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Banking as an Institution is Totally Unfair: Prof. Muhammad Yunus 9 Jan 2014

In an exclusive interview with the ECSSR Website, Professor Muhammad Yunus (Awarded the Nobel Peace Prize in 2006 for his “efforts through microcredit to create economic and social development from below”) made highly informative and insightful comments on the problems facing the global economic system and his remarkable success in developing the system of microfinance. The interview with the internationally acclaimed economist and social activist (Chairman at Yunus Centre and the Founder of Grameen Bank) was conducted on the sidelines of his lecture at the ECSSR titled: "Social Business: A way to solve society's most pressing problems." Following is the text of the interview:

Q. Many theories have been proposed to explain the causes of current global financial turmoil, which began in 2008. In your view, are these distortions the result of highly complex financial instruments, a shift in global economy to the East or the fact that global economy is pegged to the vagaries of one country’s currency?

Ans: The first thing I would like to say here is that I do not see the financial crisis as a standalone problem. This is just one of the many major global problems. In 2008, this crisis became more visible and grabbed the global headlines because it hit the financial sector — i.e. the moneyed people got hit by it and that is why it became so important. Do you also remember that in 2008 there was an energy crisis? People forgot! That is the year when oil prices hit the ceiling at around $150 per barrel. But the energy crisis has not disappeared; it is just that we don’t talk about it. It is still simmering in the back burner. This was also the year of the food crisis. Two governments fell during that year. Many countries had street demonstrations because of food shortages. India stopped exporting wheat. Thailand stopped exporting its rice and countries like the Philippines faced difficulty in importing food. Thus, food crisis has not disappeared; it is simply not on the front burner now. Poverty is still here, environmental deterioration is continuing. So I see this as a bundle of crises, some of which came together in 2008 and raised their heads and have not been resolved yet.

Secondly — as far as the financial crisis is concerned — it was simply a naked problem of greed. The financial crisis was not created by people around the world, it was not created by several countries, it was not even created by one country or city but by a few people on Wall Street. These few people made millions of people around the world suffer. Many people lost their jobs, their livelihood, factories closed down, etc. This happen because a few people wanted to make money. It was said that they converted the market place into a gambling casino. So it was no longer economics. All these other crises also got tied up.

This is the fundamental flaw in the concept of capitalism. The concept of capitalism has been interpreted as a theory of maximizing profit. So the world has become a place where everyone is seeking to maximize profit. This is the reason why we face all the problems ranging from financial crisis, the food crisis, the energy crisis, the environmental crisis and others. 2008 gave us a wakeup call, but we have not woken up. We have not reformed anything but have only found short-term solutions.

Q: But many people in the business world say that the problem was caused by sub-prime mortgage lending. Perhaps, you are the best person to answer this accusation because your banks and businesses lend money to the poor. Still how does one counter the accusation that giving loans to poor people, who were unable to pay back, caused the crisis?

Ans: That is one way of looking at it. The way I look at it is that it was not the people but the salesmen who caused the problem. They told the poor or middle-income people that they could make a lot of money by buying a house. The salesman asked them to just sign and get a house and after a few years they will make a lot of money. So it was not the people but the salesman working for a company that caused the problem. This spurred speculation, people started buying many houses with little or no money and then the market fell. So greed took over. Many people who make billions of dollars these days do not have to work for it. They put their money in the stock market and make a lot more overnight. Thus, work has got disconnected from making money. In fact, the money now works for such people. This is the problem.

Q: Some people say that your banks also follow the same fractional reserve system which is viewed by many as the cause of economic ills, although your institutions have a humanitarian goal. In this context, what is the basic ideology of your banks and how do they function?

Ans: You see I believe that poverty is not created by the poor people. Poverty is created by the system. The poor person is the victim. So if you are trying to eradicate poverty, you don’t just give some assurance or charity to the poor person, because the system will push the person back into poverty, as that is the cause of the problem. So if we want to remove poverty we have to fix the system, fix the policies, fix the conceptual framework. Now, coming to your point, we tried to fix the problem and said that in this structure of capitalism you created institutions which are not fair. Banking is an institution which is totally unfair.

Q: Are you admitting this as a banker! Are you saying that the banking system is fundamentally unfair?

Ans: Absolutely! Yes it is unfair. First of all the bank was created to lend money to people. You take deposit and you lend money. But you have created a bank that lends money to people who already have a lot of money. Shouldn’t you be lending money to those who do not have money? That is the logical thing to do. But you have done the opposite and took it further. Your first priority was to lend money to the people who have the largest amount of money. How wrong can you get! And then you create a worldwide banking institution and take a lot of pride in it and call it the core of the capitalist system. This is a wrongly designed system because you do not lend money to two-thirds of the global population, not a few but two-thirds of the global population. This population has been left out. So how can you run a global system which denies its services to such a large section of the global population? You say that this cannot be done because such borrowers cannot pay back, they are not creditworthy. We get all such charming explanations. But we have challenged that (at Grameen Bank). We demonstrated that poor people can take money and pay it back. So if you look at Grameen Bank, it is not just a bank that lends money to poor people. It reverses the conventional system of banking. It is a completely different system and it works.

The word credit means trust. However, banks built a whole system based on distrust. In fact, there is no room for trust in banking. You cannot do a single thing without the lawyers coming in. We (at Grameen Bank) changed this. We built an institution on trust. There are no lawyers in our bank. This is what turned the whole system upside down. Then, it was said that it may work in Bangladesh, but not in India or Pakistan. Now it is working in every part of the world, even in the richest country, the United States.

Q: Do you have your microcredit banking units in the Middle East?

Ans: There are microcredit programs in Saudi Arabia, in Lebanon, in Jordan, in Bahrain etc. I am satisfied with the progress. We are in this work for the last 37 years and everyone talks about it everywhere. However, it is not part of mainstream banking. It is still a footnote. Why should it be? This is banking for two-thirds of the population. So you have seen demonstrated success, but you do not take it up for serious business.

Q: How do you see Islamic finance and its role in social business?

Ans: Islamic finance follows the same banking system. They simply interpret things in a different way. They put new words into it but the system remains the same. However, we ourselves provide Islamic finance in many countries.

Q: If we have to categorize your economic viewpoint, where do we place you? Are you a socialist, a libertarian, do you belong to the right or the left?

Ans: I don’t know. I just look around and do what I think is the right thing. I do not know whether I am a capitalist myself or whether I am destroying capitalism. I say the capitalist system is wrong, but it is still a great idea. We can fix it and I am trying to fix it.

In my view, the world of business is not about maximizing profit. Profit-making is selfish. But all human beings have two sides to them, or at least two sides. We do have any single dimensional human being. Human beings are selfish, but at the same time they are also selfless. The capitalist system, however, never looks at the selfless part. So if you are selfless you have to go outside the economic system and become a philanthropist, etc. I say I want to be a selfless person within the economic system. And this is where the concept of social business comes in.




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