Tony Lankester
Tony Lankester

Where is South Africa’s Muhammad Yunus?

I was at an event the other night that featured Jay Naidoo as the guest speaker. In his talk he told the story of Grameen Bank — a bank in Bangladesh that focuses on micro-loans to the poorest and most destitute members of society. The bank, jointly with its founder Muhammad Yunus, was awarded the Nobel Peace Prize in 2006.

“What’s that?” I hear you ask. A bank? Nobel Peace Prize? That takes “How can we help you?” to a whole new level …

I asked the same questions, so I went online to find out more. This Wikipedia entry sums up the bank succinctly. Its model is overwhelmingly simple, and it rests on a single basic assumption about human nature — that, when taking out loans, people want to pay them back.

The truth in this assumption is borne out by the fact that the bank has, in the past 10 years, disbursed $6,4-billion-worth of loans. Its current rate of recovery is 98,4%. That’s not too shabby by any actuarial standard. It has given out 1,2-million micro-enterprise loans. Its loans have built 648 918 houses, and its branch network covers 95% of the villages in Bangladesh.

Its loans are made to the poorest of the poor. It doesn’t require collateral for the loans and, maybe helping us understand the loan recovery rate, 97% of its customers are women.

The reasons people tend to default on loans are often out of their control — they might include death, illness, theft, retrenchment or even climatic conditions such as storms and bad weather requiring them to reinvest in building or repairing their homes. But, as customers of Grameen Bank have shown, if they are “cut some slack”, chances are they will pay it back, with interest.

The bank gives customers faced with hard times the opportunity to restructure their debt — without facing onerous terms — and be slipstreamed on to a more flexible loan scheme that helps them pay back before allowing them to return to the mainstream (read a detailed account of how this works here).

Compare that with the way that traditional banks and microlenders operate: they are generally built around a profit imperative, and so the worst is assumed about defaulters and they are kicked out of the system, using the levers of credit records and inter-banking reporting. The bank carries a massive “bad debt” book that it will try to recover through whatever means possible, at the cost of the kind of human dignity that makes debt pariahs out of defaulters, and with the sorts of penalties that mean that the defaulter is unlikely to recover from the debt and certainly won’t qualify for future loans.

That takes a massive number of people out of the loan market. It also makes them less likely to have access to the very resources that, ironically, would make them more economically active in the future.

It is an inspired business model. And it works. The only question in my mind is why we haven’t seen a similar set-up here in South Africa? Our needs and socio-economic profile is probably fairly similar to that of Bangladesh. The CIA Factbook says that 45% of Bangladesh’s population live below the poverty line, compared with 50% in South Africa. Our GDP is way bigger. One key difference is the unemployment rate — Bangladesh is at 2,5%, we are at 25%. I suppose that is an inhibiting factor when it comes to repaying loans. But given the emphasis Grameen places on micro-enterprises that should, in time, be self-sufficient, and given the average South African’s huge appetite for entrepreneurship, a similar bank in this country might actually help turn that unemployment figure around.

So it would take a big investor to launch such a bank, right? Wrong. Grameen is 90% owned by those who take out the loans; the balance is owned by the Bangladesh government. It doesn’t take a big corporate with deep pockets. It takes inspired individuals with some vision, and with the economic know-how to get it going. Grameen was started by an economics professor and a first loan of $27. South Africa needs its own Muhammad Yunus.

  • Oupoot

    Tony, I have recently read that the Grameen Bank hides their bad loans through continues roll over, so their 98% payback may actually be lower, though I dont think it dips below 96%, which is still better than most traditional banks. Microlenders in SA is fairly unique – it filled the banking needs of the unbanked, not the unbankable, of traditional banks given the socio-political situation in SA. i.e. even after 13 years, how many bank branches are situated in townships? It’s an institutional culture that must still be properly addressed.

    Microlenders such as Grameen serve the traditional “unbankable” who do not have enough assets to access credit and transactions are too small for traditional banks to serve them. There are SA versions. The most celebrated is the Small Enterprise Foundation (SEF) in Limpopo (www.sef.co.za). They strongly follow the Grameen approach, even though it is not always suited for the SA situation. Mobile banking and new cooperative banks are most likely to be more successful in SA than Grameen style micro finance institutions (MFI).

    Re SA’s high unemployment: It is difficult to qualify given the situation in other developing countries. Possible reasons may include:

    *Difference in defining work: work in Bangladesh may not constitute as work in SA.
    *Another is the deliberate discouragement of creating entrepreneurs by the old system.
    *SA also has a fairly well established state social security system, which few countries in Africa has, and AFAIK, neither does Bangladesh, so people learn early in life that they must fend for themselves.
    *Another could be the migrant labour system in SA with remittances sent back to rural areas, thus many in rural areas are not even considering seeking work.

    There are numerous other explanations, which do explain it to some degree. But our high unemployment rate remains high compared to international benchmarks.

  • Anya

    I came accross a website called Kiva.org.

    Kiva.org allows individuals to make $25 (or greater) loans to low-income entrepreneurs in the developing world interest free. By doing so, individuals provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), empowering them to earn their way out of poverty.

    It’s a new, direct and sustainable way to fight global poverty.

    Please visit the website for further information.

    Please note that the borrowers are not charged any interest, and you do not earn any interest on your contribution. When your loan is repaid, you can decide whether to lend it to someone else, or to withdraw it.

    Kiva partners with micolending institutions in the various countries which monitor and disburse the loans to borrowers.

    Do we really need to reinvent the wheel in SA, or should we simply get some of our bigger microlending institutions to partner with organisations like Kiva? Deserving projects are put up on Kiva’s website, and funding is procured from anyone globally. This way, we are not required to find funding through big business or through aid agencies – people themselves become the funders.

  • Ebrahim-Khalil Hassen

    check out http://www.sef.co.za. This organisation is modelled on Grameen Bank, and apprently is the leading micro-lender in the country.

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