A case for microfinance

THE award of the 2006 Nobel Peace Prize to Bangladesh’s Muhammad Yunus has reinvigorated the concept of microfinance. The announcement that this extraordinary economist from Bangladesh will be so honoured is reason enough for me to put on hold for one week my series on the positives in Pakistan’s economy and write about microfinance.

There is good reason why Muhammad Yunus’s successful experiment should be looked at by the people in Pakistan since the absence of microcredit is one reason why so many among Pakistan’s large population of poor are caught in the vicious cycle of perpetuating poverty. The provision of small amounts of money to the poor so that they begin to earn incomes from investments is not an area of public policy. This is where private citizens and non-government organisations need to step in.

What are Muhammad Yunus’s accomplishments that have brought him this recognition? Almost single-handedly, this extraordinary economist-turned-philanthropist-turned-business entrepreneur created a new asset class and a new form of collateral for the banking community. It has been said that economists don’t have “Eureka moments” — a sudden revelation of some universal truth or some physical law of nature — but Yunus seems to have experienced something close to it in 1976 when he was teaching economics in Chittagong, the port city of the then newly born Bangladesh. Yunus’s country was struggling not only with the aftermath of a bitterly fought civil war that brought it independence. It was also dealing with a situation created by the absence of a state that could provide some basic services to the growing number of people living in absolute poverty.

A new country was born in 1971 but, five years later, the state remained weak. A number of non-government organisations had stepped into the vacuum that existed. Most of them were funded by the West — by the NGOs in America and Europe — since the war in East Pakistan had drawn the attention and sympathy of large numbers of foreigners. However, these organisations pursued the classical NGO model of providing basic services such as health and education that the state did not have the financial ability a competence to provide. By the mid-1970s, Bangladesh had become the stomping ground for thousands of western do-gooders.

This was clearly an unsustainable situation. NGOs cannot permanently fill the gap created by the absence of a functioning state. Also, charity is not a permanent solution to poverty; it can ease somewhat the pain suffered by the poor but it does not provide a cure. It was this recognition that produced the “Eureka” moment for Muhammad Yunus. He recalls the day when he reached into his own pocket to give his first loan, $27, to 42 villagers living near his university. The loan amounted to an equivalent of Rs 30 in Pakistani rupees today per intended beneficiary. The borrowers invested the money lent in some micro-enterprise and paid back in full though the lender had no collateral and had signed nothing.

Yunus said in a press interview after receiving the news about the Nobel Prize: “It suddenly occurred to me that if you can make so many people so happy with such a small amount of money, why shouldn’t you do more of it?” That thought led to the creation of the Grameen Bank, the co-recipient of the Nobel Prize with Muhammad Yunus.

The Grameen Bank, founded by Yunus in 1976, was innovative not just in creating a new asset class — women engaged in small economic activities that needed to be jump started with a little bit of credit — but also in devising ways to ensure that the money lent was paid back with interest. The bank did not lend to individuals but to groups of at least five borrowers belonging to the same community and involved in the same kind of business. This ensured that each member paid back the borrowed money; there was group pressure to keep all borrowers current with their payments. This too was innovative. Grameen Bank was using social capital as a kind of collateral.

Early on in its life, the Grameen Bank chose to focus on women, by far the most economically backward segment of the Bangladeshi society. The women who came to him for loans were engaged in simple activities — breeding chickens, growing vegetables in stamp-sized plots, knitting and sewing, making meals for workers doing labour in the nearly fields. With the little bit of capital provided by the bank, the borrowers were able to expand their businesses. Not only that, they also began to see the world outside their homes.

Bangladesh is an intensively conservative society at the lower end of the economic scale. Islam is interpreted to the people by illiterate mullahs who are keen to keep women secluded. Yunus’s approach helped to loosen the grip of the ignorant mullah in the village. As Amartya Sen, another Bengali economist to have won the Nobel Prize, said: Yunus launched a “very secular movement. His approach is very egalitarian, market friendly and socially radical.”

Yunus’s efforts have given an extraordinary fillip to micro-finance all over the globe. In the decade since his first personal loan, micro-credit has become one of the most popular anti-poverty strategies in the world. This impact was noted by the Nobel Committee in its citation. “Yunus’s long term vision is to eliminate poverty in the world. That vision cannot be realised by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that in the continuing effort to achieve it, micro-credit must play a major part,” said the committee in announcing the award.

Grameen’s success — well advertised by its founder who is not only an innovator but also a great communicator — popularised this approach. When I was working for the World Bank in Latin America, I saw the same approach adopted to help poor women in the highlands of Guatemala and in the plateau regions of Bolivia and Peru. In the 30 years since Yunus and his bank launched their operations, more than 100 million people have received small loans from more than 3,100 institutions in 130 countries across the world. The average loan from Grameen Bank is now $130; other micro-credit institutions provide loans that are equally small. About 90 per cent of the customers of micro-credit institutions worldwide are women. About 95 per cent of Grameen borrowers are women.

Grameen Bank continues to pioneer in terms of both the customers it wishes to reach and the businesses it seeks to promote. Beggars as a group are now counted by Grameen among its clients. Known for his story-telling talent, Yunus told a group assembled recently by Bill Clinton in New York how he had made entrepreneurs out of beggars. The theme of the discussion was “building a sustainable future” and Yunus was one of the invited guests.

The Nobel laureate’s story tugged at the heartstrings of the assembled audience of do-gooders. “All we are doing is telling beggars that, well, since you go house to house begging, would you like to take some merchandise with you, some cookies, some candy, something.” They responded positively. “A typical loan for a beggar is something like $12. With $12 she has a basket of merchandise she carries around and goes house to house. Today we have more than 80,000 beggars in the programme. Many of them have already quit begging completely.” Yunus’s story drew standing applause. Pakistan’s Pervez Musharraf was among those who attended.

How to evaluate Grameen’s performance? According to one analysis, “microfinance has played a central part in Bangladesh’s success in reducing poverty by almost 10 percentage points over the past five years, to 40 per cent, a rate that puts Bangladesh on track to meet its Millennium Development Goal of halving poverty by 2015. Microfinance has bettered the lives of 70 million Bangladeshis especially women.”

Yunus insists that while the overall goal of the institution he founded three decades ago is to help alleviate poverty, he is not in the business of providing charity. In developing his approach he has essentially followed what a Chinese sage once said and what Mao Zedong repeated to explain his approach to development. “It is better to teach a person to fish rather than give him a fish to eat.”

A little bit of money could be given in charity and would help a poor person buy a meal or two. But getting the same person to use the same amount to start a successful business would ensure a perpetual supply of meals. Following this approach, Grameen Bank under the direction of Mohammad Yunus is constantly developing new ideas about businesses the poor can launch. One of them is the use of the mobile phone as an income-earning device.

While there were many sceptics, Muhammad Yunus had the Grameen Bank began to provide loans to the Bangladeshi villagers to buy mobile phones and connections and go house to house seeking customers. Once again the idea was a simple one: that people don’t have to own a phone or pay for a service when they don’t have to use it constantly. Their need is to make an occasional call to a loved one in some relatively distant place. The “business woman” who has purchased a phone and the service that goes with it can establish a schedule for visiting her clients in the community in which she lives and operates. For a small charge, she lends the equipment to her clients. According to the bank, the borrowers are making enough money to pay it back after keeping a small amount to augment her income.

The most important feature of the Grameen Bank is the fact that it is a business that is making money for itself. Its business model is in good health. Its loan portfolio exceeds the entire micro-finance sector in India by a factor of two and its return on equity in 2005 reached 21 per cent, up from nine per cent in 2004. Not only is the bank helping the poor climb out of poverty, it is creating a stream of income for itself that will ensure that it will stay in business for a long time to come. The Nobel Peace Prize is well deserved by both Yunus and the institution he founded three decades ago. In keeping with his style, the recipient has announced he would donate the $1.4 million prize money to causes such as an eye hospital and a drinking water project.

N-disarmament is the solution

IT was August 6, 1945. The day was Monday, the time, 8.15 am when the bombing took place. When the American pilots turned back after bombing the Japanese city of Hiroshima, they found a tongue of flames leaping up to the skies. A mushroom cloud billowed and the whole city burned as its 300,000 citizens ran helter-skelter. About half the people died and thousands were injured, many deprived of eyes, skin and limbs. The unthinkable had occurred — a weapon with unprecedented destructive power had been unleashed.

Professor Niels Bohr, the Nobel laureate in nuclear physics, went personally to Winston Churchill, the prime minister of Britain, to advise him to control the bomb. Other eminent scholars and scientists, Bertrand Russell, Albert Einstein, Frederic Joliot among them, created the Pugwash Conference in July 1957 for this purpose. The scientists were not happy that they had helped the United States create this Frankenstein’s monster that had gone wild.

I am appalled at the rejoicing Koreans but North Korea is a totalitarian, Marxist state. Maybe, the people were simply putting up a show because they were ordered to do so. In Pakistan, too, they rejoiced. And nobody, at least in public, pondered over the folly of it all. The memories of Hiroshima are so horrendous that the people should have been saddened.

They should have regretted the making of a weapon which could obliterate such a large chunk of humanity and poison the rivers, air and soil. It was a moment of serious contemplation and sorrow but took the form, as it always has, of boasting, triumph and chauvinism. Nor do I think was there any contemplation in India where they used the name of Buddha for a weapon which the peace-loving ascetic would have condemned. Nor has the nuclear dread made Indian and Pakistani leaders work towards a permanent peace between India and Pakistan on an urgent basis. They should have asked for nuclear disarmament in South Asia but did not. Save for a few enlightened people, most simply do not know the danger this weapon poses to human life and the planet.

The United Nations was created in order to prevent aggressive wars. That it has singularly failed in doing. It has not even created worldwide awareness of how devastating and harmful nuclear weapons really are. One finds no pamphlets, no documentaries, no lectures, nothing on nuclear weapons. Indeed, our vocabulary conceals their true nature and is grossly misleading. Who can understand that “nuclear deterrence”, “collateral damage”, “second strike” and similarly abstract terminology translates into the possibility of being killed, burned and handicapped for life.

How many people can equate “defence” and “national interest” with the long-term health effects of radiation, death and the end of large cities? Almost nobody. This is why people rejoice at the possession of nuclear weapons. They simply do not understand what this weapon means.

The second half of the twentieth century was haunted by the sceptre of nuclear annihilation. The bomb, which was neither internationalised nor outlawed, passed into the hands of several countries. The Cold War began. Both the US and the Soviet Union had enough weapons to destroy the world several times over. They said their weapons were to deter the enemy from attacking first. However, they also built the capability of striking after being delivered a nuclear blow. The race for Mutual Assured Destruction (MAD) was really mad, insane, demented. But incomputable wealth was poured into it rather than using it to make the world a better place to live in. Then the Russians withdrew and for a brief interlude it seemed as if the nuclear insanity would be over.

The insanity, however, spread even more widely because the United States did nothing to promote nuclear disarmament. The policy of discouraging states from acquiring this evil weapon was so unjust that it could only anger the world. Some of the nations which gave up nuclear weapons, such as South Africa and Kazakhstan, did so because they were given inducements not because they were bullied.

Indeed, it is a gross injustice by powerful and rich western countries, especially the US, that sided with the aggressors in the Middle East. There are problems which could have been addressed, like that of Palestine and Kashmir, but were not solved. Thus, instead of making peace with the Arabs, Israel acquired nuclear weapons as did India and Pakistan.

In Israel’s case, the nuclear weapons did not stop the Intifada nor prevent suicide bombers from blowing themselves up. They also could not prevent the Israeli army from getting a bloody nose in an unequal conflict in Lebanon in July 2006. Nor does Israel consider itself safe from Iran. The possession of nuclear weapons does not let the Israelis sleep peacefully.

In the case of India and Pakistan, there was no peace either. Pakistan was not deterred from provoking the Kargil conflict and India never changed its policy on Kashmir. For that matter, nuclear weapons did not prevent an ignominious defeat for the US in Vietnam and now both Iraq and Afghanistan are threatening to turn out to be defeats as well. Nor, again, did the Russians stay in Afghanistan for all the nuclear weaponry they had. Nor, indeed, was Britain saved from the Falklands war or the quagmire of Afghanistan because of its nuclear weapons.

In short, this is a useless weapon for most conflicts simply because it is mostly unusable and does not it create the peace defence analysts promise us. The assumption that it deters the enemy all the time is not true. A determined enemy, especially unconventional groups of non-state fighters, will not be deterred by nuclear bombs.

But suppose there is a state which cannot stomach a defeat? Suppose that it uses this ultimate weapon, then what will happen? The best scenario is a repetition of Hiroshima at a much greater scale. The worst — an exchange of many nuclear devices — is too horrendous to contemplate. Hermann Kahn called it Thinking about the unthinkable, but he was trying to prepare America to fight a nuclear war. I believe we human beings lack the imagination to think of such things.

Even if the weapons are never used, they poison the earth, the food chain, the atmosphere. Even storing nuclear waste is hazardous.

And then there is always the fear of accidents. Such accidents are concealed — unless they are the size of Chernobyl — but there are many of them. And, worse still, nuclear waste is not disposed of in a harmless manner so that it can cause cancer. These are the results of storing the weapons.

Now that North Korea has gone nuclear, it is time to go back to what men with foresight, like Niels Bohr, advised and move towards nuclear disarmament for all. It is pointless to impose sanctions on North Korea or Iran alone. Sanctions kill children and women and destroy the lives of the poor. They never stop the powerful ruling elites from doing what they want to. What will help the world is a concerted effort by concerned citizens — governments will never do it — to make people aware of the real danger our whole planet is in.

If journalists, the academia, NGOs and the electronic media show movies of the Hiroshima-Nagasaki survivors and present factual knowledge of what nuclear weapons can do, there could be real pressure to roll back on them and disarm. But, of course, this would mean that the US and the older nuclear states, too, would have to disarm. If they only preach disarmament nothing will happen. Rejoicing at the possession of nuclear arms is a way of expressing resentment against American bullying, at least in the case of Korea, and this will increase if one-sided policies continue.

The great failure of advocacy is the lack of awareness of the nature of nuclear weapons. The greatest danger to human beings is the presence of nuclear weapons and yet there is little awareness about them. School textbooks, children’s programmes, television, radio, the press — all could have created this awareness and yet none has done it. If this continues there will be more North Koreas. The greater the number of nuclear states the greater the chances of nuclear annihilation. Is the human species so stupid that it would risk this rather than reform itself?

A nadir of US power

IT’S not exactly morning in America. In Iraq, things get ever uglier, and the old remedy of extra troops now seems tragically futile. The Bush team has recently tried putting thousands of additional soldiers into Baghdad, and the result after two months is that violence there has increased.

Iraq is often seen as a special Rumsfeldian screw-up. But in Afghanistan, the Bush team quickly handed off to a model pro-western leader backed by a broad Nato coalition. And what are the results there? The government is wobbling, warlords run drugs and the pro-Al Qaeda Taliban have 4,000 to 5,000 active fighters in the country.

It’s not just military efforts that are faltering. Five years ago, President Bush launched an experiment in tough-talk diplomacy, warning foreign leaders that they must be with us or against us in the war on terrorism. At first this yielded at least one achievement: Pakistan sent troops for the first time into its wild border regions to root out Taliban and Al Qaeda fighters. But that success has now gone into reverse. Pakistan recently withdrew its soldiers, in effect ceding the border territory to the radicals.

It would be nice if this merely proved that tough talk can backfire. But traditional diplomacy is faring no better. In North Korea and Iran, the United States has tried every diplomatic trick to prevent nuclear proliferation, making common cause with Western Europe, Russia, China and Japan, and wielding both sticks and carrots. The result is failure: North Korea has tested a nuke and Iran still presses on with its enrichment programme.

A few years ago, the collapse of Russia’s currency triggered a furious debate in Washington over who lost Russia. Now Russia’s pro-Western voices are being snuffed out, and Americans are so inured to the limits of their power that they don’t even pose that question. A crusading journalist has been killed, and on Thursday Vladimir Putin silenced Human Rights, Amnesty International and more than 90 other foreign organizations. Everyone accepts that there’s not much the West can do about this.

In Somalia, a Taliban-style group of Islamic militants has seized part of the country. One of its commanders is said to be sheltering terrorists who blew up the US embassies in Kenya and Tanzania: a brand-new terrorist haven may be emerging. Again, it is assumed that the world’s sole superpower can’t do much but watch.

Three long years ago, the Bush administration described the killing in Darfur as genocide. You might think that an impoverished African state that can’t control its own territory would be a pushover. But the Bush administration has tried sanctions, peace talks and United Nations resolutions. Sudan’s tin-pot dictator thumbs his nose at Uncle Sam and dispatches more death squads.

When historians analyse the decline of empires, they tend to point to economic frailties that undercut military vigour. Well, the United States has several economic frailties and can’t seem to address any of them.

Every honest politician knows that entitlement spending on retirees is going to bust the budget. But since the failure of Bush’s proposed Social Security overhaul last year, nobody is doing anything about it.

Every honest politician knows that we need to quit gobbling carbon. But higher gas taxes are seen as a political non-starter on both sides of the political spectrum.

Every honest politician knows that support for globalisation is fraying because of rising inequality at home. But how many of them stand up for policies that could reduce inequality without harming growth — most obviously, tax reform? You don’t hear anybody on the left or right denouncing the absurdity that more than half the tax breaks for homeownership flow to the richest 12 percent of households.

In fact, it’s hard to name a single creative policy that has political legs in Washington. Is anyone serious about tackling the crazy tort system, which consumes more than a dollar in administrative and legal costs for every dollar it transfers to the victims of malpractice? Nope. Is there any prospect of allowing the millions of immigrants who come here to do so legally? To be honest, not much.

Instead, the right and left are pushing policies that are marginal to the country’s problems. The right wants to make its tax cuts “permanent,” even though the boomers’ retirement ensures that taxes will have to go up. The left wants to raise the minimum wage, even though this can only help a minority of workers.

I’m not predicting the end of the American era, not by a long shot. The US business culture is as pragmatic and effective as its political culture is dysfunctional. But has there been a worse moment for American power since Ronald Reagan celebrated morning in America almost a quarter of a century ago? I can’t think of one. —Dawn/Washington Post Service

Planted propaganda

THE Defence Department inspector general has concluded that having a Pentagon contractor secretly pay Iraqi journalists and news organizations to run positive news stories about the war doesn’t violate any laws or regulations.

It’s almost impossible to tell whether that conclusion is correct: The scanty, two-page summary released by the Pentagon provides no details about the activities of the contractor, the Lincoln Group, the contract under which it was operating or the applicable rules.

We won’t dwell too long, though, on the irony that an assessment of the military’s secret propaganda operations is itself — except for the largely exculpatory conclusion — secret. The more important point is that, assuming the inspector general’s legal assessment is right, it only makes the problem worse. The US government has a legitimate interest in conveying its point of view. The problem is when it does so in secret.

The government shouldn’t be in the business of covertly peddling propaganda — especially in a war based on the notion of seeking to export democratic values such as, say, a free press.

But don’t just take it from us. Take it from, among others, the chairman of the Joint Chiefs of Staff, Gen. Peter Pace, who criticised the programme in comments to the Los Angeles Times in March. “I think there are ways to get your message out, but get it out in a form that people understand how the message got there,” Gen. Pace said. “They need to know that, so they can make their own judgment about what they believe and don’t believe in the article. The worst thing you can have is people feeling like somehow they’ve been snookered.”

Or take it from Defence Secretary Donald M. Rumsfeld, who told PBS’s Charlie Rose in February, “When we heard about it, we said, ‘Gee, that’s not what we ought to be doing.”

—The Washington Post