Charity - A Nobel Prizewinner's Approach

By DAVID MOON, Moon Capital Management
October 29, 2006

Last week Mr. Muhammad Yunnus won the 2006 Nobel Peace prize for his work in alleviating poverty in Bangladesh, Poland, Central America and Sri Lanka. How he did it is the unexpected story.

Yunnus is the founder and managing director of the Grameen Bank of Bangladesh. He has helped multigenerational poor families climb from one economic class into a higher one. He has helped victims of earthquakes and tsunamis. This work has gone on for 30 years and has a track record of proven, permanent success.

Here's the surprise: he never gave a person a nickel. He loans money to people and requires them to pay it back. With interest.

Even more shocking ' and disgusting, to some ' his bank has made millions doing it, last year raking in $15 million in profit.

The original loans totaled $27 (that's right ' less than $30) and were split among about 40 female entrepreneurs ' basket weavers. Today the average loan amount among his bank's 6.6 million borrowers is a little over $100. The bank loans money to the ultra-poor, charging market interest rates but requiring no collateral.

These people repay their loans. The bank reports its loan loss rate as 1.15 percent.

Yunnus explains his philosophy of helping others by helping himself: 'Many people ask, Why not just give free cash, especially under such dire circumstances? We've learned that when aid is free, not only do the poor get the least of it, but everyone inflates their needs.'

In describing the bank's business model, he explains: 'Charity is not an answer to poverty. It only helps poverty to continue. It creates dependence and takes away individuals' initiative.'

Yunnus' philosophy is controversial, yet his results are undeniable.

A recent poll reports that a majority of Americans describe the American Dream as unattainable. The American Dream originally referred to the notion that, unlike feudal Europe from which most of our forefathers immigrated, America was a place where a man was not consigned to the economic class into which he was born.

News reports to the contrary, there is no feudal system in America. If you disagree, I am happy to provide plenty of examples to support my statement, including the life of this author.

But for too many Americans, we've lost the spirit that Muhammad Yunnus both selfishly and selflessly promotes and inspires in Bangladesh. We have become a culture of expecters.

At the recent Aspen Ideas Festival ' a capitalist's nightmare, I suspect ' Dr. Douglas E. Schoen said, 'The rising costs of health care, the unaffordability of a college education and the need to self-finance your retirement leaves most Americans today caught in an affordability crisis.'

It's no coincidence that each of the three items Dr. Schoen lists as being an item of worry among Americans is among the most heavily government-subsidized areas of our economy.

The old saying tells us that if we teach a man to fish, we feed him for a lifetime. But first, the man must want to fish.

Muhammad Yunnus doesn't teach people to fish. He loans them his fishing pole and lets them learn on their own, making their own mistakes, while building their own confidence and economic bases.

Then he asks for the return of his fishing pole, plus a little interest, so he can loan it to someone else.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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