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Unitus Microcredit Loans

Lessons, impressions, and thoughts that I have about the powerful poverty-fighting tool of Microcredit and how Unitus is accelerating the growth of Microfinance around the globe.

Monday, May 16, 2005

Unitus Trip Report - A visit with Mohammed Yunus

Here is my lengthy report on the visit of the Unitus board's visit to Bangladesh that occured in 2001. Much of this information comes from notes I took from a series of meetings held with Dr. Mohammed Yunus and the senior management team of Grameen.

For more information on Unitus, please visit http://www.unitus.com/

January 10, 2001

Dhaka, Bangladesh

We have had an inspiring time the last few days meeting with the Grameen organization and with Dr. Mohammed Yunus, it's founder.

Grameen was formed in 1976 as Dr. Yunus sought to find solutions to the poor in his country. He was one of the pioneers of microcredit, the concept of providing small loans to the poor for income generating activities.

Grameen today has 2.4 million people borrowing loans. They are in 40,212 villages throughout Bangladesh. They have loaned money for the construction of 502,587 homes. Close to 95% of the borrowers are women and they have research that shows that the women that borrow have lower divorce rates and stronger families than those who do not borrow. Over 2 million of the borrower's children are attending school, including high school and now several hundred attending college.

Grameen has loaned out more than $3.2 billion in micro-credit loans. A few years ago, the average loan was $38, today the average loan is $150 and they are projecting that in the future, the average loan will be over several thousand dollars. If someone continued to progress with Grameen and showed solid credit history, they say that they will handle any loan that member

Grameen talks that a basic right of a human is to live with honor and dignity. To be able to sustain one's life and the life of your family is part of that honor and dignity. To be dependant on another takes away that honor. Charity does not create honor or dignity. They believe an
individual must be able to create a sufficient income to achieve sustainability.

Grameen has a view that for most of human history, the norm was self-employment. Only recently has wage base employment become prevalent. Grameen is focusing on how to create an environment that enables the creation of income and they see that where wage based employment is not existent, that self-employment is the only option.

I had thought that Grameen was only a micro-credit organization, but I was way too narrow in my view of Grameen. Dr. Yunus said that if they found a better way to help the poor get out of poverty tomorrow, they would abandon micro-credit and adopt the new methodology. His commitment is to the poor, not to the methodology.

Micro-credit was the vehicle that really grew the membership in Grameen, but as they have had 25 years of experience in working with the poor, they have developed over 30 different companies and organizations that help or serve the poor. But in each case, the new organization created has to show viability - that is, if it is a for-profit company, it must show the ability
to generate a profit and if it a non-profit company, it must show the ability to cover costs - they all have to operate upon a basis of sustainability - thus no dependency on donors or governments.

I will explain about a few of these spin-off companies, but first I will explain a little more about Grameen Bank.

Grameen Bank is owned 93% by the borrowers. Each borrower can buy 1 share of the bank for about $2. Of the 2.4 million borrowers, 2 million own shares in the bank. The other 7% of the bank is owned by the Central Bank of Bangladesh, who provided the capital in the early years of the bank.

Their belief is the current poverty cycle goes like this:

Low income means no savings
No savings means no investment
No investment means lower income.

Grameen believes that it can be like this:

Low income with access to credit
Access to credit means investment
Investment means higher income
Higher income means small savings
Small savings means more access to credit
More access to credit means higher income
Higher income means better nutrition, education, health and lifestyle

A borrower joins the bank as one of 5 from a village. Together they make a contract that they will all pay back the loan. If one does not pay back, the others in the group must pay for them. People use the loans for a variety of purposes, including buying a milk cow, buying feed to fatten a cow that they will take to the market, to stock a fish pond, to buy chickens to harvest their eggs, sell their chicks, or to sell the chickens. Over the years, Grameen has developed numerous loan packages for a variety of purposes. Some are seasonal - with payments tied to the growing season, some are tied to market timing, payable when the cow is sold, etc.

The loans are made to the borrowers at 20% interest rate. This compares to their other option for capital - the money lenders or loan sharks, which loan at 100%+ interest rates. These loans to individuals are made by branches and one branch will have 2000 to 2,500 borrowers.

1 group has 5 borrowers
1 center has 8 groups
1 branch has 60 centers

Grameen Bank loans money to the branches at 12%. The branch has 8% to cover its costs of the field workers who go out to visit the centers. One field worker will work with about 400 borrowers or 10 centers and will visit 2 centers a day so each center is visited each week. When a center meets, all 8 groups (or 40 borrowers) attend. Each branch that will have 5 or 6 field
worker and a branch manager and I believe 1 administrative staff.

Each branch does a daily profit and loss statement, so they know exactly where they stand. Once a month they are given comparatives so they know where they stand compared to the other branches.

10 Branches are overseen by one Area Office.
10 Area Offices are overseen by one Zonal Office.

The Zonal offices are overseen by Headquarters. The branches have to pay for the staff of the Area Offices and the Zonal Offices from their 8% they make on their spread. Both Area and Zonal offices only comprise of 2 or 3 people at the most.

Grameen loans the money at 12% but they are borrowing from the market at 9 or 10%. They use the 2% to cover the Headquarter's expense. Grameen has 12,500 employees with 10,000 of them being field workers. Not one of the field workers have cars so they have to walk to the two centers every day, on average 8 - 10 kilometers apart, so they estimate that they walk 57,000
kilometers per day cumulatively!

So, what is their impact? Most Micro-credit organizations can only give their payback rate (97%) of their loans, but Grameen has created 10 indicators of success that they have created to determine if someone has crossed the poverty line.

These indicators include such things as if all school age children are in school, if they have access to clean water, if they have a house with a tin roof, if they have and use a latrine, etc.

Several years ago, a researcher named David Gibbons studied one branch for 18 months. Among these 2,500 borrowers he found that 50% of them had achieved the 10 indicators - had crossed the poverty line. 20% of them were very close to crossing - had achieved many of the indicators but not all, and that 18% had actually worsened.

He indicated that the 18% that had worsened did so for primarily 3 reasons:

1. Health. Most had someone in their family who had a severe health
condition that consumed any resources they had.
2. Marriage Dowry - Another cause was a daughter getting married and
according to custom here (which Grameen is fighting against) the family has
to give huge dower or a daughter can't be married.
3. Natural Disaster - Some natural disaster wiped them out.

As a result of this study, Grameen decided to look at making heath care plans available to its members to lessen the impact of health issues on their financial status. As a result of looking at this, Grameen created Grameen Well-fare, a non-profit institution focused on health and

Grameen received 140 million dollars in low interest loans and grants from US Foundations and other International Development entities. Grameen Bank put that money into the Grameen Well-Fare and then borrowed the money back and is paying Well-Fare the interest. It is from the interest that health care and scholarships are offered to Grameen members.

One of the most surprising things was the incredible entrepreneurial energy of this organization. As needs arose among their borrowers, new programs developed to serve them. Those programs that were successful and were viable were developed and spun out into new companies.

The first company spun out was Grameen Housing. Grameen found that having a house increased family stability and protected the income generation activities during the multiple natural disasters that sweep through Bangladesh. When they started, they would build the houses for the family for a loan of $500. Later, as more and more families got houses, Grameen
optimized the plans and now families can get a loan for $150 to buy the materials and build a home with their plans. Today over 500,000 families have built homes.

Grameen's criteria for a new company to exist is that it has to be a viable company. It is a stand-alone company and none have received money from Grameen Bank. Grameen has created a Grameen Fund, that is essentially a venture capital organization and they invest in these new ventures, but will often bring in partners to joint venture with them. Mohammed Yunus is the Chairman of the Board of all of these companies. To date there are over 30
companies that have spun out of Grameen, all with the Grameen name.

The most successful Grameen spin off has been Grameen Leasing. They found that there were a number of requests for larger loans that really made more sense to be a lease rather than a loan. To receive a lease, you had to be a borrower for over 10 years and have solid credit history. Some of the leases were for things like trucks that they would lease and the income they
could generate would be greater than the monthly payments they would make.

Leases have become a very popular way for borrowers to move up the income generation ladder. Borrowers are getting leases on large irrigation pumps, on fishing trawlers, on hand looms, etc. The creativity and entrepreneurship of the borrowers is astounding. Some borrowers have taken the irrigation pumps during the rainy season (when they are not needed) and convert them into a vehicle engine and rent out their motorized wagons for hire. Another leased a mobile generator. Each village in the area had a market at night, selling goods. The villagers used kerosene lamps or candles to create light to sell their wares. This man took his mobile generator to each village each day and would run a light bulb to each vendor's booth that was willing to pay a little for the light and created a profitable business.

One of the most interesting spin-offs has been Grameen Phone. Grameen Phone partnered with a Norwegian and Japanese company and obtained a cellular phone license from the Government. To get a landline, it takes two years and is very costly. So Grameen Phone is selling cell phones throughout the country and growing very rapidly. They anticipate that it will soon go public. Before they go public, Grameen Phone will sell all its portion of shares to the borrowers to Grameen Bank at pre-valued shares and then allow them to hold and own the appreciated shares over their life.

One of the most innovative concepts in Grameen Phone has been the "Telephone Lady".

Grameen Bank provides a loan to one borrower in a village. This lady uses the loan to pay for a cell phone and she then resells minutes to people in the village. Her cost is 4 cents a minute and she sells it at 8 cents a minute. Villagers are calling their families in other villages, their relatives in the cities or their relatives that are working overseas. It is a tremendously successful program.

It is Dr. Yunus' vision that after they get a cell phone into every village, that they get a computer into every village. He sees low cost computer training and educational opportunities, additional income-generating opportunities, and enhanced community ties, as well as future potential not yet imagined. There is a tremendous railway network and several years ago,
fiber optic cable was run throughout the country along the railway to improve signaling and reduce train collisions. A large majority of those villages lie close to the railways and that bandwidth could easily be tapped.

Another spin-off company has been the Grameen Business Promotion Company. One of the most popular loans has been for chicken production. Before, borrowers would use the loan to buy chicks and let them run wild and feed them each day in the front yard and take them to market when they were mature. Grameen noticed how many borrowers were doing this and decided to see if they could help increase the income generation of these borrowers. They developed a plan of caged chickens with regulated feed schedules and precise timing and their market value of their chickens dramatically increased, increasing the income of the borrowers. Next they saw that they could provide valuable market information and help get their chickens to a market where they could maximize their value.

Another spin-off company is Grameen Shakti (Energy) which is focusing on low-cost alternative energy sources, such as solar, wind, bio-gas and others. In Bangladesh, only 16% have electricity. Their most popular product is a solar unit - a 75-watt unit costs about $500 and can power 4 light bulbs and a black and white TV each night. They are selling these to both borrowers and non-borrowers and are selling about 200 units a month. The unit has both a solar panel and a battery. Some are using it so they can work later in their shop or can study at night. Some are renting out part of their power to their neighbors - being the neighborhood power plant.

Grameen has stressed accountability and self-sufficiency to the borrowers, but has also practiced it as an organization. A few years ago, there was a tremendous need among the villagers because of a deficiency of Vitamin A. UNICEF came in and offered Grameen Bank several million dollars of free Vitamin A to distribute to the borrowers. Grameen turned them down. They were worried that if they took the Vitamin A and gave it to the borrowers,
that the borrowers would get use to getting their source of Vitamin A as a hand out and in a few years as new staff or new programs were put in place with UNICEF, that the source of Vitamin A might end. So, Grameen created a program that every borrower should have a garden year round and made it part of their culture and program. They also bought garden seeds in bulk, made their own seed packets and sold them to the borrowers for 1 penny, covering Grameen's cost. Within a year, the issues of Vitamin A deficiency has virtually disappeared - the borrowers were self-sufficient in taking care of their needs and Grameen had provided goods and services to them in a viable manner.

This practice of having a garden became part of what is known as the 16 Decisions. These are decisions or statements that are recited at each weekly meeting of the borrowers. They are intended to change society and cultural norms that are damaging to a family's well-being or are habits and practices that they want to encourage.

The sixteen decisions include things like I will build and use a latrine, I will get water from well water, I will make sure my children (boys and girls) can be educated, I will not give dowry nor accept dowry in marriage of my children, I will not have more children than I can support, I will
have a garden and eat all the vegetables I can from it and sell the surplus, etc.

Grameen has received tremendous interest from people around the world and lots of requests to replicate their model. For this, they have set up Grameen Trust. Grameen Trust is the replicator incubator for the rest of the world. If someone wants to start up a micro credit organization, they can come to Grameen Trust and go through a 13-day program that they call
Grameen Dialogue. They do this 3-5 times a year and they take 20-25 applicants each time. These applicants come and spend a few days at a village and get a great understanding of how Grameen works at the village level. They then go back to Dhaka and prepare a proposal. That proposal is then presented to the groups of peers who critique and challenge the proposal. After that, Grameen Trust evaluates the revised proposals and select 30-40% of the participants as proposals they will fund.

They then will grant $15,000 to $60,000 to get the proposal for Micro credit started. They have currently funded 106 replication projects in 36 countries. Grameen Trust also provides training in the mechanics of micro credit such as how to be a field worker or branch manager or area office manager.

Another company, Grameen Communications, has taken all the forms for daily reports, loan documentation, etc. and has computerized them and these software packages are available for other Non-profits to buy.

My thoughts about Dr. Mohammed Yunus.

I felt like I was sitting in the presence of a Gandhi or a Martin Luther King - a visionary that was changing the world. Not only the millions in Bangladesh, but the millions that were impacted by the Grameen replication projects that are in 36 different countries, by his influence on world
leaders and organizations. He has received Queen Sofia of Spain (she used one of the phones from the "Telephone Lady" to call King Carlos back in Spain). Bill and Hillary Clinton, as well as Prince Charles have been here to visit. While we were visiting, a Japanese TV crew was filming part of our discussions for a documentary. CNN will be coming to film a segment in a few weeks. He is counseling Vicente Fox, the new President of Mexico. He is a regular speaker at the World Bank and the UN. He received India's highest award by their Government, the Gandhi award. Warner Woodworth facilitated his reception of an honorary doctorate from BYU in 1998 and he
was the commencement speaker then and was introduced to the First Presidency of The Church of Jesus Christ of Latter-Day Saints.

He is extremely charismatic, engaging and spoke with a great deal of clarity and was a tremendous teacher. He was willing to listen intently to questions asked of him and responded in such a clear and understandable way, that I would say to myself, "Of course, it is obvious that it should be done this way," but knowing that it took tremendous intelligence and a great deal
of thought about all the possible consequences of some action to come to that "obvious" choice. He was also very engaging, using humor often, frankly talking about his mistakes and obstacles and treating all of us with great respect.

Here was an Professor of Economics that had turned into the head of a $3.2 billion bank, that ran an organization of 12,500 employees, was the chairman of the board of 30 different companies and organizations, spending 2-3 hours with us each day and never having us feel that we were a burden or wasting his time. I think much of it was that he was appreciative to Warner Woodworth for all of Warner's support over the years and was being respectful to Warner. I also feel that he was intrigued by this group of businessmen that was involved with humanitarian work. I think we were different from other groups that he receives - governmental groups, other NGOs, - a lot of people from the humanitarian world, but that would have little appreciation for the business discipline he has infused in every aspect of the organization.

His is a tremendous businessman. He understands his customers better than any organization I have ever seen. Each branch manager writes a report on each group each month. These reports all get sent to the main office. There, each board member has to read so many branch reports each month. Many of their new ideas come from their. They say they know where crime is
increasing, where crops are good, where health is a problem. They have a better handle on the state of the citizens of Bangladesh than the government could ever have.

He keeps controls better than any business I have ever seen. Every branch has a daily report that they fill out and it generates a daily profit and loss sheet and every field worker knows if he is viable or not - meaning, is he bringing in more revenue to the branch that what he is costing them.

This rigid accountability goes all the way up to the top throughout the entire organization. Besides a daily P&L, each branch manager is given monthly comparatives of the other branches, so he always knows where he stands.

He is a tremendous entrepreneur. He has feedback channels built into his organization so good ideas can flourish. He allows for a safe atmosphere of experimenting. He said, don't tell me about your idea - go try it, don't tell anyone what you are doing and if it works, then tell us about it. I
would easy nominate him for Entrepreneur of the Year.

He is tremendously pragmatic. If something doesn't work, he leaves it and try's something different. He will abandon methodology and theory for something that works.

He is a tremendous leader. You can tell his driving passion is to help the poor and their families. The values that he states are reflected throughout the organization. Honor, dignity, self-reliance, hard work, unity, and love are all preached and practiced. He had spent time in the trenches along with all the other senior staff we met.

I could easily see Mohammed Yunus being the recipient of the Nobel Peace Prize someday. It was an experience I will greatly cherish.

Tim Stay
Unitus Board Member