Run small finance banks like a social business: Grameen Bank’s Muhammad Yunus
Mumbai: Nobel Peace Prize winner and founder of Grameen Bank Muhammad Yunus says that small finance bank licences can be a good thing, but focus on lending to the poor should not be lost. Edited excerpts from an interview:
Some of the bigger micro finance institutions (MFIs) in India have converted into small finance banks, or have been acquired. How do you see the MFI sector evolving in India, going forward?
I kept telling the policymakers when we met that there are various solutions to follow from what Grameen Bank has done. One is to become a very limited kind of bank…to create a bank for the poor. I told them why don’t you create a new legislation and create banks for the poor? Today’s banks are all for the rich although it is not said that way. If you have to create a bank for the poor, you need to create a new legislation so that money can be lent without collateral. They agreed to introduce the legislation, but there was no progress.
I said pick the right micro credit (companies) and give them the licence just to take deposits so that they do not have to depend on foreign investors and donors who push them to profiteering. Now the licences have been given. Let’s see how they work. There are dangers. I tell them—look, licence can be good but licence can be bad for you as well…you can get disoriented. You have investors in your bank who can push you. No outsider should be able to take money out. You need to protect that and almost run it like a social business.
Nobody should be able to take out personal profit from the bank. Only then you can focus on the poor. Otherwise even with a limited licence, you try to move up. Bandhan has got a full licence. I told Shekhar (Chandrashekhar Ghosh, founder and CEO of Bandhan Bank)—look now you are in danger…very soon you will be a rich people’s bank. There is a danger that somebody else may start running the bank and you will still have microcredit but it will be a showpiece.
What happens to MFIs that did not get a banking licence?
Microfinance is at the core a financial services business. If banks are (profiting) from poor people, people who are critical …should come up with an alternative. After all, the banks are bringing their services. One way I suggest is to transforming themselves into a social business. You can get into an agreement with investors that none of them will take any profits out of this institution.
In your latest book, A World of Three Zeros, you talk about the concept of business action tank.
This was a concept created by French companies like Danone, Veolia, Sodexo and many others, where each of them created a social business alongside their regular business to address social issues. It was separate from their moneymaking business but was not a corporate social responsibility initiative. CSR is a donation. But these social business ventures will carry the parent company’s name so that even if the business is small it is powerful and real and the whole world can learn from it. In a business action tank, companies will come together to address social issues.
How do you plan to set up business action tank in India?
We have started working with a few Indian companies including some companies of the Tata group. They can create thousands of social businesses. What they do can be scaled up globally.
And this is better than CSR?
This is much better than CSR. Charity is a good thing but unfortunately it goes out and never comes back. There is only one time use of money but in social business it goes out, does the work and comes back. In a social business, you can use the same money again and again. It creates an institution. Charity does not create an institution. My suggestion is put CSR money in social business rather instead of just writing a cheque.