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Yunus’ Bank Shot

Published on August 12, 2008

Muhammad Yunus, lender to the very poor and winner of the 2006 Nobel Peace Prize, thinks traditional bankers could learn from his business model. Consider: for all their fee income and credit analysis, they’re the ones having the financial crisis.

Click here to read the Forbes article

Yunus’ Bank Shot

Muhammad Yunus, lender to the very poor and winner of the 2006 Nobel Peace Prize, thinks traditional bankers could learn from his business model. Consider: for all their fee income and credit analysis, they’re the ones having the financial crisis. Yunus, who thinks credit is a fundamental human right, has a simple formula: lend money to people who really need it at a high enough rate to ensure the bank’s long-term viability.

“Banks are missing out a huge vast of the population by not providing credit to poor people. Our business is designed to give money to the extremely poor, but the traditional system is not looking for this,” Yunus told Forbes.com Sunday in a phone interview from Bali. “Banks are always looking for collateral, and this won’t be the case with the poor, but our system is working better than theirs. We don’t have a subprime crisis, our repayments are very good,” Yunus said, ahead of the Microcredit Summit Campaign conference, which began Monday in Bali.

In 1983, Yunus founded Grameen Bank in his native Bangladesh with a simple concept: replace the loan sharks that normally prey on the rural poor who need credit with a bank that understands the needs of the least affluent borrowers.

The first loan consisted of $27 from Yunus’ own pocket to 42 women in one village. Today Grameen Bank is controlled by the rural poor whom it serves. Borrowers own 90.0% of its shares, while the remaining 10.0% is owned by the government. It charges a 20.0% interest rate.

“We operate against the norms of how the world moves, and this tends to be seen as a bit fishy,” he said. Yunus said the current financial system needs a massive redesign in light of the recent economic slowdown. “When you write off a trillion dollars and you impact on the local and global economy, this has to be taken extremely seriously. We cannot just walk away and move on,” Yunus said.

“This is a big failure to the conventional system and it needs to be fixed. The financial crisis is a serious wake-up call,” Yunus said. But his message is being heard among influential people. He is announcing Monday the launch of MicroFinance Transparency, a nongovernmental organization designed to make public the interest rates charged by microcredit lenders. The summit has drawn the attention of several statesmen, including President Susilo Bambang Yudhoyono of Indonesia and microfinance representatives from 60 countries.

Yunus has also launched successful partnerships with large corporations, including French food conglomerate Danone (other-otc:GDNNY – news – people ), aimed at creating cheap but nutritious products for deprived communities. Most recently his banked signed an agreement with France’s Veolia (nyse: VE – news – people ) to supply drinking water to the poorest people in Bangladesh

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