How do we fix an economic system that excludes large portions of the total population? Inclusive growth has been a topic conversation among world leaders and high-profile figures lately. During his speech at the World Economic Forum in Davos, Prime Minister Justin Trudeau said that businesses should hire more women and diversify their executive boards in order to harness the benefits of diverse perspectives. Earlier this week, Michelle Obama spoke at Montreal’s Palais de congrès and suggested that young people, especially young women, should focus on attaining higher education while political and business leaders work towards equality of opportunity. On February 3, Nobel laureate and micro-finance pioneer Dr. Muhammad Yunus brought the topic of inclusive growth to the University of Toronto with a lecture hosted by the School of Public Policy and Governance. He suggested social business and the entrepreneurial spirit will repair our broken capitalism.
The University of Toronto’s Innis Town Hall was packed with a captivated audience who listened to Dr. Yunus discuss his vision for how social enterprise can fix the inequitable capitalist financial system. He started by describing three principles that are counter to traditional capitalist economic theory. First, he said that poverty is not created by the poor or their work ethic. It is caused by the faulty financial system that excludes them due to a perception of them being “unworthy.” Second, he argued that while economic textbooks depict human nature as fundamentally self-interested, selflessness guides many actions in the real world. Lastly, Dr. Yunus said that everyone can be an entrepreneur instead of working for someone else. We all have the power to be “job makers” as opposed to accepting our position as “job takers.”
These principles are central to Dr. Yunus’s recent book, A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions. It outlines various success stories of social businesses and how they are tackling issues of inequality, poor opportunity, and climate change.
His own social business, Grameen Bank, developed a model of financial services that does not require complex contracts, collateral to secure loans, or lawyers. Grameen Bank was established as a “bank for poor people” in 1983. The bank serves those who often fall through the cracks of the Bangladeshi financial system, primarily impoverished women in small villages, by providing micro-loans for business start-ups. In 2017, there were 2,600 bank branches serving 9 million borrowers and loaning approximately $2.5 billion annually with a near-perfect repayment rate. The Grameen model has spread across the world and is slowly being adapted to address poverty issues in the developed world.
When a woman says, ‘I don’t know how to handle money, I’ve never had experience handling money,’ always remember this is not her voice, – Muhammad Yunus
Peter Loewen, Director of the School of Public Policy and Governance, moderated discussion after the lecture and asked Dr. Yunus what led him to targeting his microcredit program towards poor women in Bangladesh. Dr. Yunus said it was not a political decision and he was merely responding to the situation he wanted to improve, namely to provide credit to those deemed unworthy by conventional banks. “When a woman says, ‘I don’t know how to handle money, I’ve never had experience handling money,’ always remember this is not her voice,” he said. “This is the voice of the history which made her, and that history is a very painful history. So we have to go back to her again and again to build confidence in her, because history never gave her confidence, only fears.” Through Grameen Bank, Dr. Yunus discovered an avenue for helping marginalized populations build their own human capital through a supportive and low-pressure process.
Dr. Yunus said that each of the impoverished village women that Grameen Bank assisted had an untapped entrepreneurial ability. Rather than provide handouts through charity or grant funding options, Dr. Yunus believed his bank could enhance the villagers’ innovative spirit while offering services such as business management training and financial support during the tenuous start-up phase of a new business. Access to investment allows entrepreneurs to expand their businesses further than they could have on their own. The responsibility of repaying loans encourages them to work hard and follow through on their business plans. Another huge benefit to micro-loans has proved to be their sustainability: a micro-loan dollar can be reused over and over each time it is repaid, whereas charitable donations are finite.
However, while it is easy to admire the vision of Dr. Yunus, it is not clear how truly applicable his model is to the rest of the world. Profit-hungry capitalists have already found methods of using micro-finance services to earn significant profits rather than helping people, going against the original purpose of the social business model. Moreover, Dr. Yunus admitted one of the greatest advantages he enjoyed while establishing Grameen Bank was a lack of existing laws and regulations that could constrain his innovative model, a condition which is unlikely to be found in most developed western nations today.
Dr. Yunus’s vision and the work of the Grameen Bank are inspiring, but we should not assume that micro-finance and social enterprise are panaceas that will work seamlessly across the world. Social business may fix capitalism more than affirmative action or higher education, but it is not a solution without its own weaknesses. Self-interested profit-maximizers still lurk within our financial system, so can entrepreneurs and businesses with a social purpose really save capitalism?
Rebecca Hellam is a Masters of Public Policy candidate at the University of Toronto. She holds a Bachelor of Arts with High Distinction from the University of Toronto, where she specialized in political science with a minor in history. Having grown up in a small and rural eastern Ontario town, Rebecca is particularly interested in the differences between urban and rural service provision. Other areas of interest include the privatization of government services, intergovernmental relations, and risk management.