Daily Archives: April 13, 2013

Microcredit across disciplines

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The microcredit system, with all its success around the world, is an impressive solution to the lack of opportunity that keeps the poorest of the poor from climbing out of poverty. Using funds that are relatively small sums to encourage investment and the building of enterprise, with a system of trust for repayment, has the potential to eliminate poverty from society, as Professor Yunus describes[1].

When thinking ahead, what happens if/when the microcredit system becomes so successful that many of the poor households using the system are now off and running with their own enterprise or investments? One of the conditions of the microcredit system was that loans would not be used to purchase food or clothing, etc.

Another scenario that may have an interesting result is the use of microcredit across disciplines. Professor Yunus discusses how his healthcare ideas have used the system to help with one of the most demanding needs of life, and how it functions on the basis of trust when medical care must be given without payment being available up front. However, there are many other services and fields that provide necessities for those rising out of poverty. Architecture, for example, and the construction industry can provide the necessity of shelter, as well as arrangements for incorporating other family members or tenants into a living situation. Would microcredit also work for services such as architecture? Or would those services be considered enterprise for an investment?

Another idea is the concept of bartering; Professor Yunus’ interviewer discusses how Bangladesh is a homogenous culture of religion and people, with similar understandings and traditions and worldviews. If microcredit can work as a system that improves the culture and people group as a whole, instead of one person here and there, could bartering be used as a means of “income”? This could function on a larger scale than trading bread for a scarf for example. If a few people can wire electricity to your home, or provide construction labor for a new home, you could potentially repay them with another service they require. This is less applicable the more formal a society becomes, but may have potential to offset the lack of opportunities related to monetary income, and could potentially be organized in a record-keeping type manner, such as the microcredit loan system. Food for thought perhaps!

 

1. Dr Toh Han Chong,  Interview with Professor Muhammad Yunus, SMA News, Volume 40 No. 12 December 2008.

Social Investment

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When dealing the crisis of poverty, most organizations and governments follow the prototype of social expanse on low-income families. However in the free market in capitalism system, it is hard and takes more effort for these “charities” to survive with more expanse than income. As Yunus mentioned in the interview “a market must be developed as a self-correcting system”, social conscience practices need work as a sustainable system that generate profit in the process of helping the poor and keep the organization survive independently. Both Grameen’s microcredit system and Elemental’s practices are based on the philosophy of creating wealth and helping the poor at the same time.
It is Yunus and Aravena’s trust on the ability and the contribution of local dwellers and the poor that makes their practices so successful. When talking about the inspiration of his belief in social enterprise, Yunus thinks that it the village women who “struggle daily for dignity and to create a good life for themselves and their families” (Dr Toh Han Chong, 5). The creativity and hardworking of the poor give passion for these social enterprise to invest and provide opportunity for poor people. Yunus believes that the reason for poverty is the lack of opportunity.
In order to help the poor, Grameen microcredit bank provides the low-income family with the opportunity to generate more income. And the regulating system with their outreach workers can make sure that the borrowers are using the loan for income generating purposes so that they will have ability to pay back to Grameen bank and have more money to support their families. Yunus extends this idea also to the Grameen Healthcare (GH) that they provide healthcare service first and the poor patients can pay for the service sometime in the future.

Aravena and Elemental uses similar philosophy in their architectural practices. The completion of buildings is not only architects’ job but also based on the dwellers themselves. Elemental provides highly designed architectural framework and leave the space for local dweller to add or change the building depending on their needs. Social enterprises like Elemental “empower local builders by giving them the knowledge that allows them to take these same innovations and apply them themselves” (Aravena, 35). This kind of practices saves the time and cost that are the most important in social housing projects. Each owner builds the second half the house and is responsible for “customizing the final solution” (Aravena, 35) in Elemental’s first practice in Iquique project in 2003. The value of houses increases because of the contribution of dwellers.
Elemental Iquique

Also, the cooperation between institutions, enterprises and governments makes social investment easier in practice. “This unusual combination of academic excellence, corporate vision and entrepreneurship has been instrumental in enabling Elemental to expand its scope in the city” (Aravena, 32). Similar to Grameen, they create a health network that combine university and hospital center “hub” including a nursing college to serve for clients.
The sustainability should be the focus for more social organization and enterprises. Aravena and Yunus’s success give us good examples of social investment rather than only social expanse in social practices.

 

1. Dr Toh Han Chong,  Interview with Professor Muhammad Yunus, SMA News, Volume 40 No. 12 December 2008.

2. Alejandro Aravena, ‘Elemental: A Do Tank”, Havard Design Magazine 21, Fall/Winter 2004/5.

Beyond Charity

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Traditionally the poor of the world have not had access to banking as they are deemed not credit worthy. This presents a problem as one cannot make money without having any in the first place especially in areas where jobs are scarce. Those who have no choice but to take out a loan are forced to use loan sharks who charge exorbitant interest rates which most cannot repay, thus enslaving and sending those who took out the loan further into poverty.

A viable alternative to loan sharking and traditional banking is what is called microcredit. The idea of this loan system is to give small amounts of money to groups of people in need. This group based credit approach ensures loans are repaid due to the peer-pressure of the group. The idea of this system originally came about when Professor Muhammad Yunus was teaching economics at Chittagong University in Bangladesh. He felt useless teaching those who could barely afford to eat economics in the classroom, therefore he set off into the streets of Dhaka to see how he could be instead helpful. While conversing with those in the street he found that many people were enslaved to loan sharks, of those he talked to, 42 people were unable to get out of this situation. He decided to give them the money to free themselves and as soon as they were able to do so, they repaid Yunus.(1) This anecdote is the foundation for Grameen Bank.

The goal of Grameen Bank, founded by Professor Muhammad Yunus, is to break the cycle of poor generation after generation by allowing the them to borrow small amounts of money to invest in either a business or agriculture. This process is called microcredit and as Muhammad Yunus states it “is intended to help poor people work their way out of poverty.” (1) In contrast to Grameen bank, the traditional banking system and loan sharks, only push those in poverty further down. These business models are focused on making a profit rather than aiding those in need. The interest earned by Grameen bank as opposed to typical banks is that it only uses interest to allow new loans to occur so that other members of the community are aided. Grameen bank focuses on elevating the poor and the community as a whole by allowing them through their loans a means to lift themselves out of poverty.

Throughout time the microcredit method has helped many poor families in Bangladesh and has since been transferred to other poor areas of the world. In addition to this expansion, the idea of microcredit has also been re-imagined as a means of aiding those who find themselves unable to afford healthcare or in situations of natural disasters. During times of natural disaster Grameen Bank dedicates itself to the welfare of its members by acting as a humanitarian organization to those affected.(1) On the healthcare front, Grameen Healthcare was founded upon the same principles as Grameen Bank. At Grameen healthcare no one will be turned away from receiving the care that they need. Payment is negotiable and can be done when you have the ability to do so, taking the stress out of healthcare.(1)

The ideas established by Professor Muhammad Yunus understands the necessity of the poor to get loans and repay, not by fear but by trust. The idea of microcredit allows those who take out loans the ability to get the money they need without much stress and in addition keeping their dignity in the process. This allows those getting loans the ability to elevate themselves by their own talents.

(1) SMA News: Interview with Professor Muhammad Yunus: Edited by: Dr. Toh Han Chong

 

Bridging Economics and Social Practices

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Economics as Professor Muhammad Yunus has implemented it has truly bridged a path between its typical competitive capitalist association and its philanthropic capabilities. It is through this bridging process that he has learned not only the importance of his work but also different ways that others can contribute to this new initiative to solve poverty.
It was through his observations of corrupt loan practices in Dhaka, Bangladesh that he was first inspired to utilize his profession as a form of activism to solving social economic problems. Furthermore, it was through observation that it was learned how to better implement his newly created and more honest practices of providing loans. For example, it was through practice and observation that Prof. Yunus found out that his loaned money would better benefit families, as he states, “Over time we noticed something interesting. The loans that went through the women appeared to have a greater development impact on the family.” [1] This discovery would be then applied to other microcredit programs around the world.
Professor Yunus’ utilization of his loan program serves as a bridge connecting capitalism as it exists today and social business. Accommodating social businesses into capitalism allows for a “solution of many of the problems we see today.” [1] The goal of these social driven businesses are to provide assistance to many of the social and economic needs of citizens in less than favorable situations. Many of these issues deal with malnutrition, safe drinking water for rural areas, and other. In essence there needs to be a balance between the output that capitalism provides and better connecting it with entrepreneurial work. It should not be that one is limited to help society through charities of non-profit organizations because these sometimes limit the amount of work that can be done and are very specific to their utilization while private companies for example can provide more fluctuation in the way money is utilized.
Many government programs across other countries have begun to utilize this bridging method such as the Compartamos program in Mexico. However, many of these programs continue to keep interest high and as a result turn out to be the same form of corrupt money lending strategies that inspired Yunus many years ago. The goal as result needs to be clear and it needs to specify that the objective is to bring people out of poverty and help them develop a good economic standing from where they can increase their chances of socio-economic mobility.
Through these initiatives Prof. Yunus hopes to eliminate desperate practices such as those of organ trade that can really affect the mental and physical health of poor communities in Bangladesh. Of course he understands its way of providing for those in dire need and instead discourages its banishment but rather encourages its regulation. While loaning is effective one must consider the needs of families that receive these loans. Through, once again, observation it was found that most families spend quite a bit on health care and as a result don’t amount to much economic recuperation. As a result many of his economic initiatives are attached to healthcare related ones. As Yunus states,” our vision is to deliver radically affordable, sustainable and world class quality healthcare for all.
If many more professionals dedicated a portion of their fields to create a bridge between their profession and philanthropy and social funding the state of this world would change. Many times we find ourselves enveloped in our own professional world and lose sight of what surrounds us but if we utilize the passion that we have for our profession and find a way to balance it then a new more desirable world can be produced. This of course has to come from our own initiatives because this change has to come from one’s own desires and not from anyone else.

1. Dr Toh Han Chong, Interview with Professor Muhammad Yunus, SMA News, Volume 40 No. 12 December 2008