A New Recipe for Peace

culled from THISDAY, October 14, 2006

Want to know how bad are things in Nigeria? Ask the female traditional cloth-dyer in Abeokuta seeking for N3,000 to expand her business. Or cane-weaver in Calabar in earnest need of N5,000 to purchase larger bundles of cane to meet rising demand. Meagre as these monies are, these lowly traders depend on it to keep them off the streets.

Believe it or not, the incidence of poverty across Nigeria is overwhelming. Were it not for this gripping phenomenon, the nation’s ongoing economic reforms would have been remarkable. Extreme poverty is the most serious problem in Nigeria and other parts today because it is the root of many other problems. HIV/AIDS and other infectious diseases, the Niger Delta crisis, environmental degradation, illiteracy, malnutrition, human rights abuses, human trafficking, narcotics trafficking, illegal immigration, ideological intolerance, tyranny, debt, slavery and so on – have their roots in this seminal evil.
Regrettably, over the past decades, vast resources have been deployed in the fight against poverty, with generally mediocre results. Yet one man has proven that instituting a workable microcredit system for the poor is a sure way to fight poverty: Mohammed Yunus.

Widely referred to as the inventor of the microcredit movement, the Bangladeshi economics professor and the Grameen Bank he founded was yesterday named winners of the prestigious Nobel Peace Prize for advancing economic and social opportunities for the poor, especially women, through their pioneering microcredit work. Over the last three decades, Yunus has demonstrated that turning conventional banking on its head will accomplish a world of good for millions of impoverished people. Imagine a bank that loans money based on a borrower’s desperate circumstances - where, as Yunus says, “the less you have, the higher priority you have.”

What began as a modest academic experiment has become a personal crusade to end poverty. Yunus’s novel idea of dishing out microcredit to the poor came while chatting with a shy woman weaving bamboo stools with calloused fingers in his native Bangladesh. Sufia Begum was a 21-year-old villager and mother of three when the economics professor met her in 1974 and asked her how much she earned. She replied that she borrowed five taka (about N130) from a middleman for the bamboo for each stool. Almost that entire loan went back to the lender. “I thought to myself, my God, for five taka she has become a slave,” Yunus said in an interview. “I couldn’t understand how she could be so poor when she was making such beautiful things.” The following day, he and his students did a survey in the woman’s village, Jobra, and discovered that 43 of the villagers owed a total of 856 taka (about N3,500). “I couldn’t take it anymore. I put the 856 taka out there and told them they could liberate themselves,” he said,” and pay him back whenever they could. The idea was to buy their own materials and cut out the middleman.

Interestingly, they all paid him back, day by day, over a year, and his momentary generosity grew into a full-fledged concept that came to fruition in 1976 when he began to set up experimental microfinance projects in rural parts of Bangladesh until he formally established Grameen Bank in 1983. As the bank’s founder, his ideas have changed the face of rural economic and social development forever. In the years since the bank says it has loaned 290.03 billion takas (about N4.7 trillion) to more than six million Bangladeshis.

Since Yunus gave out his first loans in 1974, microcredit schemes have spread throughout the developing world and are now considered a key approach to alleviating poverty and spurring development. Nigeria isn’t left out of the fray. Indeed if awards were given for thinking up new ways of fighting poverty in the country, Magnus Kpakol would win lots of them. As National Coordination of the National Poverty Alleviation Programme (NAPEP), Kpakol has come up with several ingenious microcredit schemes targeted as the poor, the most recent being the laudable Multi-Partner Micro Finance Scheme (MPMF), which involves a partnership between state and local governments and the private sector, particularly the banks.

Yet, despite Kpakol’s efforts, a lot more grounds need to be covered. For starters, it helps to know the nature of a problem in order to solve it. Poverty is slavery caused by exploitation, and in Nigeria it is enforced through corrupt institutions. This parable sheds more light: Late General Abacha skims cash from national enterprises and stashes the money in Swiss bank accounts. Ministers extort kickbacks to approve government contracts (one got the boot last week). Bureaucrats entangle every transaction in mountains of red tape, requiring payoffs to expedite the paperwork. Doctors and nurses steal drugs and sell them on the black market to supplement meagre incomes. NIPOST employees pilfer mail. Policemen impound vehicles if hapless drivers fail to bribe them. Prospective educators pay exorbitant sums if they want a precious teaching certificate. Tax evasion is a national pastime. People disregard traffic signals and crowd in lines, occasionally triggering public stampedes. Domestic help and common labourers are routinely ill-treated because they have no effective recourse, legal or otherwise. Parents send their children into the streets to peddle or beg, abusing them if the youngsters return home without their daily quota of money. Property crime is so rampant that people padlock spare tires to their cars and surround their homes with high walls topped by broken glass and razor wire.

Under such sordid conditions, debt relief, development aid and favourable trade rules do not solve poverty. They only strengthen the hand of the oligarchs and slum lords who are the root cause of poverty in the first place. Environmental improvements through transparency, anti-corruption, property protection, and rule of law initiatives are tough to implement without major social upheavals if not bloodshed.

So, the enterprise is the only effective, humane way to solve poverty in a country like ours that is bereft of public trust and cooperation. The problem with enterprise is that it too favours the rich, the connected, the educated, and the strong. This is where microcredits and microfranchises become relevant, serving as the best way of empowering the poor to run their own enterprises. Unfortunately, the conventional banking system excludes this group from its services. Yunus reminds us that for two-thirds of the world’s population, “financial institutions do not exist.” Yet, “we’ve created a world which goes around with money. If you don’t have the first dollar, you can’t catch the next dollar.” It was Yunus’ notion, in the face of harsh scepticism, to give the poorest of the poor their first dollar so they could become self-supporting. “We’re not talking about people who don’t know what to do with their lives. They’re as good, enterprising, as smart as anybody else.” His Grameen Bank spread from village to village as a lender of tiny amounts of money (microcredit), primarily to women. Yunus heard that “all women can do is raise chickens, or cows or make baskets. I said, ‘Don’t underestimate the talent of human beings.” No collateral is required, nor paperwork for his loans - just an effort to make good and pay back the loan. Yunus' Grameen Bank’s loans average about $200 and go toward buying items such as cows to start a dairy, chickens for an egg business, or cell phones to start businesses where villagers who have no access to phones pay a small fee to make calls.

According to the bank, interest ranges from zero percent for loans to beggars to five percent for student loans, eight percent for home loans and 20 percent for loans to businesses that generate income. Anyone can qualify for a loan, but recipients are put in groups of five and once two members of the group have borrowed money, the other three must wait for the funds to be repaid before they get a loan.

Grameen, which means rural in the Bengali language, says the method encourages social responsibility. The results are hard to argue with  - the bank says it has a 99 percent repayment rate. It has branched out into student loans, health care coverage, and into other countries. Grameen has even created a mobile phone company to bring cell phones to Bangladeshi villages. Yunus envisions microcredit building a society where even poor people can open “the gift they have inside of them.”

If Nigeria is to reverse its history of poverty, the nation will have to draw the right lessons from Yunus. At least, now we know that it doesn’t take an arm and leg to effectively fight poverty. Yunus explains: “I saw how people suffered for a tiny amount of money. They had to borrow from the moneylender, and the moneylender took advantage of them, squeezed them in a way that all the benefits passed on to the moneylender and none remained for the borrowers. So I started by making a list of people who needed just a little bit of money. And when the list was complete, there were 42 names. The total amount of money they needed was $27. I was shocked. Here we were talking about economic development, about investing billions of dollars in various programmes, and I could see it wasn't billions of dollars people needed right away. They needed a tiny amount of money.”

If you think Yunus took this as some form of charity, think again. He did charge some interest on the loans he gave out to cover his operating costs and get others to benefit from the scheme. Our banks can take a tab from this ….. For years, they have refused to lend to start-ups and micro ventures, opting rather for the big fishes. The dismal operation of the Small and Medium Enterprises Equity Investment Scheme (SMIEIS) is a case in point. Yet Yunus explains that his experience shows that poor people were repaying loans than rich people “because Bangladesh has a tradition of rich people who borrow money from the big banks and hardly pay it back.”

A Fulbright Scholar at Vanderbilt University, Yunus bagged his Ph.D. in Economics in 1969. Later that year, he became an assistant professor of economics at Middle Tennessee State University, before returning to Bangladesh where he joined the Economics Department at Chittagong University. Yunus has been globally recognised for his work at Grameen. The 65-year-old economist says he would use part of his share of the $1.4 million Nobel award money to create a company that would make low-cost, high-nutrition food for the poor. The rest of his share, he adds, would go toward setting up an eye hospital for the poor in Bangladesh.

Yunus has shown why we must change our mindset if we are to fight poverty and win in Nigeria. Poverty yields to growth when local enterprises succeed. And the most efficient way to ignite and fuel this virtuous entrepreneurial cycle on a scale large enough to move the dial in the country is through microcredits and microfranchises.
Ultimately, this is the solution to the nation’s poverty.