Practical analysis for investment professionals
22 November 2016

Muhammad Yunus: Charity with a Business Engine

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“Poverty is not created by poor people, it is the system which created the poverty. . . Unless you change the system, you won’t remove the poverty.”

Professor Muhammad Yunus, Nobel laureate, social entrepreneur, banker, economist, and founder of Grameen Bank is a big believer in empowering the individual as a means of alleviating poverty. “All human beings are born entrepreneurs,” he said in this interview with PBS.  “Some get a chance to unleash that capacity. Some never got the chance, never knew that he or she has that capacity.”

Yunus acts to provide that chance.

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“I specialize in tiny, tiny, little investments,” he described in his introductory remarks at the 2016 CFA Institute European Investment Conference. Noting that his original intentions had nothing to do with banking or credit, Yunus explained that surrounding circumstances pushed him into something he “never thought I would do.”

Yunus explained that during his tenure as a professor of economics at Chittagong University in Bangladesh, he saw that “economics had no meaning to the people dying around me.” Wanting to find “some measure of usefulness,” he ventured into the surrounding village to help those people living in extreme poverty that he saw every day from his office window.

Discovering wide-spread and destructive predatory lending practices in the community, Yunus determined to lend the poor money out of his own pocket “at a just rate.” The idea proved so popular that it eventually led to the founding of Grameen Bank, meaning Village Bank, in 1976. From this humble beginning, the idea of micro-credit was born. Yunus reported that currently, almost every country in the world has a microcredit program.

He is quick to distinguish the work he does from that of a charity. He emphasized that he has “never gone through the charity door.” While acknowleding that charity is a wonderful idea, he believes it has distinct limitations. “Charity money goes out, does that wonderful thing, but the money doesn’t come back. It is only a one time use of your money,” he explained. Instead, Yunus took the objective of charity, put a business engine behind it, and called it “social business.”

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With a social business, “the money goes out, does the work, and it comes back.” It is a no-dividend company, created to solve a human problem. Yunus is adamant that the concept works — that it is a better design for human nature. As he said in this Harvard Business Review interview:

“I believe that if you put all the creative power of human beings on one side and all the problems of the world on the other, and put them into a battle, human creative power will always win. It’s just that we don’t use our creative power to address problems; we use it to make money. We have created a system of money-chasing entities, rather than problem-solving entities. So how do we break from this? Social business. Create companies that are devoted to solving a tiny slice of our problems and that operate with the efficiency of business — but whose investors don’t expect any dividend.”

Given that Americans alone donated $373.25 billion to charity in 2015, a 4.1% increase from 2014, the amount of work that social businesses could do with only a fraction of that total is staggering. Businesses which could potentially alleviate the very conditions donated to help.

Yunus observed that a major flaw with the current financial system is that there are few opportunities for the poor to obtain capital that they can apply productively. “Money begets money,” he stated. “If you don’t have that, you wait around to be hired by somebody at the mercy of others. If you have that money in your hand, you desperately try to make the best use of it and move ahead.” Given an opportunity, Yunus declared that anyone can become an entrepreneur. “The basic instinct of entrepreneurship is in all.”

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Microlending is a way to get more capital into the hands of potential entrepreneurs. “Microcredit has shown how you can reach out to people who conventional banking will not,” he said, adding that the creation of new entrepreneurs is a beginning to address wealth inequality. “If each individual can become an entrepreneur, even a tiny, little entrepreneur, wealth concentration will look very different. . . . If we each make our own money, we become points of wealth attraction, and we create a social business.”

Although news outlets have reported that microcredit initiatives have encountered some implementation difficulties, Yunus remains optimistic. “If others have tried to imitate it in a flawed way, it doesn’t mean the whole idea of noncollateralized lending to the poorest people is flawed,” he said. “The challenge is to get it right.”

“Everything starts with solving a very tiny slice of a problem,” Yunus concluded. With microcredit, he was trying to help a few people in one village so that they didn’t have to go to loan sharks and lose everything in the process. That is how social business begins. “There is no reason anyone should be poor; we just need to fix the system so that all are truly reflected in our economy.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: Courtesy of Martine Berendsen Photography

Key Takeaways

  1. Muhammad Yunus founded Grameen Bank, meaning Village Bank, in 1976. Its foundational principle was the concept of micro-credit, or lending money to the poor “at a just rate.”
  2. Yunus feels that “social businesses,” or firms organized as non-dividend companies created to solve human problems, are the best way to harness human creativity for positive results.
  3. According to Yunus, the creation of new entrepreneurs and social businesses can address wealth inequality. “Everything starts with solving a very tiny slice of a problem.”


Redesigning Economics to Redesign the World
Muhammad Yunus

View the full transcript (PDF).

About the Author(s)
Susan Hoover, JD

Susan Hoover was the editor of Connexions, the CFA Society Leader newsletter, and the digital editor of Enterprising Investor at CFA Institute. Prior to CFA Institute, Hoover worked for McCallum & Kudravetz, PC, and the US Department of the Navy in real estate and labor law. Hoover earned the CFA Institute Investment Foundations™ Certificate and holds a BA degree from Lehigh University and a JD degree from the Washington College of Law, American University.

3 thoughts on “Muhammad Yunus: Charity with a Business Engine”

  1. Rod Morley says:

    Dear Susan,

    An excellent webcast by Muhammad from the EIC on the merits of microfinance with scruples. Perhaps CFA Institute could raise a fund from its members to be run by Muhammad?

    Kind regards
    Rod Morley

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