The Bankwatch

Tracking the consumer evolution of financial services

Book review: “Banker to the Poor” – Yunus

This book is remarkable on two levels. Its remarkable because of the personal association with the history of Bangladesh and Pakistan which is quite fascinating, and leads into the abject poverty experienced in Bangladesh and Pakistan as a result, and how Yunus observations and astuteness led him to develop a billion dollar bank, with a genuine sense of social purpose, going where no other bank has gone.

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There are some real learning’s here that can be applied in the social lending arena. Grameen Bank has made $ 3.4 billion dollars in loans to 2.4 million people. Yes … that’s an average loan size of $1,400. This is an extraordinary figure, that normal banks would sneer at, as being unprofitable, and impossible to process at a profit. Well you would not be far off. But Grameen has always at least broken even, and in 2005 reached ROE of 13%. Not to bad, and a Nobel Peace prize along the way for good measure.

Back to the book, and some of Grameen’s concepts and the fascination is how these concepts are designed to eliminate costly bank processes. This is the epitome of customer centric, and customer advocacy.

Here are some of the concepts:

  • clear vision of higher purpose – laser like focus on the obective and ensure alignment with the higher purpose
  • people want to succeed;
  • credit is a fundamental human right
  • there is an economic equation with microlending that flies below the radar of traditional economic theory
  • collateral is required as a motivation to repay loans
  • survival (as in staying alive, and supporting family) is a strong motivation to repay
  • self managed ‘groups’ of like minded people provide a viral motivation to pay; peer pressure is a powerful force, not wanting to let the group down
  • ‘Like’ groups work together in larger federations,
  • Federated groups meet regularly with the bank for review purposes
  • payment terms should be aligned with the borrowers motivation. Grameen has daily loan payments where appropriate
  • the bank cares about the customers
  • the mindset, and position of the customers is paramount; the loans and the lending processes are 100% designed around customers – thats not 95%, but 100%
  • modern financial planning techniques, such as putting away money for a rainy day, have well understood metaphors with customers, such as in the Grameen situation, the Bengali customer of mushti chal (putting away a handful of rice a day, to build up a stockpile)
  • the bank and bankers must take a proactive helpful approach to the communities they serve, including social, business and palnning assistance

Its a fascinating study, and impossible not to take something away from it. I have not touched on the applicability to other countries and the new challenges Grameen faces. I recommend buying the book.

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Written by Colin Henderson

November 26, 2006 at 00:08

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