003

I am very honoured to have been invited to give the Commonwealth Lecture 2003. This is a great privilege for me. I would like to take advantage of this occasion to share my experiences, excitements, frustrations, and, of course, my thoughts with you. (If it makes sense to you, I hope you’ll use your capacity to do something about it. If it doesn’t make any sense, I don’t have to tell you what you should do. You are all experts on it.)

I have chosen to speak on the most daring of all Millennium Development Goals ? halving poverty by 2015. I have chosen it for two reasons. First, this is the most courageous goal mankind ever set for itself. For the last two decades I have been talking about creating a world free from poverty. I talk about it not because it is unjust to have a world with poverty, which is, of course, true. I talk about it simply because I am totally convinced from my experience of working with poor people that they can get themselves out of poverty if we give them the same or similar opportunities as we give to others. The poor themselves can create a poverty-free world ? all we have to do is to free them from the chains that we have put around them. Secondly, a feeling is getting stronger in me everyday that very few people are really serious about reaching the goal of halving poverty by 2015. Leaders who made this bold announcement went back to their other important commitments feeling happy that they have captured world’s imagination. As the decision has been taken at the highest level, they expect that actions will follow, and a well coordinated powerful machinery will get activated to get the job done. Unfortunately, so far it has not happened. Only the donor agency officials supported by thriving consultancy business are carrying the ball. What is emerging reminds us of the decade of nineties when the global goals were put in the form of “Education for all by the year 2000”, “Health for all by the year 2000”, “Everything else for all by the 2000”. My worry is that these courageous millennium goals may degenerate into a cut and paste job of the earlier edition, merely replacing the “year 2000” by the “year 2015”, with appropriate changes in the text.

Please forgive me if I sound too pessimistic. I assure you that I remain a compulsive optimist despite all the bad signs that I see. I keep hoping that these signs will change.

I am an optimist because I am convinced that poverty is not as difficult a subject as the experts keep warning us about. This is not about space science, or about an intricate design of a complicated machine. This is about people. I don’t see the possibility of a human being becoming a ‘problem’ when it comes to his or her own well-being. All the ingredients for ending poverty of a person always comes neatly packaged with the person himself. A human being is born in this world fully equipped not only to take care of himself (which all other life-forms can do too), but also to contribute in enlarging the well-being of the world as a whole (that’s where special role of a human being lies). Then why should one billion plus people on the planet suffer through a life-time of misery and indignity and spend every moment of their lives looking for food for physical survival alone ? We must find some explanations. This will help us achieve the 2015 goal.

Poverty is not Created by the Poor People

Here is my explanation. Poverty is not created by the poor people. So we shouldn’t give them an accusing look. They are the victims. Poverty has been created by the economic and social system that we have designed for the world. It is the institutions that we have built, and feel so proud of, which created poverty. It is the concepts we developed to understand the reality around us, made us see things wrongly. They took us down a wrong path, and caused misery for people. It is our policies borne out of our reasonings and theoretical framework, with which we explain interactions among institutions and people, that caused this problem for so many human beings. It is the failure at the top – rather than lack of capability at the bottom – which is the root cause of poverty.

The essence of my arguments here today is that in order to reduce, and ultimately eliminate, poverty we must go back to the drawing board. Concepts, institutions, and analytical frame conditions which created poverty, cannot end poverty. If we can intelligently re-work the frame conditions, poverty will be gone, never to come back again.

In this presentation I will draw your attention to five issues which need to be urgently revisited :

(a) widening the concept of employment
(b) ensuring financial services even to the poorest person
(c) recognising every single human being as a potential entrepreneur
(d) recognising social entrepreneurs as potential agents for creating a world with peace, harmony, and progress.
(e) recognising the role of globalisation and information technology in reducing poverty.

Let me narrate how I came to face these issues in the real world and how they impacted on me.

I became involved in the poverty issue not as a policymaker or a researcher. I became involved because poverty was all around me. I could not turn my eyes away from it. In 1974, I found it difficult to teach elegant theories of economics in the 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. Not knowing what I could do, I decided to find a way to make myself useful to others on a one-on-one basis. I wanted to find something specific to do to help another human being just to get by another day with a little more ease than the previous day. That brought me to the issue of poor people’s struggle and helplessness in finding microscopic amounts of money in support of their efforts to eke out a living. I was shocked to discover a woman borrowing US $ 0.25 with the condition that the lender will have the exclusive right to buy all she produces at the price the lender decides ! What a way to recruit slave labour. I decided to make a list of the victims of this money-lending “business” in the village next door to our campus. When my list was done it had the names of 42 victims. Total amount they borrowed was US $ 27 ! What a lesson for an economics professor who was teaching his students the Five Year Development Plan of the country with billions of dollars in investments to help the poor. I could not think of anything better than offering this US $ 27 from my own pocket to get the victims out of the clutches of the moneylenders. The excitement that was created by this action got me further involved in it. The question that arose in my mind was, if you can make so many people so happy with such a tiny amount of money, why shouldn’t you do more of it ?

I have been trying to do just that ever since. First thing I did was to try to connect the poor people with the bank located in the campus. It did not work. The bank said that the poor are not creditworthy. After all my efforts over several months failed I offered to become a guarantor for the loans to the poor. I was stunned by the result. The poor paid back their loans every single time ! But I kept confronting difficulties in expanding the programme through the existing banks. Several years later I decided to create a separate bank for the poor, to give loans without collateral. Finally in 1983 I succeeded in doing that. I named it Grameen Bank or Village bank. It now works all over Bangladesh, giving loans to 2.5 million poor people, 95 per cent women. The bank is owned by the borrowers. In a cumulative way the bank has given a total loans of about US $ 3.75 billion. Generally the repayment rate has been over 98 per cent. It makes profit. Financially, it is self-reliant ? it has stopped taking donor money since 1995, stopped taking loans from domestic market since 1998. It has enough deposits to carry out its lending programme. It gives income generating loans, housing loans, and student loans to the poor families. More than half a million houses have been built with loans from Grameen Bank. Impact studies done on Grameen Bank by independent researchers find that 5 per cent of borrowers come out of poverty every year, children are healthier, education and nutrition level is higher, housing condition is better, child mortality declined by 37 per cent, status of women has been enhanced, ownership of assets by poor women, including housing, has improved dramatically. Now the obvious question that anybody will ask ? if poor people can achieve all this through their own efforts within a market environment, why isn’t the world doing more of this ? Some progress has been made. But much more could have been achieved. One difficulty may have arisen from a confusion.

Grameen’s banking methodology has become known as microcredit. But gradually the label of ‘microcredit’ got into general use for all types of small loans, including agricultural loans, cooperative loans, savings bank loans and rural credits, etc. This has created confusion in policymaking, institution-building, and in designing regulatory framework. If we now classify microcredit into different categories to sort this out, I think we can come out of this confusion. (I think we could have avoided the confusion, to some extent, if we had called it “micro-capital”. That’s what it really is. Bangla term that I use for it translates as “micro-capital”.)

Grameen type microcredit has spread around the world over the last two decades. Nearly 100 countries have Grameen type microcredit programmes. In 1997, a Microcredit Summit was held in Washington DC, which adopted a goal to reach 100 million poorest families with microcredit and other financial services, preferably through the women in those families, by 2005. At that time number of families reached with microcredit was only 7.5 million globally, of which 5 million was in Bangladesh. Today, I am guessing, this outreach has crossed 35 million. I am hoping it will cross half way mark, i.e. 50 million mark, by the end of this year.

But the biggest problem for expanding the outreach is not the lack of capacity, but strangely, the lack of availability of donor money to help microcredit programmes get through initial years until they reach the break-even level. Beyond that level, these programmes can expand their outreach with loans from the market or from deposits. In most countries microcredit NGOs are not allowed to take deposits by the regulatory bodies. If microcredit NGOs could open the doors for taking public deposits, expansion of outreach could be very rapid because this would free them from dependence on donor money. It is a very strange phenomenon in many countries to see that conventional banks with repayment rate of below 70 per cent are allowed to take huge amounts of public deposits year after year, but microcredit institutions with unbroken record of over 98 per cent recovery are not allowed to take public deposits. It is often argued that since microcredit programmes do not come under any law, it is highly risky to allow them to take deposits. This always seems to me a funny argument. Why don’t we create a law to bring the microcredit programmes under a legal cover, create special regulatory commission to regulate them and allow them to take public deposits? This will help local deposits in the villages to work for local poor people, instead of being siphoned off to the big cities to finance big businesses. This is the frustrating part of our experience. One feels like throwing one’s arms in the air and scream in protest.