FOOL ON THE HILL
An Investment Opinion
The Price of a Dream Selena Maranjian (TMF Selena)
December 22, 1999
It's not often that I read a book that's a page-turner and also gives me many insights into the business world. I just did, and I'd like to tell you a little about it. It's: The Price of a Dream: The Story of the Grameen Bank by David Bornstein.
Let me back up a little. As you probably know, we're in the last stretch of our third annual Foolanthropy charity drive here at the Fool. We asked members of the community to nominate charities and we selected five to raise money for this holiday season. (Read about the five innovative and interesting charities if you have a few minutes.) So far we've collected more than $200,000, as we aim for a goal of more than twice that. (The latest update on numbers.)
One of the charities in our group is the Grameen Foundation USA. I'd heard about its method of tackling poverty many years ago and the concept always stuck in my mind as brilliant. I finally ordered and read David Bornstein's book on the Grameen Bank. And am very glad I did.
In a nutshell, the Grameen story can be traced to one man, Muhammad Yunus, who traveled from his native Bangladesh to the United States, earning a Ph.D. in economics at Vanderbilt University. He then returned to his homeland and took a teaching job at a university situated near some poor villages. Yunus began to notice that many poor people he'd meet, people with no land and incomes of $200 or $300 per year -- or much less -- often had mainly one thing keeping them from earning a decent livelihood: affordable credit.
Imagine a woman who buys some trinkets to sell. She borrows money to buy them from moneylenders in the village who charge exorbitant interest. Soon she's caught in a vicious cycle, earning very little and paying most of it to the moneylenders. If she could take out a loan at a fair rate, she would likely be able to pay the loan back gradually, then borrow increasing amounts of money, and continually expand her business.
The power of credit was driven home to Yunus in a now legendary story. As he was developing his early ideas about credit, he sent his students into a local village to find as many people as they could who could use a little credit to extricate themselves from what he saw as bonded labor. They came back with a list of 42 people who needed a total of 856 "takas" (the Bengali currency). This was astonishing. Why? Well, because 856 takas amounted to $26. That's all. For all 42 people.
As Bornstein recounts, Yunus testified before the U.S. Congress later, and recalled that, "I felt extremely ashamed of myself being part of a society which could not provide $26 to forty-two able, skilled human beings who were trying to make a living." As the years progressed, Yunus would become ever more critical of many expensive and ineffective development programs. He would see academics and consultants come and go without really getting to know the people they were trying to help, without understanding how to create sustainable solutions.
Yunus loaned the $26 to the 42 people, and it was all repaid. He was impressed. He began lobbying banks to lend money to the poor, but was rebuffed. Larger loans tend to be more profitable than smaller ones. And loans of a few dollars, to people with no collateral? He was often laughed at. With much effort, he eventually got the somewhat reluctant cooperation of a bank and began opening small experimental branches. He named his project Grameen from the word "gram," which meant village.
The Grameen project succeeded and grew, becoming a full-fledged bank. Over the years, Yunus built up a sizable business with the Grameen Bank. And note the word "business." It's very important to note that although the bank was often loaning out money that had been donated by various aid agencies, the organization was run as a business. People were hired and trained. Systems were set in place. The bank was never just giving money away. All loans were expected to be paid back. No loans were forgiven. In times of trouble, such as after devastating cyclones, loan payments might be put on hold and some loans might be restructured. But the borrowers were always treated as customers, as clients -- not as beneficiaries of handouts.
Over time, the bank fine-tuned its systems. To keep its repayment rates high, it lent money to groups of people (increasingly, women). Each entrepreneur had to join with four others and they couldn't be part of the same family. Each group of five had to join with six or eight other such groups, to form a "center." The borrowers met once a week at the center house, where they asked for loans and made their payments. A representative from the bank would always attend the meetings, to collect money and troubleshoot. The borrowers essentially vouched for each other. If one defaulted on a loan, the others wouldn't be able to borrow, so they kept an eye on each other and bailed each other out when necessary. Grameen expected them to be saving a little money for emergencies, as well. At each meeting, the bank representative would share valuable information, for example warning them not to drink from certain wells after a storm.
Within two decades, the Grameen Bank had branches in tens of thousands of villages. It was lending out hundreds of millions of dollars a year, and after the money was repaid, re-lending it. I was struck by one passage in the book that described the aftermath of a particularly devastating cyclone. With so many poor people scattered all over remote rural areas, the government wasn't able to reach those in need. But the Grameen bank was. Its branch managers walked all over the areas, as they routinely did, meeting with people, assessing needs, reassuring them, and authorizing additional loans to their borrowers who needed them.
A longtime branch manager commented on how the presence of the Grameen Bank in her region has made a difference:
"The economic structure is gradually improving. At one time, not one member in each center would have a house with a tin roof. Now more than half do. Some have received house loans, but others have built houses on their own. They have a few chairs, better pots and crockery, their children are wearing better clothes. Eighty to 90 percent of my members now eat three times a day. And 25 of my 260 members have electricity. Nonehad it two years ago. Now the Grameen Bank has to place even more stress on education, health and family planning."
In the book you'll meet people like Manjira, who was destitute before she began borrowing from the Grameen Bank. Her husband had died and her son was sick. He asked for ice cream, but she could not afford the one taka that it cost. (Roughly a nickel.) The next day, he died. Her life began improving soon after this terrible low. With her first 2,000-taka loan (about $100), she bought a sewing machine. She paid it off and then borrowed more. Over the next four years, her weekly earnings climbed from 50 takas to 250. She ended up hiring an assistant to help her. When the king of Belgium honored the Grameen Bank, Muhammad Yunus took a colleague and Manjira with him (as a representative borrower) to Brussels, to accept the award. He first took her shopping for suitable clothes. They stayed at a posh hotel. Manjira recalled: "My room had five telephones. There was even a phone in the bathroom. In my whole life I had never received one telephone call."
I could go on and on, but I'd better wrap it up. Know that the story details how this organization, this beautiful business, continued to grow. It's now beginning to offer health insurance to its borrowers (and to non-member villagers), after Yunus realized the degree to which health problems were keeping a significant percentage of borrowers from succeeding as they should. Yunus proposed that the bank spearhead the implementation of cellular phones throughout Bangladesh. With its 35,000+ branches, it's a natural fit, and thus Grameen Telecom was born. (Now longtime borrowers are taking out loans to purchase cell phones with which they can effectively become their village's phone booth.)
If you're interested in learning some valuable management lessons (how the bank dealt with the threat of a union, how it trained and retains employees) and some important business concepts, this book is for you. If you'd like to learn more about Bangladesh, or simply read stories of some very inspiring people, you'll love this book. Throughout, Bornstein's respect for the Grameen borrowers he meets is evident. He's exceptionally able to convey their sense of humor and their humanity, their courage and perseverance.
When you're done with the book, you'll have a real appreciation for what Muhammad Yunus has done. He's created a new and very effective way of bringing people out of poverty. His dreams and goals are epic: he wants one day for people to go to museums to see what poverty was like. He wants to eradicate all poverty from the face of the Earth. And given the hundreds of variations on the Grameen Bank that have sprouted up all over the world, this goal might not be so unthinkable.
Check out the book, and consider donating a little something to the Grameen Foundation USA or to any of our other very worthy charitable organizations. And tell a friend about these Foolanthropies, too.