This is the seventeenth in a series of posts that will examine ten insights Community Wealth Partners has uncovered through our research of and experience with initiatives that have created transformational social change.
In our previous Changing the Conversation post, we discussed how to change the conversation inside your organization, with your funders, and on a national level. But what can we learn if we think globally about this type of change? In this post, we would like to examine the case of microfinance and Grameen Bank, and look at how Muhammad Yunus, Grameen’s founder, was able to change the conversation around lending to the poor and create a movement on a global level.
The story of microfinance by now is well-known in the social sector. Yunus started Grameen Bank in the 1970s in Bangladesh, loaning $27 dollars of his own money to pay for 42 women to manufacture bamboo stools. From there, Grameen developed a working lending model and was established in 1983 as a formal institution dedicated to providing loans and financial services to the country’s millions of people living in poverty. The model and concept started a revolution on a global scale. Today, there are thousands of microfinance institutions (MFIs) serving over 60 million people around the world.
While microfinance had been implemented on a small-scale level for centuries, Yunus was able to kickstart the movement and break through the prevailing wisdom on lending to the poor — that they lacked the credit, collateral, and knowhow to be trustworthy borrowers.
But Yunus did not accept this; he knew the conversation had to be flipped on its head. The poor were trustworthy, should be lent to, and they would most definitely pay back the loans given to them.
How did he do it? We posit that there were three key strategies involved:
- Reframing Objectives: Yunus shifted the focus away from pure profit maximization, which led mainstream banks to deem lending to the poor as less worthwhile. Yunus states, “[The] overarching objective of the conventional banks is to maximize profit. The Grameen Bank’s objective is to bring financial services to the poor, particularly women and the poorest and to help them fight poverty, stay profitable and financially sound. It is a composite objective, coming out of social and economic visions.” Through a double-bottom line lens, low-income lending comes through as more viable than otherwise.
- Innovating: Yunus and Grameen Bank came to understand that if they wanted to lend to very low-income individuals, new methods would be needed to make it sustainable. Grameen pioneered the model of “group lending”: individuals organize themselves into a group and receive loans in sequence; each person in the group does not receive their loan until the one before them repays his loan. This model lowered loan costs such as verification and enforcement by mitigating the traditional concerns of moral hazard and adverse selection.
- Proving the Concept: While the impact of microfinance on poverty alleviation is still being debated, it is clear that microfinance is at the least a viable approach. Grameen has reported repayment rates of over 95%, much higher than many would have predicated as possible for low-income lending. Many other MFI’s also report repayment rates above 90%. This success demonstrated the feasibility of lending to the poor, thereby helping to change the conversation around it.
When you have success, and thereby prove that the status quo is not the reality, organizations will come to join your plan. Whether It’s on a global level, or in one community, if you change the conversation and back it up with success, the results will come.
Data and information on microfinance and Grameen Bank from: The Microfinance Revolution: An Overview. Federal Reserve Bank of St. Louis Review, January/February 2008, 90(1), pp. 9-30. http://research.stlouisfed.org/publications/review/08/01/Sengupta.pdf