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'Make micro-finance part of mainstream banking'

Nobel laureate Muhammad Yunus advises India to pass legislation to make micro-finance part of banking system, reports Gaurav Choudhury.

india Updated: Jan 30, 2007 22:35 IST

Nobel Peace laureate and micro-finance pioneer Muhammad Yunus on Tuesday advised India to pass legislation that would make micro-finance part of the “mainstream” banking system.

On a brief visit to Delhi, Yunus attended an interactive seesion organised by the Federation of Indian Chambers of Commerce and Industry (Ficci), where he harped on the need for "a legal framework and a regulatory body to mobilise deposits." "Conventional banks mobilise money in rural areas but hardly lend it out - the money is channelised to headquarters," he declared. " In the micro-finance model, such as the Grameen Bank of Bangladesh, funds mobilised in villages are lent out to people there."

Yunus also said that the if farmers were committing suicides because they were unable to repay bank loans, “then the (loan) programmes are badly designed.”

“Suicides happen because of faults in our institutions. In our case ( Grameen Bank), we make it clear that we are here not to protect the money, but to protect the borrower”, he said.

At present, over 100 million people have benefited from micro-finance across the world. Half the beneficiaries live in just two countries - India (34 million) and Bangladesh (16 million).

“There are 16 million beneficiaries of micro-finance in Bangladesh, which is one tenth the size of India in terms of population. So, India should have at least 160 million beneficiaries," he said.

Yunus, also sought to temper down excitement from the dizzying heights in stock markets and obsession with profit maximisation.

"Corporate houses should take up social business initiatives that aim at serving the poor through a non-loss, non-dividend business," he said.

“Social business” is conceptually different from “philanthropy”. “In philanthropy one gives away money. In social business, the company invests not for making money, but for social good. There would not be any profits, but there would any losses either,” he said.

He cited the example of the joint venture (JV) between Grameen Bank and French food major Danone, where the JV is producing yoghurt for malnourished children of Bangladesh.

“For the Danone group, it is a form a social business, where they are not making any profits but doing a lot of social good,” said Yunus.

He also mooted a "social stock market" to list companies that are engaged in businesses in the social sector.

Such a market would allow people to pick and invest in firms involved in the social development field. Since these businesses would be working on a non-loss, non-dividend basis, investors should not expect any monetary dividend, he said.

A similar concept failed in Brazil because investors misunderstood it and took it for a fund raising activity, he said, adding that social businesses should be treated like any other business activity but without profit or loss involved.

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First Published: Jan 30, 2007 22:35 IST