Voluntary Organization by Dr. Muhammad Yunus - Essay Example

Running Head: Voluntary Organization Voluntary Organization [Institute’s Voluntary Organization Although, he was not born to anaffluent family and was third amongst the nine children of his parents, he had a promising educational career, which almost guaranteed a respectable living in the future. He took a job at Chittagong College and established a profitable packaging business. After getting a Full Bright scholarship, he decided to pursue his doctoral studies and even joined the Middle Tennessee State University as assistant professor from 1969-1972 (Dowla & Barua, 2006, p. 97). He always remained interested in microcredit and microfinance and kept a close eye on the situation of poverty within his home country, Bangladesh, especially after the famine of 1974. He knew that the banking system is supposed to promote economic growth through allowing various members of the society to utilize those funds at projects that create value for them and in the process of doing so; they generate economic value for the society through increased demand and employment (Grameen Bank. 2011c). However, the serious flaw within this cycle was that banks were specific and risk averse in their lending. It appears that the only way to acquire a loan from the bank was to provide evidence to the bank that you do not need the loan. In theory, the banks are supposed to lend to the lower middle class, and the poor within the society to provide them with opportunities for growth and value creation. However, in practice, it was impossible for the poor to acquire credit from the bank because of the absence of guarantee and collateral. It meant that the chances of progress and advancement for the poor within the society were diminishing, and the income gap was increasing. He was unsatisfied with the conventional banking system and finally, he came up with the idea that would challenge the wisdom of many experts in banking and finance (Grameen Bank, 2011b). Dr. Muhammad Yunus was clearly inspired with the humanistic perspective in psychology as they strongly propagates that every human, regardless of their social class and especially the poorest ones have a drive to achieve their maximum potential and contribute to their development of their families and the overall society. However, Yunus believes that charity or government dependence in the form of constant redistribution of wealth from rich to poor or welfare state is not the answer to the problems of the poor (Dowla & Barua, 2006, p. 97). Even the poorest in the society have substantial creative potential, and only if those people are provided the resources to channel their potential, they excel as productive and valuable members of the society (Yunus, 2008, p. 95). The fact is that credit has the ability to build any modern society. Only when the Dutch, United States, Japan, Germany, France, and United Kingdom were able to create a sound financial system with a strong banking industry. They were able to build strong and prosperous economies. On the other hand, the lack of credit can destroy any economy (Khandker, et al., 1995, p. 20). The prime reason why the Great Depression became the Great Depression and the recent economic meltdown become so severe is because of the fact that banks stopped extending the facility of credit to people thus hampering, spending, consumption, investment, growth and so on (Daley-Harris, 2002, p. 74). In light of these ideas and the successful run of the research project, Grameen Bank was formed in the year 1983. Interestingly enough, the rural community of Bangladesh owns almost 85 percent of the equity of the Bank, and the rest of the ownership lies in the hand of the Bangladeshi government (Rutherford, 2001, p. 471). Another fascinating fact about Grameen Bank is the fact that over 96 percent of the borrowers of Grameen Bank are women. Important here to understand is the fact that Bangladesh is a low-income third world Asian Muslim country with high levels of illiteracy and backwardness (Todd, 1996, p. 192; Dowla & Barua, 2006, p. 97). Like many other countries with a similar profile, Bangladesh has lagged far behind in women empowerment. For example, when the literacy rate for males stands at 62 percent, the same rate for women is 52 percent (Sachdeva, 2010, p. 57). Furthermore, most of the girls fail to receive proper higher education. Even within their homes, women remain dependent on the male members of the family and the concept of women in the workforce and women entrepreneurship is frowned upon within the society, which has resulted in a sexist mindset (Rutherford, 2001, p. 471). Even worse, failure to educate females, provide them with jobs, and allow them to contribute to the income of their houses has resulted in famines, poverty and lost potential within the country. Grameen Bank’s focus on women entrepreneurship has allowed the country to become more efficient, and families to become self-sufficient (Wilson & Harper, 2010, p. 12). According to statistics from the year 2011, Grameen Bank has provided loans to over 8.35 million people. These loans have disbursed from 2565 different branches of Grameen Bank that have coverage of over 81 thousand villages of Bangladesh. More importantly, this means that the coverage of Grameen Bank extends to over 99 percent of the total rural area of Bangladesh (Grameen Bank 2011a). Unlike other banks, borrowers of Grameen Bank do not have to sign any legal document or provide evidence of any collateral because Grameen Bank does not intend to take the borrower to the court of law in case of law neither does it intend to inflict any physical, financial or emotional pain (Khandker, et al., 1995, p. 20). Traditional banks or the conventional banking system does not appreciate the idea of providing loans to the poor and that with collateral primarily because it exposes the banks to a high level of risk and extremely low probable recovery rates (Todd, 1996, p. 192). Surprisingly enough, Grameen Bank has claimed that its recovery rate is over 97 percent. Despite employing the most comprehensive risk management systems and legal covers, most banks fail to come up with such a high recovery rate on their loans. Grameen Bank uses peer-pressure, trust, and respect to ensure that it could enjoy such high recovery rates. Most of the loans are provided to women, as mentioned earlier, on a group basis within a village or a small town. The bank tries to remain in contact with the borrowers and the fact that other women have also borrowed from the same place forces every member borrower to generate the maximum possible return and ensure repayment of interest and loans (Yunus, 2008, p. 95). Moreover, the relationship of those rural poor and Grameen Bank does not terminate at the point where the borrower repays the principal amount and the interest. Throughout the process, the bank encourages the borrowers to keep funds aside, create small emergency funds, and finally become savers. In fact, 56 percent of the borrowers of Grameen Bank have become depositors in the bank, as well (Grameen Bank 2011a). Moreover, the bank discourages borrowers to use the funds for the purposes of consumption or spending, but it encourages them to develop business models and use funds in such a way that could generate a stream of employment and pull them from poverty (Daley-Harris, 2002, p. 74). Many critics argued that such a model is unsustainable because towards the end of the day, it is a business, and businesses have to make a profit. They cannot survive on external and governmental aid for a very long period. Grameen Bank formally became operational in the year 1983 (Rahman, 2001, p. 37). Since it was created after spectacular success enjoyed by the research action project of Dr. Yunus, it had already attracted enough attention from the governmental authorities and international donor organizations. During its early days, the bank received low interest loans from the government and international agencies and many donor agencies provided generous aid, as well (Grameen Bank. 2011c). However, by the end 1998, Grameen Bank was able to put an end to all kinds of assistance and aid received from external sources and emerged as a sustainable business model. Except for 1983, 1991 and 1992, the company has been able to generate profit in every year of its operations. Like other corporations, in order to finance and fuel further growth, the bank would use bond sales as a means of generating funds (Sachdeva, 2010, p. 57; Grameen Bank, 2011b). Important here to note is that Grameen Bank would be best characterized as a social enterprise and not as a voluntary organization or a nongovernmental organization. As the name suggests, nongovernmental organizations are organizations that are formed outside the control of the government. This would include many private sector organizations within its scope, but the term is used to describe organizations that are formed with a political or social cause. A voluntary organization employs voluntary workers and remains dependent on its volunteers to extend their services for the organization (Wilson & Harper, 2010, p. 12). A voluntary organization can be a nongovernmental organization and vice versa. In most cases, nongovernmental organizations and voluntary organizations are not for profit entities, but social enterprises are highly likely to have a profit motive coupled with the desire to bring about social change. They attempt at addressing the social issues and needs of the people through developing such products and services that not only generate sustainable revenue streams about also make a positive difference within the society (Wahid, 1993, p. 224). Inspired by the success of Grameen Bank, many other banks and financial institutions have attempted at copying or reproducing similar business models, but none of them has been able to achieve notable success. Critics believe that the same is because of the failure of those institutions to replicate the soft elements of the model and the failure of the respective governments and regulatory institutions to provide oversight and support as it happened in the case of Grameen Bank (Rahman, 2001, p. 37). Although, Dr, Yunus was sacked from his position as the head of Grameen Bank as a part of a political move by the government, the bank continues to make a difference in the lives of many poor people of the country and provides them with hope of a better future. References Daley-Harris, S. 2002. Pathways out of poverty: innovations in microfinance for the poorest families. Kumarian Press. Dowla, A., & Barua, D. 2006. The Poor Always Pay Back: The Grameen II Story. Kumarian Press. Grameen Bank. 2011a. Grameen Bank at Glance. Retrieved on October 23, 2012: http://www.grameen-info.org/index.php?option=com_content&task=view&id=26&Itemid=175 Grameen Bank. 2011b. Is Grameen Bank Different. Retrieved on October 23, 2012: http://www.grameen-info.org/index.php?option=com_content&task=view&id=27&Itemid=176 Grameen Bank. 2011c. A Short History of Grameen Bank. Retrieved on October 23, 2012: http://www.grameen-info.org/index.php?option=com_content&task=view&id=19&Itemid=114 Hossain, M. 1988. Credit for Alleviation of Rural Poverty: The Grameen Bank in Bangladesh. International Food Policy Research Institute. Khandker, S. R., Khalily, M. A. B., & Khan, Z. H. 1995. Grameen Bank: Performance and Sustainability. World Bank Publications. Rahman, A. 2001. Women And Microcredit In Rural Bangladesh: An Anthropological Study Of Grameen Bank Lending. Westview Press. Rutherford, S. 2001. The poor and their money. Oxford University Press. Sachdeva, A. 2010. The Grameen Bank. GRIN Verlag. Todd, H. 1996. Cloning Grameen Bank: replicating a poverty reduction model in India, Nepal, and Vietnam. IT Publications. Wahid, A. B. N. 1993. The Grameen Bank: poverty relief in Bangladesh. Westview Press. Wilson, K., & Harper, M. 2010. Financial Promise for the Poor: How Groups Build Microsavings. Kumarian Press. Yunus, M. 2008. Creating a World Without Poverty: Social Business and the Future of Capitalism. PublicAffairs. Read More