May we banish Poverty from our Mother Earth !!

“You can’t solve the world hunger in a day”- this is a saying that’s mostly used with a tinge of derision to shoot down anyone who attempts for a meaningful resolution for one of the most vexatious problems in this world. While the saying itself is true, it’s also true that for achieving true progress for the human race, the problem of hunger and the larger issue of Poverty which drives it has to be resolved, if not in a day, some day .

It is truly abominable to even think that someone in this world of plenty has to go to bed without having his share of a square meal – I truly wonder what other pressing problem can be so great for our society and its leaders, that it should ever distract us from resolving the most basic of all problems . And to me Poverty is the root cause of all the social evils in this world.

A common approach that everyone takes is to provide “Free” anything to the poor – free lunch, free money, free shelter etc. But is this any effective? Economic theories suggest that anything without a cost has no value. Donations such as these are a very convenient way for the conscionable among the rich to justify to themselves that they have done their bit to solve this problem. However from the poor person’s point of view, it’s hardly a lasting solution.
For he is given the free gift without ever being told how he can use it to bring himself out of Poverty irrevocably. And often times the free gift never even reaches its intended destination, usually lost along its tracks to some form of corruption.

Anything given out free helps only breeding laziness which further takes away any remaining tenacity in the poor to fight their condition. It makes them addicted to the “free gifts” just like addiction to drugs. No wonder then that despite billions of dollars that are being routinely spent in this world, there is hardly any improvement in the alleviation of Poverty.
But there is hope.

I recently read a book by the Noble Laureate, Dr Mohammad Yunus from Bangladesh. It’s amazing what Dr. Yunus, an economic professor at Chittagong University, has done for poverty alleviation through his “Grameen” project.

he started what is arguably the first Micro credit movement in the world - system of lending small amounts as loans to the poor. The system is as elegant in its simplicity as any other micro economic model that they teach in the leading universities, but at the same time productive in its delivery of the much needed capital to the poor.

He instituionalised this system by starting a bank (called Grameen Bank), which at a profit, Provides credit to Poor. But there is no credit check, no paper work, nothing. All that is required is for the poor to come in a group of 5 and ask for a loan to do any economic activity that will generate income.
Now poor has access to capital which he/she can use to do something useful on their own and keep the profit for themselves (after servicing the loan of course). And the loan doesn’t come cheap– Grameen charges a whopping 20% per annum (but still milder than the usurious 10% per week that some of the money lenders charge these poor people in Bangladesh). And No loan is ever waived off – even if there is a calamitous flood, fire, earthquake, disease – anything. The bank will agree to extend the term, but never waive of a loan.

When you are reading this, you would be wondering how this system has any chance of working. We are all naturally trained to think that poor people are poor not just with what they have but also with what they can do!!! This Grameen system is a simple system which trusts the poor man’s (and woman’s) capacity to work hard, with any skill that they are endowed with. Poor, often, only have their honor and self respect as their only assets which they will never want to give up. They will rather work doubly hard to pay back their loans than default on it and lose their honor in the society. Grameen smartly uses this peer pressure as the Psychological security for loans rather than the usual material collateral and loads and loads of Terms and conditions that the traditional banks use, often with appalling results, to protect their loans.

And this trust hasn’t gone waste – Over 30 years of their existence, Grameen has a remarkable loan repayment rate of more than 98% with more than 2.5 million borrowers and more than 2 bn USD in loans. It is a fully self sufficient and a profitable organization – More profitable than any other commercial bank which conducts its business with the most sophisticated risk management through collaterals and credit checks..

Grameen is more notable in another sense. More than 97% of its borrowers are Women. This is another layer of security for its principal. Traditionally, poor women are more conscientious than men (even though this can be claimed to vary in different cultures, this has been proven to be true in several Grameen replications all over the world). This experiment, thus is more than economic upliftment, it’s also social upliftment for the sections which have historically been the most abused and most vulnerable among poor – poor women.

There are several lessons to be learnt from this – While a capitalist system based on free market may be the most efficient way to allocate resources, it often fails to allocate the resources equitably. And often there is a tradeoff between the efficiency and equity in resource allocation. Society often delegates the responsibility to achieve equity to the governments. But as governments can hardly survive without the support of the richer sections of the society, they are often disincentivised to implement a truly equitable allocation of resources, which would mean taking away resources from their supporters – the rich.

In Dr Yunus’s words, the solution to this is to make sure that the corporation’s objective in a society is not just to maximize the profit for their owners (as the capitalist system stipulates) –but also to maximize the “social returns” for the society.

Note that it’s not practical for corporations in a society to sacrifice profits just to improve the social return. Profits are vital for the very survival of corporations. Without an expectation on profit, nobody would invest anything and there would be no development and the free market would just collapse. This is where the traditional notion of communist systems got it terribly wrong. They tried to forsake the need for individual successes (or Profits) in trying to achieve the success of the whole society. And in the process producing some truly autocratic regimes.
What we want is not a trade off of one against the other. We want to be able to achieve both in an inclusive manner!!

And the need for this tradeoff as a lame excuse to put a shackle on efforts to uplift the poor and as Dr Yunus has shown through the Grameen experiment, there need not be a tradeoff between these two objectives. Both of them can be achieved together.

If this is somehow achieved, then the corporations will have a vested interest to not exploit the poor – they will have a vested interest – for their own benefit – to invest in innovation which will improve the social returns for the society as a whole and not just to improve their own profits.
I know this is easier said than done – but with more experiments like what Dr Yunus has done in Bangladesh and dozens of other countries, this is not impossible.

Cheers
Deepak
Ps: I would like to gratefully acknowledge that some of the ideas presented here are inspirations from Dr Yunus’s book “The Banker to the Poor”.
Visit Grameen Bank at http://www.grameen-info.org/