Tag Archives: cash transfers

Yunus advocates an additional financial system

Quartz magazine’s  Eshe Nelson spoke with Nobel prize-winner Mohammed Yunus at the One Young World summit at The Hague, which brings together 2,000 young people from 190 countries who are working to improve their societies, and the world at large, by fighting to end sexual violence, improve access to education and demand justice and human rights accountability from governments. The conversation has been summarised for this website.

Yunus believes that the whole capitalist system has failed: “The very number of poor people shows that it has failed. It pushes all the wealth to the top continuously and the top became very fat and owned by few people. What kind of system is that? We have to redesign the system”. He continues:

“Today, there’s only one kind of financial institution, which are banks for the rich. You are asking the banks for the rich to lend to the poor. The very system is designed in a completely different way. This machine doesn’t work for them. The way to really address the problem of the rejected people from the financial system is to create a new financial system. Capitalism went wrong because it started with the wrong premise. It misrepresents human beings and says we are driven by self interest. But human beings are both driven by self interest and selflessness.

The economic system forgot the selflessness part, and once we include it into the business, you have two kinds of business:

  • business to make money
  • and business to solve problems.

Then the economic system becomes different”.

In the 1970s, Yunus began work on what would become Grameen Bank in Bangladesh, which provides small loans to entrepreneurs, primarily women, who otherwise couldn’t access funds due to a lack of collateral and other resources. Grameen Bank takes deposits to finance the loans it offers; it decided in 1995 that it wouldn’t accept donations – for Yunus, ending poverty isn’t about charity. Last month, the 10-year-old US division of Grameen announced that it had provided more than $1 billion in loans to 106,000 women. Over the next decade, it plans to provide $1 billion in loans every year, and nearly double the number of branches, to 42. He comments:

“Microcredit still remains the same as when we started in Bangladesh 40 years back. But many more people around the world have started microcredit programs. Some took advantage of credibility of the word “microcredit”—they used it to make money for themselves, turning into loan sharks. After 42 years it’s not gone into the mainstream. Microcredit has remained at the NGO level, a footnote in the financial sector.

“Earlier this year, the World Bank showed how little progress there has been: The proportion of people with active accounts has stagnated and the gap in financial inclusion between men and women has stayed the same.

The very word “inclusion” is suspect. This is not about inclusion; it’s about having a separate kind of banking institution to address the people at the very bottom.

“Governments are used to giving grants to poor people for survival. Whether you are a rich country or a poor country, every country does that. Instead of giving grants, it’s much cheaper to do it as a loan. The money comes back, covers its own cost, and is sustainable. It’s a market-based system. Whichever way you do it, it has to create income. In order to create income you have to encourage people to become entrepreneurs”.

His view on giving cash transfers to entrepreneurs versus credit

“If it comes as a grant then there’s no responsibility, and the money can be misused easily. A loan comes with responsibility: you have to create a return from it. People become very relaxed if they are guaranteed money because they will get it again. If you fail, the second round of cash transfers will come, so why make an effort?

“The welfare system never produced any entrepreneurs. The welfare system in every country, you don’t see anybody coming out. They go in and stay there because you take care of them. Universal Basic Income is the same thing; it’s a welfare system. Charity doesn’t create activity. Charity is a dependence creation. Dependence creation is always a negative thing for a society. Systems should be geared towards creating activity. Creating entrepreneurship rather than dependence. Taking risk. That’s what human beings are for”.

 

 

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